Digital Procurement and Supply Chain Resiliency

Could eProcurement be the tool to elevate the United States' resiliency ranking?

Digital Procurement and Supply Chain Resiliency
Emma Shaffer
4 August 2021
man in blue jacket and blue pants walking on yellow metal frame

Supply Chain resiliency is defined by its capacity for resistance and recovery. Therefore, a strong and resilient supply chain can survive the numerous threats that are thrown at it. In contrast, a weakened supply chain can create chaos. Supply Chain chaos is often started by local and global threats including environmental disasters, wide fluctuations in competition, or rapidly changing market behaviors or trends. Core resilience factors can be measured by assessing a country’s preparedness to forecast, anticipate, adapt, and react to the threats and opportunities presented in the supply chain.

The FM Global Resilience Index is an equally weighted composite measure of three core resilience factors: economic, risk quality and the supply chain itself. Each factor is comprised of four core drivers: control of corruption, quality of infrastructure, corporate governance, and supply chain visibility. Scores are bound on a scale of 0 to 100 with 0 representing the lowest resilience and 100 being the highest resilience. When we analyze the top 10 countries sorted by the individual drivers compared to the total ranking, we can see clear gaps in the United States’ supply chain resiliency. In the FM Global Resilience Index, the United States is separated into three regions. However, this is unimportant for our analysis of supply chain resiliency, as all three regions ranked equally in each driver, resulting in the same overall rank. 

Source: https://www.fmglobal.com/research-and-resources/tools-and-resources/resilienceindex 

In overall rank, the United States falls at #18 with 84.6 points out of 100. In contrast, The top seven ranked countries hold scores above 90. So why is the United States falling behind in its supply chain resiliency? Out of all four core drivers, the only driver that the United States graces the top 10 in is Supply Chain Visibility. What are these countries doing differently in the other three core drivers to outpace the U.S.? 

Control of Corruption 

Global expenditure in procurement is estimated at nearly 9.5 trillion US dollars and, according to the United Nations Office on Drugs and Crime, 10 to 25 percent of a public contract’s overall value may be lost due to corruption. Jamyang Deman, Assistant Program Officer in the Government of Bhutan’s Ministry of Finance writes, “many other international organizations has adopted eGP [“electronic government procurement”] as one of the very efficient tools in increasing competition and transparency, and can therefore greatly help in reducing corruption in Public Procurement.” The U.S. currently sits in the 23rd spot with a score of 74.1, a far cry from the number one ranked New Zealand with a score of 100.  

Quality of Infrastructure  

While the index defines Quality of Infrastructure as mostly utility and transport (road, rail, water, and air) infrastructure, IT infrastructure can also greatly affect the resiliency of a country. Within the procurement function of the supply chain, poor IT infrastructure can lead to lack of supplier access to information. A study in the American Economic Journal suggests that, “lowering the costs of obtaining information about a tender process, eProcurement may increase the number of firms who can bid.” The paper, based upon research on public works in India and Indonesia, concluded by finding “gains from trade associated with having reduced barriers to entry.” Therefore, a wider adoption of eProcurement around the U.S. could increase the United States’ score from 89 to compete with Hong Kong, the Netherlands, and Singapore, who all sit above a 98. 

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Corporate Governance 

Every country in the top 10 ranking for resilience in control of corruption subscribes to one of the following directives about eProcurement: UNICITRAL Model Law on Public Procurement, UNCAC, EU Public Procurement Directives, or WTO GPA. A lack of (or delay in) universal adoption of online procurement directives may be why the U.S. does not even fall within the top 30 countries in terms of corporate governance. Specifically, Mercell sees the potential for vast improvement within the auditing process when an organization employs the use of electronic processes. With all supplier inquiries, published addenda, internal documentation, bid/proposal information and external announcements in the same place, audits can be much more efficient. 

eProcurement Unlocks Supply Chain Resiliency

In conclusion, the United States has a while to go before beating out Singapore for the #1 spot in Supply Chain resiliency. However, eProcurement just might hold they key to advancing forward.

  1. eProcurement increases competition and transparency to reduce corruption in public procurement
  2. eProcurement lowers barriers to entry so that there is wider access to information and participation in bids, lifting the quality
  3. eProcurement creates higher efficiency in internal control systems, policies, and procedures to better serve the needs of the public organization and its constituents

Additionally, widespread adoption of eProcurement could advance supply chain visibility to allow the United States to lead this core driver at #1. We hope to see the United States rise in all four core drivers over the coming year as eProcurement has been a necessity through the COVID-19 pandemic and will continue to be a necessity into the future as technology adapts.