The SmartTender team talked with Nelli Stelmakh, ex-director of the category management department of Ukrzaliznytsia, who is now engaged in consulting and training in the field of public procurement and is also involved in the defense procurement reform project. In this interview, you will learn about her experience in reorganizing large structures and how category management can help you efficiently procure.

What, in your opinion, has changed in the Prozorro system over the 6 years of its existence?

We know that Prozorro is recognized as one of the best public procurement systems in the world. Firstly, because it is a truly transparent system. Both tender documents and bids are now openly published in electronic form, which makes it possible to analyze purchases using analytical tools, and in the future, using artificial intelligence. In addition to government customers and suppliers participating in the tenders, now public organizations, as well as individual citizens, can influence the course of tenders. And this is confirmed by the main slogan of Prozorro: "Everyone sees everything".

Nelli Stelmakh Interview

During these 6 years, the whole Prozorro ecosystem has been formed. It also includes Prozorro.Sale, which allows private companies to freely buy, for example, licenses for the use of subsoil, which for some time was partially blocked in our country for many reasons. Also, among other things, rent or buy state property, participate in privatization, etc. In 2019, a kind of "Amazon in the field of public procurement" – Prozorro Market – appeared, which allows customers to quickly and easily buy for amounts of up to 200,000 hryvnia (or up to 1 million hryvnia for customers in certain areas of business).

Nelli Stelmakh Interview

We officially started using the Prozorro system in the Ministry of Defense at the end of June 2015. I always say that in 2015 Prozorro saved the purchases of the Ministry of Defense, since it would be impossible to carry out such a volume in paper form. Public procurement bureaucracy, combined with military bureaucracy, pass systems, and other factors, really made it impossible to buy quickly and in large volumes. Thanks to Prozorro, the Ministry of Defense received the necessary goods quickly, and also expanded the range of its suppliers several times.

And now, when I try to remember how we worked before, it feels like Prozorro has always existed. But it should be remembered that this system is only a tool, the effectiveness of which always depends on the people who use it.

What do you think is lacking in a modern procurement system and what can be improved?

In my opinion, today in the public procurement system the following points should be improved:

1. Automatic synchronization

First of all, there is a lack of automatic synchronization between plans and purchases. Now you can find a connection on the main portal, on sites, and in analytical systems, but only manually. It would be nice if we could track purchases from the moment the plan is announced to the end. A merger of the Treasury and Prozorro is already working in Ukraine. But for now, all data also needs to be found manually, although it would be better if they were automatically pulled up in analytical tools.

2. Further electronization

It is also important to continue to electronize, as specifications are not always uploaded by customers in the form in which they can be processed automatically or with additional tools. For example, some customers upload PDF files that you just can't get information out of. Electronicization and publication of various types of contracts in full is important. Over the past month, I have carefully studied construction contracts in one region and noted that many customers do not disclose prices for construction materials, even without including it as an annex to the contract. Because of this, it is difficult to analyze how our customers then agree with contractors or how the acts of completion are drawn up. In my opinion, it should be established that construction contracts announce the rate of workers by grade and a list of resources with unit prices.

3. Compliance of e-procurement and legislation

It is necessary to harmonize the e-procurement system and legislation. Now a bill has been submitted to the Verkhovna Rada for consideration, which will resolve some issues, but it is important to eliminate cases when the system does not allow the implementation of what is prescribed in the law.

4. Case law

We also lack case law, which is why, under similar conditions, the judiciary, the AMCU, and the State Audit Office of Ukraine can make different decisions. Of course, each purchase is separate and unique, but the enforcement should be the same. I encountered this when Ukrzaliznytsia announced a negotiated procurement procedure for urgent needs, but the AMCU decided to cancel it. Although, in general, about 5,000 procedures similar to the procurement subject were published in Prozorro that year.

There is also a lot to be implemented in defense procurement. In addition to the recently implemented simplified bidding using an electronic system, defense procurement needs to launch a limited participation procedure, which has not yet been implemented.

What data do you analyze during the procurement survey of government customers?

Each organization has its internal management accounting, and it's good when our colleagues share it easily. For example, in Ukrgasvydobuvannya or the Ministry of Defense, this was not a problem at all. But in Ukrzaliznytsia it was problematic to obtain the necessary information: we spent a lot of time writing an official appeal and then waiting for a response.

During our defense procurement survey, already as a public project participant, we analyzed the 14 largest defense customers over the past year. And we found that some of them work stably: the number of announced procedures and the expected cost for the selected period in the current year are approximately the same as last year. The rest of the customers made several times fewer purchases over the same period. For example, if in the first quarter of last year the Ministry of Defense announced tenders for UAH 5.2 billion, then in the first quarter of this year it conducted only 47 procedures for UAH 805.8 million. Of course, there is no problem in announcing procedures in the first quarter for less funds than in subsequent ones. But human resources are limited, and workers are unlikely to have time to process several times more procedures in the remaining time. We saw this moment and informed the leadership of the organizations that they should accelerate.

When we work with a large organization, the analytical tool makes it possible to compare the workload of managers. I did this in Ukrgasvydobuvannya when I counted people involved in purchases in the branches. I saw that in some branches there are more managers than needed, and in some, on the contrary, there are not enough managers. As a result, the management reorganized the purchasing departments and distributed the managers` workload more efficiently.

You have actively worked with category management at Ukrzaliznytsia. Please tell us what is included in this concept

Category management is a system that focuses on efficient procurement. We are talking not only about savings but also about the quality of goods and delivery, the timing of the procedures, the satisfaction of internal customers, the absence of complaints, disputes, etc.

Nelli Stelmakh Interview

Procurement should not be only a transactional process when a buyer receives an application and runs to immediately execute it. First of all, he must understand where his organization is in the market and what is the competition among customers and suppliers. You need to understand the need of your organization – for this, you need to collect an order from all departments and analyze them. For example, in 2017-2018 Ukrgasvydobuvannya was one of the market leaders in the procurement of pipes, and Ukrzaliznytsya is always one of the leaders in the procurement of diesel fuel.

Next, you need to find out who is the supplier of your company, and with whom and for what reasons the company stopped working. And also is it possible to find other market participants. That is, the purchaser must constantly research the market, and not only be guided by his list of suppliers. For example, to increase competition in the procurement of pipes, Ukrgasvydobuvannya created such conditions that not only Ukrainian suppliers could participate in the procurement, but also participants offering pipes made in Japan, Germany, China, and other countries.

The next step is for the buyer to see if there are alternatives in the market. For example, when Ukrgasvydobuvannya bought bits that were to be drilled at great depths, the Ukrainian supplier noticed that its equipment could drill at a depth of only 3 km. Due to the understanding of the presence of competing companies on the market, the customer divided the procurement item into lots with different types of bits, which made it possible to carry out the procurement more efficiently.

Category management should comprehensively answer all questions:

- where are we in the market;
- what share do we occupy;
- what we buy;
- who are our competitors,
- can we attract new suppliers;
- can we use analog, etc.

A so-called categorical strategy is created from the answers. How does it help with procurement? For example, in 2020, Ukrzaliznytsya was doing an enlargement of metal rolling, and if earlier, using the code 14620000-3 Alloys, more than 40% of the procedures were not completed at the expected cost, then this time, with the existing categorical plan, 90% of the procedures took place, and their number was reduced three times, from 111 tenders in 2019 to 36 in 2020.

Nelli Stelmakh Interview

ВІ Prozorro data for 2019

Nelli Stelmakh Interview

ВІ Prozorro data for 2020

Working with the market is also one of the main tasks of the buyer. Since both customers and buyers do not always know new technologies and market conditions, it is a good practice to consult with suppliers. For example, can they supply goods at the price specified in the specification? Whether the prepared specification is by the market conditions? Will it not turn out that with such conditions of the customer, only 1-2 companies will be able to participate in the procurement?

Thus, we move from the transactional execution of the application to the consideration of each application as part of the system. When an internal customer applies, it is necessary to clarify why he needs this particular product, whether he plans to purchase something else shortly and whether it is possible to purchase it at the same time in one procedure. This will achieve significant savings and efficient allocation of human resources.

What 5 tips would you give to buyers?

I would single out the following five conditions for the successful buyer`s work:

1. First, people are an important part of successful purchasing. Whatever we say, a lot depends on people. Pay attention to your employees, motivate them, study them. Remember that it is better if they leave you trained in the future than remain untrained with you. Qualified employees navigate their work much better and faster.
2. Secondly, it is necessary to correctly build business processes in the company and have working internal regulations. To do this, you will need to systematically conduct a crisis analysis and observe a set of measures, which, among other things, also apply to the area of compliance.
3. In your work, you need to enlist the support of the leadership, and not "fight against windmills". Remember that both you and your stakeholders should have a stake in purchasing as efficiently as possible.
4. The customer should be able to plan and analyze purchases. To do this efficiently, you need to understand the customer's needs, the reason why certain orders are made, and what their frequency is.
5. And of course, it is important to be able to work with the market, because without this, the purchases will not have such an economic effect as they would like.

Nelli Stelmakh Interview

Finally, I would like to highlight five points that each buyer should be guided by in their work: Professionalism, Patriotism, Progressiveness, Integrity, and Transparency. It is these values that allow us to improve the Prozorro system and make procurement even more productive and efficient.