Think before you buy


[Sundar Rao][July 04, 2006]The current phenomenon of falling prices of ELECTRONIC ENERGY METERS is a grave concern to all “right thinking” customers, suppliers, manufacturers and consumers at large. All of us as “professionals” – whether we are ‘suppliers” or “purchasers” – have a paramount duty to discharge in nation building, i.e. to be transparent, honest and cost conscious in all our actions and judgments, while carrying out our individual responsibilities.

Whether one is a manufacturer or a supplier, one’s primary responsibility is to offer quality products with the right ingredients suiting the purchaser’s need at the right price. In a similar way, a purchaser (a publicly-owned concern in most cases) as a custodian of taxpayers’ money and public trust, has a responsibility to judge the right kind of products that meet his needs, as well as the credentials of manufacturers/suppliers, before finalizing the vendor(s), maintaining total transparency of the entire selection process.

Though power reforms are the talk of the town, and almost all Indian utilities are committing themselves to implement reforms day in and day out, it is very unfortunate that they are unable to emerge from the LOWEST PRICE tangle when deciding on the majority of their purchases. While there are options available in the tender documents such as “The purchaser has the right to place an order on any bidder…not necessarily the lowest priced one, provided such purchase is justifiable in the best interest of the purchaser.” the tendency is often to adopt the much safer route of the lowest price, ignoring the equally important aspects of product quality, long term performance, manufacturer credentials etc.

This “lowest price” route offers the necessary safety from potential future audit objections and the consequent inconveniences to all those concerned at the purchaser end. The stock answer one is likely to get from the utilities involved in the procurement process is that they are compelled by the tender norms to order from the lowest acceptable bidder who has complied with all the terms and conditions of the bid. This is exactly where the utilities have to question themselves regarding their attitude as trustees of public funds and public interest. The main question to be answered is: “How to ward off the unscrupulous bidders who quote ridiculously low prices without understanding the specifications and complying with all the terms and conditions without any respect for the implications of such compliance?”

Let us examine what are the qualification criteria in most of the tender documents, and how the majority of the bidders meet/comply with such criteria.

 Tender Norm Bidder’s compliance   Remarks

The product must meet
all the technical specifications.

 Complied If we deviate from the requirements, even if our solution is better, the tender is likely to be rejected. So why take risks?
Samples to be submitted for testing as a part of evaluation  Complied It is not difficult to submit samples that pass the evaluation test. But the regular supplies could differ, in spite of customer inspection.
Type test reports to be submitted along with the offer  Complied Same as above.
Bidder to possess minimum testing and calibration equipment  Complied As there is no stipulation of the minimum investment in a facility that can deliver
the committed volumes, all bidders comply.
Bidders to provide 10/15 years’ warranty, backed up with a commercial
guarantee in some cases.
 Complied The implications of acceptance of such a clause is a matter to be considered by those who conduct reliability and performance tests and lifetime costs. For the rest, it is a simple “signature”.
Performance certificates to be submitted along with the bid  Complied As there is no proper asset management system in place, it is difficult to track the actual performance. Hence many performance certificates are general in nature and do not
reflect the reality on the ground.

Looking at the above scenario, it is difficult for anybody to separate the genuine bidders from the others, and naturally those bidders offering the “lowest price” are the winners of the day.

There are definitely ways to weed out the fly-by-night operators from the genuine long-term players, provided the purchaser is prepared to consider stipulation of the following conditions in the bid document, in addition to those mentioned above.

1) In addition to product specification, conformance standards for the product’s electronic components need to be specified, such as STACK INTERNATIONAL standards (S/0001), which specify quality. Reliability and general requirements of ICs and IEC or ECSO standards cover passive components.
Comment: By specifying these component level standards, the purchaser is sure to get a reliable and high quality product that meets the performance specifications. In addition, the bandwidth of prices offered by various bidders would be narrow, making the evaluation task easier. (This practice is very much in vogue in all telecom and defense purchases).

2) The bidder should furnish a complete BOM (Bill of Materials) detailing component types, conforming standards, sources of supply and manufacturer part numbers (order code) where applicable. The BOM should form a part of the contract document.
Comment: The BOM plays a vital role in determining the quality of components and parts that are deployed in making an electronic product. As electronic product design is not the core function of the utilities, they must engage independent and reputable design consultants or organizations as a part of the evaluation team to assess the claims of various bidders, in order to arrive at the right decision.

Once orders are placed, the successful bidders should supply as per the BOM submitted along with the bid. If for any reason the supplier needs to change any component(s) during the execution of the contract, the purchases must be informed and must approve the change, based on the merits of the explanation provided by the supplier.

3) Apart from the usual routine acceptance tests as per the IS, “component level” inspection on a sampling basis, as set out in the approved BOM, must be introduced as part of the acceptance tests.
Comment: Such an inspection will ensure that components in all the batches of supply are in accordance with the supply contract.

4) Accelerated aging tests that prove the reliability and lifetime estimation aspects must be introduced as a part of the qualification criteria, in addition to the type tests reports. Bidders must be asked to furnish test reports on the tests conducted by a recognized independent test house, clearly confirming the reliability figures and lifetime estimation as per the guaranteed particulars furnished by the bidder in his offer.

5) Apart from the prices quoted, the bidders must be asked to furnish “life time cost” or “cost of ownership” estimates for the entire lifetime of the product. These costs should include cost of investment, annual maintenance costs, cost of replacements, administration costs etc.
Comment: Lifetime costs should be considered as a part of the bid evaluation process to establish the claims regarding quality and performance of the product offered.

It is time that both the electronic energy meter industry and the customers (utilities) get their act together to resolve the present state of affairs concerning the prices of electronic energy meters, lest the situation becomes similar to the one prevailing in the late 1970s and early 1980s concerning the prices of electromechanical meters. It can be said that the present plight of utilities as far as revenues are concerned is a result of the bad decisions made regarding the purchase of electromechanical meters at very low prices. The majority of investments in meters during the 70s and 80s ended up as non-performing assets.

This situation should not be allowed to be repeated in the case of electronic energy meters, which have come a long way from an emerging technology to established products. Having realized the benefits of electronic energy meters, utilities should be prepared to go the extra mile in revising their purchasing norms so that they invest in the right kind of products at the right prices.

Further the utilities would be doing a lot of good – not only to themselves but to their customers at large – by introducing ASSET MANAGEMENT SYSTEMS based on state-of-the-art IT technologies, so that they have a complete view of the performance of their metering assets at the push of a button.

Finally, it is well known that “cost is a fact, whereas price is an opinion,” and that “quality and performance” are available at a certain “cost”.