Acquisition of Technology in Procurement

Acquisition of Technology

The acquisition of technology refers to the process of identifying, evaluating, selecting, and implementing technology solutions to streamline and automate procurement processes. This includes tools such as e-procurement software, supplier management systems, spend analytics, and contract management systems.

The process of technology acquisition is entirely different from acquiring capital equipment or production items. It is a complex process and requires specialized expertise and experience.

Acquisition of technology implies a long-term relationship with technology suppliers, unlike procurement of materials or equipment. The decision to acquire technology should consider several risk factors, for example, the risk of technology obsolescence.

The acquisition of technology is not just about getting the know-how of a process or product, but it requires considering many components such as training of personnel, production processes involved, quality management required, design parameters, issues pertaining to patents, etc.

Challenges in Technology Acquisition

Some important challenges involved in technology acquisition are mentioned as follows:

• Uncertainty regarding future technology changes
  
  
• Possibility of early technology obsolescence
  
  
• Acquiring information about the sources of technology providers
  
  
• Absence of any standard price or valuation mechanism for technology acquisition
  
  
• Evaluating the quality of technical know-how
  
  
• Cultural and value systems associated with the buyer and technology provider
  
  
• The commitment of the technology provider in terms of technology absorption and adaptation
  
  
• Other requirements related to the technology transfer, such as the availability of associated capital goods and materials and the possibility of procuring them cost-effectively, etc.

Process of Technology Acquisition

The process of technology acquisition involves several steps as explained below:

• Identification
  
• Evaluation
  
• Negotiation
  
• Acquisition, Implementation and Commercialisation

Identification

Once the need for technology acquisition is recognized, the mode for acquiring the technology should be decided. Various possibilities depending on the nature of technology requirements are consultancy services, acquisition of only design, licensing of technology, joint venture, alliances, etc.

The choice may depend on the current expertise, available facilities, financial capability, and future goals of the organization. Once the nature of technology acquisition is decided, the process of identifying possible technology suppliers should be initiated, which might require research and acquisition of market intelligence.

The possible public sources of market research include data banks, trade directories, industry and trade associations, exhibitions, magazines, etc. Based on the information gathered, a shortlist of possible technology sources is made.

More elaborate research on these suppliers is done to obtain knowledge regarding their technological capability, details on technical know-how available for acquisition, their market share and experience, quality of technical know-how, and commercial parameters. If required, organizations may employ a consultant who can do the required survey and present the findings.

Based on the preliminary research, suppliers may be contacted for acquiring more information, such as the content of the technology package available, quality and efficiency of the technology, payment terms, commitment with regard to technology absorption and adaptation, assistance available for establishing R&D set-up, patent-related information, etc. Some suppliers may also require a disclosure fee to be paid to assess the quality of the technology offered.

Evaluation

Once the required information is gathered, a technological feasibility study and detailed project evaluation can be carried out similar to the capital budgeting exercise in the case of procurement of capital equipment.

Once the project is found feasible and presents a positive NPV scenario, a structured supplier evaluation process can be started, where multiple options are available, which should, as usual, consider several qualitative factors apart from the pricing involved. Based on the scoring, a few suppliers can be shortlisted for negotiation.

Negotiation

Negotiations may be carried out to sort out any issues and obtain favourable terms for technology acquisition. Negotiations should not focus only on the cost involved in terms of licensing fees, engineering fees or royalties; but also payments associated with the supply of capital goods, components and associated raw materials, which the technology provider may insist to be procured from him. Technology transfer deals normally have such implicit costs associated with them about which the buyer should plan to negotiate well.

Acquisition, Implementation and Commercialisation

Once the deal is awarded, the contract agreement should be framed. The technology acquisition agreement should focus on commitments of the technology supplier and buyer.

The important components of the agreement that an agreement must include are:

• Definitions of key terms and phrases
  
  
• Specification of technology package which should provide the details on services rendered by the supplier, details of technology transferred, designs and drawings provided, quality management techniques involved and specifications of raw material and training of the personnel
  
  
• Payment terms, including manner of payment, currencies involved, schedule of payments and important milestones for the release of payments.
  
  
• Validity period of the agreement
  
  
• Access to improvements in technology during the period of agreement
  
  
• Guarantees regarding performance of technology provided by the supplier
  
  
• Indemnification and remedial measures if the technology fails to meet the expectations
  
  
• Rights and obligations of the buyer and technology provider
  
  
• The extent of right for the use of technology. The rights could be exclusive, conditional exclusive; exclusive for a region or it could be non-exclusive.
  
  
• Force majeure clause, which details the circumstances of unforeseen events that may render the either party to fulfil the part of the obligations
  
  
• Arbitration clauses, which give the provisions regarding amicable settlement of the possible disputes
  
  
• Legal jurisdiction, stating the law that would be applicable in case of disputes

Once the agreement is framed, the major part of the responsibilities of the procurement department will be over. However, the procurement department should continue to support the project during the subsequent phases of technology acquisition, implementation and commercialisation as in the case of capital equipment projects.

The support would primarily focus on compliance with the agreement, responsibilities and commitments of the technology provider, building and maintaining the relationship with the supplier and coordinating with the various internal and external stakeholders towards the success of the project.