eTender
Discover how SC Ukroboronprom optimized procurement for fuel, electricity, and auto parts using eTender’s framework agreements, achieving significant cost savings and ensuring reliable supply in a volatile market.
Ukroboronprom is Ukraine’s state defense conglomerate, responsible for the production and supply of military technology. To maintain its operations, it regularly procures essential resources like electricity, natural gas, fuel, mineral fertilizers, plant protection products, and auto parts. As a key player in the global defense market, Ukroboronprom collaborates with international allies to strengthen security, drive innovation, and ensure a stable supply chain.
Several years in a row, the State Concern “Ukroboronprom” has been using the framework agreements on the eTender electronic platform for natural gas procurement.
A framework agreement is a two-stage procurement method:
Ukroboronprom’s experience confirms that this tool can significantly save costs for the buyer. In 2021, thanks to signing a framework agreement with suppliers, the Concern saved over 21 million UAH (~ 652 thousand EUR, based on 2021 rates).
This tool is used by the buyer to prevent shortages of goods whose procurement volumes are difficult to predict in advance. It is especially suitable for organizing regular purchases of goods with highly volatile market prices, such as:
“The framework agreement allows the Concern to conduct a one-time qualification of gas suppliers, enabling the procurement of necessary volumes throughout the year in the shortest possible time and at the most favorable price,” says Roman Avramov, Procurement Director of SC Ukroboronprom.
A company that qualifies as a supplier will be able to participate in iterative tenders announced by the buyer (these tenders can be held weekly, monthly, or at other intervals).
Thus, the buyer saves time on announcing and conducting cyclical procurements. In case of an urgent need for goods, the buyer can quickly announce additional unplanned tenders.
Nadiya Bigun, Procurement Director at SC Ukroboronprom shared her vision.
A framework agreement allows us, as buyers, to establish a pool of reliable suppliers. Only pre-qualified participants can take part in tenders, which are announced periodically. This ensures that we can sign supply contracts quickly since all approved suppliers have already been vetted. We can plan and conduct a tender within a single day, selecting the supplier that offers the lowest price.
The annual gas demand of all Ukroboronprom enterprises exceeds 60 million cubic meters, with an annual expenditure of approximately 300 million UAH (~9.3 million EUR, based on 2021 rates). Since gas is crucial for our production processes, our priority in centralized gas procurement is ensuring an uninterrupted supply while securing the best possible price.
The key question we needed to answer was: How can we secure a reliable supplier at the lowest price in a constantly fluctuating market?
Initially, we considered a formula-based pricing approach with a long-term contract (e.g., for a year) with a trusted supplier. However, the challenge was determining the right price benchmark. To explore this, we analyzed fuel prices on international hubs, the Ukrainian Energy Exchange, and prices from open auctions.
Our research showed that while gas prices in Ukraine are influenced by imports, domestic and international prices can vary significantly.
Ukraine has its own gas production, covering up to 30% of consumption at certain times. Additionally, the country’s vast underground gas storage facilities allow suppliers to purchase fuel during the off-peak season. However, prices on the Ukrainian Energy Exchange alone do not fully reflect market dynamics, as only a small portion of contracts go through the exchange, and a single large deal can distort market analytics.
Given these factors, we concluded that a long-term contract with a single supplier using formula pricing would not guarantee the lowest price.
We then explored the monthly tendering approach to ensure up-to-date pricing. However, our procurement team encountered a major issue: suppliers could only calculate gas prices at the end of the month, making it impossible to conduct tenders in advance. If a winning bidder later refused to sign a contract, there was a high risk of being left without gas.
This meant we faced two risks:
Ultimately, we adopted the framework agreement tool on the eTender platform. This fully transparent process ensures fair competition among suppliers while allowing us to secure the lowest gas price through short-notice auctions. The result is a flexible and reliable procurement system that adapts to market fluctuations while guaranteeing supply stability.
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In this interview, find a practical advice from the organizer of commercial procurement for a manufacturing enterprise. How to start and what successes a company can achieve with the help of an electronic platform.