BS3912 Week 7 1

Managing e-Business & High Technology (7)

Last week – Supply Chain Management» Chaffey Chapter 5» Introduction to flows from initial supplier to finished product

This Week – Purchasing and inbound logistics» The rôle of Procurement» e-Procurement» Assignment workshop – some specific guidance

References» Chaffey, D (2007) e-Business & e-Commerce Chapter 7» Benyon-Davies, P (2004) e-Business Chapter 22

BS3912 Week 7 2

The Lost Week We’ll almost certainly lose Week 8 (29 April)

» In which case, there’s only one more session before Assignment 1 deadline

I can reorganize course to cover materials in weeks 9-12» There’s some blue-sky stuff I could omit without great loss

...or fit in an extra session» Possible dates for me are:

– Tues 26, Wed 27, Thurs 28 April– Mon 1, Tues 2, Wed 3 May

BUT: past experience suggests attendance might be poor» I need your commitment to come on a day we agree

Which way should we go? REORGANIZE COURSE

BS3912 Week 7 3

What is Procurement?

Everything needed to acquire inputs for our business Includes

» Things that go into our products (components)» MRO goods (Maintenance, Repairs & Operation of

processes) – without them we can’t carry on producing» Everything else we consume: stationery, copiers, parking

barriers… Consists of

» Searching for sources of these inputs» “Purchasing” – doing a deal to buy the goods» Inbound logistics – potentially involving warehousing and

everything we do until the goods are actually used

BS3912 Week 7 4

Goals of Procurement

Get inputs:» At the right price» Delivered at the right time» To the right quality» In the right quantity» From the right source (what is “right” in this context?)

It isn’t sufficient just to get them to Goods Inwards – process must also include» Timely delivery to point of use (often a weak point)» Protection of goods in storage and en route

BS3912 Week 7 5

Why so Expensive? Procurement is typically very costly

» Chaffey p.313 quotes £80 average per orderp.314 Case Study shows reduction from £60 to £10

» Local govt experience of £45 per order» Borrowing a disc from the BBC library costs more than

buying one in a shop! » Procurement costs can exceed value added

Processes are needed to» Prevent unauthorized expenditure and corruption

(“here’s a brown envelope to buy xxx from me”)» Get the best deal from suppliers» Control quality – if department X has problems with a

product, you don’t want department Y ordering in ignorance» Ensure we pay for goods supplied and only those

BS3912 Week 7 6

Costs – Avoidable or Inherent? Someone has to search for suitable supply

» Simple if it’s a commodity (or if it’s unique)» Can be very complex if we’re having it built specially

and have to negotiate with suppliers Authorized order must be routed to supplier Supplier ships goods and sends invoice Goods arrive and must be

» Checked against order» Routed to user

Invoice paid, provided goods have been checked in Paperwork typically adds cost and delay – often exceeds

cost of goods – let’s see how much we can avoid

BS3912 Week 7 7

Key procurement activities in organization

Chaffey (2007) fig 7.1

BS3912 Week 7 8

from Chaffey

BS3912 Week 7 9

E-mail notification of requisition approval

Chaffey (2007) fig 7.4

BS3912 Week 7 10

What is “ordering online”?

If you already have a supplier/purchaser relationship» Orders can be pretty informal (e.g. e-mail), or» Use web-based form-filling, still by humans» Invoices can follow by conventional routes

Relationship can be automated» Purchaser’s system orders from suppliers’ systems» Requires secure systems to ensure transactions cannot be

repudiated and that supplier will be paid Or we can build relationships on the fly

» Using B2B exchanges» Or, given standards, we can shop around directly

BS3912 Week 7 11

How Online Ordering Develops

c.f. figure from previous weeksfrom Chaffey (2002)

BS3912 Week 7 12

Goals of e-Procurement Reduce delays

» Minimize time from perceiving need to obtaining supply Cut Costs

» Procurement costs exceeded value added for Consumer and Automotive industries in 1997 (Chaffey 2002 p.264)

» Ford employed 500 in Accounts Payable in 1993 – most of their work can be integrated into e-procurement

» Minimize effort involved by user of supplies Goal is to minimize total cost of procurement

» Usually by cutting cost of each requisition, by speeding process of turning request into order

» BUT: don’t forget that easier processing may split orders over more requisitions

» Cambridge consultants cut costs from £90 to £10 for 1300

BS3912 Week 7 13

e-Procurement Savings

PAPER PROCESS Search for product 1 hr Complete requisition 10m Send requisition 24hr Receive requisition 12hr Authorize & Complete

24hr Send order 24hr Delivery from Supplier

24hr Receive Goods 24hr Check Goods 24hr Authorize payment 10mTOTAL 6 days 80 mins

E-PROCUREMENT Search for product online 20m Authorize & Complete Order

(what about queuing?) 10m Delivery from Supplier 24hr Receive & Check Goods 10m Issue payment 10mTOTAL 1 day 50 mins

Of course you still have to worry about: » Internal delivery» Getting quotations for complex

requirements» Negotiating deals

(Benyon-Davies, p.364)

BS3912 Week 7 14

Nature of Savings

IMPROVED EFFICIENCY Time savings shown on

previous slide Reduced error rates Staff savings Lower knock-on costs such

as holding inventory (“JIT”) Direct delivery to user when

quantities merit Electronic tendering Resource savings e.g. paper

IMPROVED EFFICACY Flexibility

» May simplify changing suppliers» New supplier accessible to all

Greater control» Limits misjudged purchasing» Avoids proliferation of standards

Better quality – Purchasers can focus on monitoring quality and service from suppliers

More effective negotiation – buyers have better information on purchases to strengthen their hand

BS3912 Week 7 15

Risks

Savings may be at expense of jobs in Purchasing» Can you redeploy the people?» Are you correctly costing the work that’s been devolved?

Need to avoid risk of “maverick purchasing” by those newly empowered – requires careful monitoring

Moves against maverick purchasing can make it hard to innovate – “sorry, our preferred supplier doesn’t do that”

Good general source of information at http://logistics.about.com/od/

BS3912 Week 7 16

e-Procurement alternatives Catalogue-based suppliers

» Easy to search and order» Supplier maintains data» But must use different

interface for each supplier Buy-side integrated solutions

» Single interface for end-user» Good control by Purchasing» But Purchasing must maintain

the data Marketplace

» Single interface for end-user» Wide choice of suppliers» But systems must include

interface to marketplace

from Chaffey

BS3912 Week 7 17

Technologies for e-Procurement E-mail – minimal change to processes; cuts transfer time Workflow systems – ensures fast following of processes

for authorization and ordering Electronic document transfer – valuable for

» Transfer of orders EDI & XML standards allow automation» Exchange of specifications and tendering information

Integrated back-end systems – coordinate with other parts of the business, often through ERP systems

Electronic payment systems – such as BACS Extranets – technology to secure the flows above Electronic marketplaces – effectively outsourcing some of

the supplier-selection aspects of Purchasing

BS3912 Week 7 18

Integrating e-procurement and catalogue

Chaffey (2007) fig 7.7

BS3912 Week 7 19

Assignment Workshop

Your Business Case!

Week 7

BS3912 Week 7 20

Assignment Brief ( Part 1: by 9 May)

An Initial Business Proposal (~2000 words) for a Suitable Innovation such as:

» A new eBusiness, or

» Introduction of a High Technology Product or technique, or an eBusiness Process, into to an existing business, or

» A new way to market, sell or manufacture a current product or range

BS3912 Week 7 21

Assignment – Goals of Part 11. Explain your idea clearly and precisely 2. Analyse the

» Business Opportunity» Risks» Capital Requirements (to nearest £3k)

Priority is» Your ability to analyse & make Your Business Case

– Have you analysed the key costs and benefits?– Does your business case say how much capital you want,

what it is needed for, and how you’ll control spending it?– Do you understand the potential market implications?– How well have you analysed income and expenditure?

Note:Quality of actual

business idea is of secondary importance

BS3912 Week 7 22

Potential Approach

Purpose is to get decision-maker to invest What is proposed – describe what you plan to change

» Should make clear what kind of innovation you propose Analysis of Opportunity

» What is the environment? How will you exploit it?» Market evaluation (some but not too much Porter)» SWOT analysis only if appropriate

Revenue estimates Cost estimates:

» Capital requirement, including working capital» Running costs (including servicing capital)» Risk evaluation

Conclusions and Recommendations

BS3912 Week 7 23

Executive Summary

Must be at the front» Can’t rely on executive reading more than one page» Your goal is to get executive to pass it on as a

recommended proposal» Same applies to request for bank or VC investment» Detailed analysis will be coloured by executive’s views

But you can’t write it yet!» Be thankful for word-processing» Write it after your conclusions, then insert it up front

BS3912 Week 7 24

What is proposed

Classify your proposala) Start up e-business companyb) Introduction of high-technology productc) Introduction of e-business or high-technology activities to

an existing company

Describe what you plan to do» Brief description of product or service or process

Summarize expected benefits» New markets, increased revenues, reduced costs,

improved service

BS3912 Week 7 25

Analysis of Opportunity

Environment» Describe current expectations and players in your field» Are there areas that haven’t already been addressed? » Review any relevant successes and failures » Summarize the opportunity

Market evaluation » Estimate market for new product or service, or» Forecast impact of new channel or lower price-point

Show how you will exploit the identified opportunity» Possibly with SWOT analysis» Your strengths will help you run with the proposal,

or the proposal will counter weaknesses and threats

BS3912 Week 7 26

Revenue estimates How much do you expect to make from the proposal?

» New business» Improved sales through new channels» Increased market share through lower price» Better margins through lower costs

Involves comparing Business as Usual (BaU) with what you expect to happen if you go ahead

Only INCREASES in earnings can cover extra costs» All the old earnings are spoken for already (interest,

dividends…) though they can establish your viability May need spreadsheet showing assumptions:

» Overheads, costs, capital for BaU and doing proposal» Expected revenues for BaU and doing proposal

BS3912 Week 7 27

Cost estimates

Capital requirement» Direct investment in new plant and equipment» Up-front costs such as programming, marketing» Working capital to cover lag between output and payment

Running costs (including servicing capital)» Additional staff and labour costs» Cost of other inputs» Interest, repayment and depreciation of capital

Risk evaluation» What could go wrong?» Estimate revenues and costs in event of contingency» Is the proposal still valid if this should happen?

BS3912 Week 7 28

Business Case Analysis

Produce a cash-flow projection for two or three years» Identify sources of funding» Use most likely estimates of income and expenditure» Show break-even points in terms of

– Recovering extra expenses (remember that some of your up-front costs can’t be treated as capital)

– Repaying capital as well (Excel PMT function is useful)» Some points to remember

– Long-life assets don’t need to be paid off in the period provided their residual value isn’t lower than book value

– BaU revenue should be subtracted from expected revenue A graph of cumulative cash-flow is useful

BS3912 Week 7 29

Conclusions and Recommendations

Summary of proposal » What you want to do» What you’ve considered in evaluating it

… and how it’s improving revenue» Cash-flow information» Statement of break-even and additional profit estimates

What you want the company or investor to agree to

The next stage if given the go-ahead

Now you can write the Executive Summary

BS3912 Week 7 30

Executive Summary

Mainly taken from the Business-case and Conclusions Summary of proposal – What you want to do What you need from the investor to be able to do it

» Money and other resources Expected improvement in revenue

» When it will pay for itself (revenue/expense break even)» Cash-flow graph» Extra profit in period studied

Risk analysis summary – just enough to demonstrate you’ve thought about SWOT and contingencies

Next stage if company or investor agrees» Gives confidence that progress is measurable

BS3912 Week 7 31

Possible Title Page

Initial Business Proposalfor the

Manufacture of IT Widgets

Mary Jo Bloggs

May 2011

BS3912 Week 7 32

Content Guidelines * Executive Summary – write it last, position it first Introduction to the idea Description of what/how it will improve the business Findings, possibly including:

» Environmental Audit» Porter’s Five Forces (perhaps)» SWOT Analysis

Analysis of the Business Case Conclusions & Capital Requirements Recommendations Bibliography (usually vital) and appendices (optional)

* Health Warning: this is a guideline only; not a directive!

BS3912 Week 7 33

Now would be a good time to fill it inIf you haven’t done so already

National Student Survey

Last chance