OHT 7.1 © Marketing Insights Limited 2004 Chapter 7 E-procurement

OHT 7.1

© Marketing Insights Limited 2004

Chapter 7E-procurement

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Learning objectives

• Identify the benefits and risks of e-procurement

• Analyse procurement methods to evaluate cost savings

• Assess different options for integration of organisations’ information systems with e-procurement suppliers

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Issues for managers

• What benefits and risks are associated with e-procurement?

• Which method(s) of e-procurement should we adopt?

• What organisational and technical issues are involved in introducing e-procurement?

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How important is e-procurement?

In Q1 2001, polling similar organizations showed that two thirds of companies had started to implement e-procurement systems.

However, complete solutions were rare: only about one in six actually has a live system in place. Of the rest, nearly half (47%) have some form of interim solution or are part way through implementation programmes

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Key procurement activities within an organization

Figure 7.1 Key procurement activities within an organization

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Requirements for procurement systems

• Baily et al., 1994 says procurement involves sourcing items:– At the right price.– Delivered at the right time.– Of the right quality.– Of the right quantity.– From the right source.

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Electronic procurement system

Figure 7.2 Electronic procurement system

Source: Tranmit plc

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Turban et al. (2000) summarize the benefits of e-procurement as follows:

• Reduced purchasing cycle time and cost• Enhanced budgetary control (achieved through rules to limit

spending and improved reporting facilities)• Elimination of administrative errors (correcting errors is

traditionally a major part of a buyer’s workload)• Increasing buyers’ productivity (enabling them to concentrate on

strategic purchasing issues)• Lowering prices through product standardization and consolidation

of buys• Improving information management (better access to prices from

alternative suppliers and summaries of spending)• Improving the payment process (this does not often occur

currently since payment is not always integrated into e-procurement systems).

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Use of different information systems for different aspects of the fulfilment cycle

Figure 7.3 Use of different information systems for different aspects of the fulfilment cycle

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E-mail notification of requisition approval

Figure 7.4 E-mail notification of requisition approval

Source: Tranmit plc

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Document management software for reconciling supplier invoice

with purchase order data

Figure 7.5 Document management software for reconciling supplier invoice with purchase order data

Source: Tranmit plc

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The three main e-procurement model alternatives for buyers

Figure 7.6 The three main e-procurement model alternatives for buyers

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Integration between e-procurement systems and catalogue data

Figure 7.7 Integration between e-procurement systems and catalogue data

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An online catalogue of items for purchase

Figure 7.8 An online catalogue of items for purchase

Source: Tranmit plc

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Implementation risks

• Authentication – fraud

• Maverick purchasing

• Lock-in to suppliers

• Cost-savings not realized

• Cost and difficulty of implementing systems

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B2B Marketplaces

• International benchmarking study:– UK, 11% of businesses provide the opportunity for

customers to purchase from e-marketplaces, 9% in Sweden and Italy, 8% in Australia and Germany, 7% in France and 6% in Japan.

• ComputerWorld (2001a) reported that of an estimated 900 business-to-business Web sites that were functioning worldwide mid-2000, a little more than 400 were left standing by end-2000.

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Types of B2B marketplace

What businesses buy?

How businesses buy?

Operating resources Manufacturing resources

Systematic sourcing MRO Hubswww.barclaysb2b.com

Catalogue Hubswww.sciquest.com

Spot sourcing Yield Managerswww.elance.com

Exchangeswww.e-steel.comwww.plasticsnet.com

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Covisint example - DaimlerChrysler AG - 2001

• 512 online bidding events processed through Covisint in the last twelve months

• Purchasing volume of approximately €10 billion. That is a third of the total procurement volume assigned in newly closed deals in 2001.

• In May 2001, DaimlerChrysler staged the largest online bidding event ever, with an order volume of €3.5 billion in just four days.

• In total, 43 per cent of the total value of the parts for a future Chrysler model series was negotiated online with over 50 online bidding events in the third quarter of 2001 alone.

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Criteria in selecting marketplaces

• Number of suppliers and customers who are actively trading (not just members)

• Costs of being a buying member (on each transaction)

• Backing from trade associations

• Funding source

• Ease of using exchange through all stages of buying process from order to receipt

• Technical changes needed to integrate with system – are industry standards being established through XML?

Documents

OHT 7.1 © Marketing Insights Limited 2004 Chapter 7 E-procurement