Slide 7.1 Dave Chaffey, E-Business and E-Commerce Management, 4 th Edition, © Marketing Insights Limited 2009 E-procurement Chapter 7

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Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009

E-procurement

Chapter 7

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Learning outcomes

• Identify the benefits and risks ofe-procurement

• Analyse procurement methods to evaluate cost savings

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

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Management issues

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

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

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

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How important is procurement?

We estimate that for every dollar a company earns in revenue, 50 cents to 55 cents is spent on indirect goods and services—things like office supplies and computer equipment.

That half dollar represents an opportunity: By driving costs out of the purchasing process, companies can increase profits without having to sell more goods. Hildebrand (2002)

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Procurement and E-procurement

• Procurement refers to all activities of obtaining items from a supplier, include purchasing as well as inbound logistics, warehousing, etc.

• E-Procurement—the E integration and management of all procurement activities including purchase request, authorization, ordering, delivery, and payment

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The 5 rights of e-procurement

• at the right price

• delivered at the right time

• are of the right quality

• of the right quantity

• from the right source.

Baily et al., 1994

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Figure 7.1 Key procurement activities within an organization

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Figure 7.2 Electronic procurement systemSource: Tranmit plc

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Mini Case 7.1 Schlumberger

• Read the mini case study on p. 383 and answer these questions– What special about the procurement process

at Schlumberger?– What purchasing software do they use?– What advantages does this software provide

than the traditional EDI?

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Activity

• Read the Activity 7.1 on p. 385

• Answer the questions at the end

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Types of Procurement

• What is bought?– Production-related– Non-production related

• How are items bought?– Systematic sourcing—long term relationships– Spot sourcing—fulfillment of immediate need

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Online Procurement

8 types of intermediaries – Tradition manufacturers– Direct sales manufactures– Value added procurement partners– Online hubs– Knowledge expert– Online information services– Online retailers– Portal communities

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Figure 7.3 E-business e-value gridSource: Riggins and Mitra (2007)

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Drivers of e- Procurement

Case Study 7.1

• Read the case on pp. 388-389 and answer the questions on p. 389

• Ref. p. 390 for a summary of benefits and berriers

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Estimate e- Procurement Cost

• Savings = requisition No *(Cost1-Cost2)

• Impact of cost saving on profitability– Ref. table 7.3 on p. 391 for procurement cost

in different industries

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Activity

• Using Excel to complete the Activity 7.2 on pp. 391-392

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Risks and Impact of e-Procurement

• What are the main reasons for low adoption of e-Procurement?

• According to Potter(2000), Security and faith in trading partners.

• What are the main organizational risks?– Displace employees and Maverick purchase.

• Activity 7.3– Complete the Activity exercise on p. 393

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Risks and Impact of e-Procurement

• Failure to Achieve real cost reductions

• Technology risks– New technologies and models are emerging

on an on-going basis. Hard to decide which one to use.

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Implementing e-Procurement• Companies should consider improving

business processes rather simply automate the existing process

• The biggest challenges are– Training / Change management– Supplier relationship management

• IS manager and procurement team must work together

• Different types of IS can be used for different parts of procurement cycle

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Figure 7.4 Use of different information systems for different aspects of thefulfilment cycle

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Figure 7.5 E-mail notification of requisition approvalSource: Tranmit plc

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Figure 7.6 Document management software for reconciling supplier invoice with purchase order dataSource: Tranmit plc

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Implementing e-Procurement

Integrating with Supplier Systems

• There are typically 3 alternatives to look at: 1:M, M:1, and M:M. Ref. Fig. 7.7on p.398

• The pros and cons are summarized in Table 7.6 on p. 399

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Figure 7.7 The three main e-procurement model alternatives for buyers

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Figure 7.8 Integration between e-procurement systems and catalogue data

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Figure 7.9 An online catalogue of items for purchaseSource: Tranmit plc

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B2B Marketplace

• Mini Case Study– Visit Alibaba.com to see what opportunities it

opens to SMEs

• Case Study– Read the case study Covisint on pp. 403 -404– Discuss the question on p. 404

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Figure 7.10 Jack Ma, CEO Alibaba.comSource: FT.com

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Figure 7.11 Ford supplier portal provided by CovisintSource: Covisint.com

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Figure 7.12 Supplier route to government portal (www.supply2.gov.uk)

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Types of Marketplace

• Vertical marketplace—serves the same industry

• Horizontal marketplace—serves multiple industries

• Reverse aggregation—combines the purchase power

• Forward aggregation—combines multiple suppliers or supply chain functions

• Other categories—ref. p. 406, table 7.7

• Metamediaries

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The Future of e-Procurement

• Software agent—software that can assist human by automatically gathering information from internet based on user input

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NEXT CLASS

• Read the Econsultancy Interview on pp. 415-416 of Chapter 8 and visit the Guess.com to answer the following questions:– Do you see the branding or the store when you

first visit the Guess.com?– How do they choose online partners?

Documents

Slide 7.1 Dave Chaffey, E-Business and E-Commerce Management, 4 th Edition, © Marketing Insights Limited 2009 E-procurement Chapter 7