e - PROCUREMENTBPT3133 – PROCUREMENT IN INDUSTRIAL MANAGEMENT

Chapter Outline

• What is e-procurement?• Drivers of e-procurement• The benefits of e-procurement• The current state of e-procurement

initiatives• The barriers of adoption• Measuring the benefits of e-procurement• E-Business applications

Learning Objective

• Understand the concept of e-procurement

• Identify the benefits and potential barriers to the successful adoption of e-procurement

• Explain the applications of e-procurement

What is e-Procurement?

“the term used to describe the use of electronic methods in every stage of the buying process from identification of requirement through to payment

and potentially to contract management”

OR

“using the internet to operate the transactional aspects of requisitioning, authorizing, ordering,

receipting and payment processes for the required services or products”

• Key processes in most e-procurement models:a. E-sourcing – for contractual processes

tools include e-tendering, e-RFQs (request for quotations) and e-auctions

b. E-procurement – for transactional processestools includes marketplaces using

techniques such as e-cataloguesc. E-payment

tools include virtual or embedded PC (procurement cards), e-invoicing and self-billing

What is e-Procurement?

e - Procurement

Drivers of e-Procurement

• Internal and external strategic integration

• Globalization and communication

• Data information management

• New business processes

• Replacement of legacy systems

• Strategic cost management

Benefits of e-Procurement

1. Reducing purchasing cycle time

2. Enhancing budgetary control

3. Eliminating administrative errors

4. Increasing buyer’s productivity

5. Lowering prices through product standardization and consolidation of purchasing power

6. Better information management

Benefits of e-Procurement

Current State of e-Procurement

Successful of e-procurement initiatives generally occur in two areas:

1. Procurement of office equipment and supplies using stand-alone desktop requisitioning tools

• focus has been on simple, indirect materials sometimes called MRO goods (maintenance, repair and operations)

• often failed to integrate with the supply chain and do not enable supply to be matched precisely to demand

2. Strategic sourcing using e-requests for quotation and for proposal (often jointly known as e-RFX) as well as online auction tools

• to lower the input cost of goods and services and the procurement process costs

• goods and services can be uniquely defined and categorized

Barriers of Adoption

1. Potential high cost of integrating e-procurement tools with enterprise resource planning (ERP) systems

2. Difficulty of building a solid business case for another e-procurement project

3. Current spend by some of the commodities groups is unknown

Barriers of Adoption

Measuring the Benefits

• Principal metrics that will demonstrate a return of investment in e-procurement are:a. Hard (direct measurable) benefits:

price savingsprocess cost reduction reduction in cycle times (days / weeks)consequent reductions in inventory holdings (value /

stock turnover ratios)

b. Soft (indirectly measurable) benefits:increase individual time freed up through more

efficient processesenabling staff to spend more time on value-added

aspects such as supplier development or contract management

Measuring the Benefits

E-Business Applications

• Integrate suppliers and distributors

• Share information

• Link ERP systems to sales personnel in the field

• Outsource manufacturing and logistics systems

• Facilitate supplier, on-site engineering and

maintenance activities.

E-Business Applications

ERP Systems

Enterprise Systems

Summary

• Implementing e-procurement requires systematic planning coupled with process and behavioral changes

• Organizations must address the current flawed designs of their existing procurement process and only then build these applications around their re-engineered networks.