The Procurement Conundrum

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The Procurement Conundrum
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Electronic Procurement
by Chandrashekar T S Electronic Enterprises
Laboratory Department of Computer Science and
Automation Indian Institute of Science, Bangalore
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Topics of Discussion

• Part 1 Procurement Fundamentals
• Business and Technology Drivers
• Scope of Procurement
• Procurement Processes
• Part 2 Procurement Mechanisms
• Overview
• Pointers to more resources
• Part 3 Procurement Automation
• Introduction and challenges
• Conclusion

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Procurement Fundamentals
Business Technology Drivers

• Businesses spend over 20 trillion on external
  goods and services annually.
• Continuous competitive cost pressures in a weak
  global economy.
• INTERNET - Cheap communications medium.
• Maturity of complementary technologies Software
  agents, data interchange standards, decision
  technologies.

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Procurement Fundamentals
The Procurement Landscape
Services (z)
x y z gt 60 of cost of car !! A huge
opportunity
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Procurement Fundamentals
Procurement Process A Birds Eye View
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Procurement Fundamentals
Procurement Process A Detailed View
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Part 2 Procurement Mechanisms
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Procurement Mechanisms
What is an economic mechanism ?
An economic mechanism is concerned with the
design of rules of interaction for economic
transactions which will in principle yield some
desired outcome. e.g. Auctions.
An analogy with a physical mechanism
Output Rule Shaft speed determined by gear
ratio. Winner determination rule payment rules
Interaction Rule Gear ratio contact angle,
etc. Attributes to be considered, scoring rules,
and information revelation rules.
Input Rule Only rotary motion no lateral
motion. Bidding rules
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Auction Mechanisms A Preview

• Four basic mechanisms to choose from
• English First price, ascending auction.
• Dutch First price, descending auction.
• Sealed Bid First price, single round auction.
• Vickrey Second price, ascending auction.
• Complications arise because of
• Logistical and capacity concerns.
• Cost curves (volume discounts, overtime costs,
  etc.).
• Exposure, aggregation, and exclusion constraints.
• Multiple attributes.

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Procurement Mechanisms
Issues to consider
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Design criteria for automated auctions

• Economic criteria
• Efficient mechanisms v/s optimal mechanisms
• Incentive compatibility
• Budget balance
• Solution equilibrium
• Computational criteria
• At the agents level
• Strategic complexity
• Valuation complexity
• At the mechanism level
• Winner determination complexity
• Communication complexity

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Automated Procurement Mechanisms
Elements of an effective procurement platform

• Negotiation
• Collaboration
• Project Management
• Knowledge Management
• Document Management
• Analytics

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Automated Procurement Mechanisms
To probe further
http//lcm.csa.iisc.ernet.in http//www.market-des
ign.com http//task.stanford.eduhttp//www.cs.huj
i.ac.il/moshebhttp//www.cs.huji.ac.il/noamhtt
p//www.cs.huji.ac.il/lehmannhttp//www.cs.brown
.edu/people/amygreenhttp//www.sims.berkeley.edu/
resourceshttp//www.robotics.stanford.edu/resourc
eshttp//kasbah.media.mit.eduhttp//auction.eecs
.umich.eduhttp//ecommerce.media.mit.eduhttp//w
ww.media.mit.edu/http//www.ibm.com/iac
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Part 3 Procurement Automation
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Procurement Automation A Historical Perspective
Electronic Data Interchange First Steps to
Automation
Trading Partners
Interchange Standards
Value Added Networks
Translation Software
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Procurement Automation A Historical Perspective
Electronic Data Interchange Why Standards ?
Key Point Number of Protocols increase
exponentially with the number of Trading Partners.
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Procurement Automation A Historical Perspective
Electronic Data Interchange Why Standards ?
Standards simplify the whole process of
interchanging business data
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Procurement Automation A Historical Perspective
Electronic Data Interchange How many Standards ?
Electronic Data Interchange for Administration
Commerce and Trade
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Procurement Automation A Historical Perspective
Electronic Data Interchange What is a Standard ?
The Agreed Representation of Information (what
items and how they are individually structured
and put together) to be sent from one computer to
another.
Words
Data Elements
Segments
Sentences
Messages
Documents
Syntax
Grammar
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Procurement Automation A Historical Perspective
Electronic Data Interchange The Message
Structure?
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Procurement Automation
Electronic Data Interchange Consequences

• Industry wide standards
• Formalized process flows
• Open standards
• Secure and legal interchanges
• Available tools and service providers
• Proven business benefits

• Version control
• Implementation Mechanics
• Maintaining and Updating the Standards
• Cost of Implementation, steep on-ramp
• Change Management difficult because of
  distributed maps and translation software

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Procurement Automation
Alternatives to EDI INTERNET based Technologies

• No software installation required at the
  supplier
• only the Internet browser
• Easy and quick connection possible
• Hub determines the information contents
• Pre-entry of fixed data possible
• No Data transmission charges - Only Internet
  access costs
• No translator costs
• Centralisation of Administration effort
• Management of changes is easier.

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Procurement Automation
INTERNET based Technologies Limitations
Web - EDI Ecosystem as it Develops
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Procurement Automation
INTERNET based Technologies Limitations
Web - EDI Ecosystem as it Develops
A Complex Maze of Interchanges leading to Complex
Business Process Conventions
Daimler Benz
Also No Application Integration is Possible
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Procurement Automation
INTERNET based Technologies
Is There a Solution ?
Yes
XML (eXtensible Markup Language)
Over to VKV .
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Conclusion
To probe further
http//www.edifact.org http//www.uncefact.org htt
p//www.monkeyweb.com http//www.xml-edi.orghttp
//www.ediint.orghttp//www.vcm.tatamotors.co.in
Thank You !
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