Chapter 7 Eprocurement

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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 buyers
  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
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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?