e PROCUREMENT BPT 3133 PROCUREMENT IN INDUSTRIAL MANAGEMENT
e. PROCUREMENT BPT 3133 – 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”
What is e-Procurement? • Key processes in most e-procurement models: a. E-sourcing – for contractual processes ütools include e-tendering, e-RFQs (request for quotations) and e-auctions b. E-procurement – for transactional processes ütools includes marketplaces using techniques such as ecatalogues c. E-payment ütools include virtual or embedded PC (procurement cards), e-invoicing and self-billing
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 eprocurement 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 eprocurement are: a. Hard (direct measurable) benefits: ü price savings ü process cost reduction ü reduction in cycle times (days / weeks) ü consequent reductions in inventory holdings (value / stock turnover ratios) b. Soft (indirectly measurable) benefits: ü increase individual time freed up through more efficient processes ü enabling 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 Enterprise Systems ERP 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.
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