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While e-Procurement
is a commonly used phrase, I'm wondering what does it mean in real terms for
purchasing professionals. For
example in the simplest form registering for one of our (Association for
Purchasing & Supply) training seminars on-line is an example of
e-Procurement
TYPES OF PROCUREMENT
There are
3 main types of Procurement within commercial organisations
- Indirect,
- Direct,
- Sourcing.
INDIRECT PROCUREMENT
Indirect Procurement can be defined as the purchase
of non-production goods i.e. goods that are not the raw materials of a finished
product the company may produce.
Typically this type of procurement refers to the purchase of items such as:
Indirect procurement can account for (Best
Practices in e-Procurement, The Abridged Report-EMEA)
- ‘30% to 35% of a typical manufacturers expenditure and,
- Businesses spend nearly €7.9 trillion on indirect goods and
services, per annum, worldwide’
As a general rule, spend on Indirect Procurement has
been badly managed, paper-based in process and encouraging of maverick
spending.
DIRECT PROCUREMENT
Direct Procurement can be described as the purchase
of those goods and services, which are part of the raw materials leading to the
production of a finished good.
Examples might be paper for a poster manufacturer, plastic for a credit card
producer. Although not as badly controlled and managed as Indirect
Procurement, the increased management control provided by an automated
procurement system could yield extra gains in the areas of price and quality.
SOURCING
Sourcing involves the identification, evaluation and
negotiation of products and services for both indirect and direct procurement
processes.
WHAT IS E-COMMERCE
e-Commerce
can be defined as commerce (the buying and selling of goods) conducted
electronically (e), on the Internet (An interconnected system of networks that
connects computers around the world via the TCP/IP protocol).
[http://www.pcwebopedia.com/]
WHAT IS
E-PROCUREMENT
'At
the highest level, Internet-based procurement (e-Procurement) creates private,
Web-based procurement markets that automate communications, transactions, and
collaboration between supply chain partners.' (Best
Practices in e-Procurement, The Abridged Report-EMEA)
More simply put, e-Procurement involves the purchasing of goods for an
organisation via the Internet.
The difference between e-Commerce and e-Procurement is that e-Commerce describes
generically selling/buying via the Internet
whereas e-Procurement defines more specifically the purchasing of goods for a
specific organisation e-Procurement requires certain software and hardware in
order to operate.
Some
companies have chosen to create bespoke systems in-house. However most companies
have chosen to buy an e-Procurement Software house’s application and adapt it
for their own needs, due to the increased speed of implementation by not having
to build the system from scratch. Typical
e-Procurement systems allow users to buy items listed in on-line catalogues
pre-provided by the companies suppliers.
These catalogues have been taken from strategically sourced company-approved
suppliers who have been enabled to feed into the particular e-Procurement
software.
Most
e-procurement projects will state this as the preferred route.
However in practice, to broaden use of the system and accelerate some of
the productivity savings, a number of organisations are adopting commodities
that have not been strategically sourced. The
view is that the e-procurement toll will provide them with the spend Management
Information (M.I.) to strategically source the item at a later date.
The
e-Procurement software is a browser based system which includes the company
specific buying rules e.g. Fred Jones is allowed to buy items up to €10,000
but Joe Smith is allowed to buy items up to €100,000.
An approval flow allows more senior approvers to approve expenditure outside
personal limits for those lower down the chain.
'The
whole process is designed to enforce on-contract purchasing, ensuring that the
company takes advantage of the prices it has negotiated and eliminates
inadvertent spending with other vendors' (In a Perfect e-Procurement World)
e-Procurement
should lead to cost savings by allowing organisations to co-ordinate spend and
use this mass-buying to influence supplier contracts and pricing therefore
increasing buying power. It should also decrease the amount of maverick spending
that takes place thereby reducing processing costs in relation to invoices.
Processing costs should also drop in relation to catalogue management, order
placement, order fulfilment and payment. Another effect of introducing an
e-Procurement solution may be that processing staff requirements may be reduced.
'The
average mid-sized company has trimmed $2 million from its procurement costs by
automating purchasing and processing’ and that ‘manual processing of
purchase orders costs the typical company $121, compared with only $33 for an
online purchase’. (E-Procurement Shaves
Costs)
There appears to be a vast array of egar and
willing organisations ready at the drop of a hat to assist in the implementation
of streamlined, confidential and
secure systems.
There are many ways to e-Procure. The references I have given should help in
identifying the different types.
In summary:
SME's can access e-Procurement by accessing directly to a supplier website
(simplest form and not really e-Procurement) to accessing an hosted
e-Procurement site (ref: http://www.noie.gov.au/Projects/ecommerce/SME/)
Large
businesses can generally purchase e-Procurement software directly and either
adapt it for their own needs using in-house staff or employing contractors such
as IBM.
I wonder though do these facility providers
know what the limits and limitations of the technology are, let alone their poor
clients. The only source of
e-procurement implementation information, that is widely available appears to
originate from the service providers who with the most honest of hearts are bias
towards their particular solution(s). Although It must be said that they are
also the leaders in the field. Being a pragmatic individual I am interested
in finding out the nuts and bolts of what is involved, without the 'gloss'.
How long is that piece of string ?
E-PROCUREMENT LIMITATIONS
As one would
suspect the facility providers know what the limitations of the technology are
and know that their clients platforms (especially networks) are, generally, not
completely up-to-scratch - but as commercial organisations, they - let me put
this tactfully - may not be fully communicative regarding some slight drawbacks.
In terms of getting relatively unbiased advice - the following 2 reports may
assist:
·
BEST PRACTICES IN
E-PROCUREMENT, THE ABRIDGED REPORT
[Aberdeen Group,
Boston, Massachusetts. December 2001, Best
Practices in e-Procurement, The Abridged Report [Online], Available: http://216.183.121.142/reports/eprocurement/e-ProcurementAbridged.pdf
[Accessed 12 Jan 2002]]
·
BEST PRACTICES IN
E-PROCUREMENT, THE ABRIDGED REPORT-EMEA
[Aberdeen
Group, Boston, Massachusetts. December 2001, Best
Practices in e-Procurement - EMEA, The Abridged Report [Online]. Available: http://216.183.121.142/reports/emea/e-ProcurementEurope.pdf
[Accessed 12 Jan 2002]]
The
following reference may give you an insight into problems encountered:
- E-Procurement:
Problems Behind The Promise
http://www.informationweek.com/813/eprocure.htm
Last Accessed 22/2/02]
BUSINESS ISSUES REGARDING E-PROCUREMENT
BEST
PRACTICE
Of 11
companies who have implemented e-Procurement, the following is
suggested in terms of Best Practice (Best Practices in e-Procurement, The Abridged Report-EMEA).
PRIOR TO COMMENCEMENT
By viewing
e-Procurement as a business rather than an IT tool one can align the project
aims in the correct direction i.e. a strategic business tool for business
process improvement.
By creating a good business case, after carrying out a thorough investigation of
the existing business processes, and thereafter planning a fast implementation,
the e-Procurement implementation should roll out rapidly thereby ensuring a fast
Return on Investment (ROI).
ONGOING
By improving the accuracy of invoicing, with the aid
of the e-Procurement solution, late payment penalties to suppliers may be
reduced or even eliminated. The only way to ensure that happens is by constant
benchmarking in order to monitor
supplier delivery dates and times, versus required delivery dates and times.
One should also monitor the success of the e-Procurement implementation and
programme by using a pre-determined benchmarking programme.
Purchasing processes should be standardised where possible, throughout the
organisation, to benefit from cost savings.
AFTER INITIAL IMPLEMENTATION
Deep integration into legacy systems should be a high
priority project goal.
It is also important to ensure that e-Procurement is used throughout the
organisation and is accepted as the sole purchasing system.
In order to aid the integration and acceptance, a methodology should be drawn up
which can be used for regional implementations based on initial e-procurement
project experiences and feedback from pilot sites.
GENERAL
By creating a well resourced catalogue maintenance
team the necessary updates to supplier catalogues on the e-procurement system
will take place smoothly. If this team is not well resourced the benefits in
terms of up-to-date prices and service will not filter through to the users and
therefore the cost savings will be reduced.
Organisations should work with the technology vendor i.e. in XXXXX (My
Company)'S case ARIBA, in order to develop functionality, of the e-Procurement
solution, for future releases.
SUCCESS
FACTORS FOR E-PROCUREMENT
The success factors for installation of an
e-Procurement system are as follows (Deloitte
& Touche. E-Procurement):
By
viewing e-Procurement
as a business
strategy one can
aim to ensure
the reasons the
solution is being
implemented are the
correct ones
i.e. business process reasons rather than a desire to be the most technically
advanced amongst ones peers.
Without
knowing what an
organisation currently spends,
and how they
spend it, it is
very difficult to
quantify if the
new procurement solution
has been a
success. Therefore
gathering data
prior to commencement of the e-Procurement implementation is
vital.
Planning
how, where and
why regional implementations
are going to
take place is
vital as at
each stage monitoring
of the success
must take place
and it is only by monitoring each region, post implementation, that one can
learn for the future.
One
must know one's
existing business processes,
and be willing
to change them,
in order to
truly benefit from
the overall organisational
change that should
take place as
a result of
installing the solution.
Senior
management must accept
that e-Procurement
is vital to
the success of
the business and
must champion the
project in order
for those lower
down the chain
to truly accept
that e-procurement
is the future
of the purchasing
process within their
organisation.
Users
must also accept
that e-Procurement
will bring benefits
to them.
It is the
responsibility of the
change managers to
ensure that users
understand the benefits
that they will
receive from the
e-Procurement solution.
Departmental
champions must be
identified as these
champions will manage
the roll-out on
a local level
to the regions.
Without these local
champions an attitude
of ‘it's not
built here’ may
arise and therefore
the solution may
not be as
readily accepted.
Gaining
buy-in from supplier’s
is vital.
It should not
be under-estimated
the length of
time that they
will need in
order to produce
on-line catalogues even
if they have
a commercial website
at first contact.
Their current commercial website is unlikely to be compatible with the chosen
e-Procurement solution
Identification
of the commodities
which will offer
the biggest savings,
in the shortest
period, is also
vital. Without
an attributable saving
early in the
project, both from a
process and price point
of view, users may not accept the savings the solution can provide. This may
lead to staff, exposed to
the implementation plan, not buying into the overall strategy.
As e-Procurement is being rolled out, one has to
confirm that benefits are flowing through. The only way to do this is to measure
things such as
·
User
adoption;
·
Contract
compliance;
·
Process
improvements;
·
Cost
savings;
·
Supplier
performance.
(Best
Practices in e-Procurement, The Abridged Report-EMEA)
OTHER GOOD REFERENCES
- Business
Pioneers, E-Procurement: OK to Be No. 2
http://www.itworld.com/App/462/CWSTO58093/
Last Accessed 22/2/02]
http://www.lq.ca/issues/dec99/articles/article13.html
Last Accessed 22/2/02]
- e-Procurement:
A Pragmatic Look at Supply Chain Automation Via the Internet
http://b2b.ebizq.net/scm/coleman_1.html
Last Accessed 22/2/02]
- e-Procurement
– Evaluating the Opportunities. A BuyIT Checklist
http://www.buyitnet.org/guidance/guidelines/eproc/eproc-checklist/printer.html
Last Accessed 22/2/02]
http://www.purchasing-consultants.co.uk/e-commerce%20&%20technology%20bookshelf.htm
Last Accessed 22/2/02]
http://www.informationweek.com/813/eprocure.htm
Last Accessed 22/2/02]
- In
a Perfect e-Procurement World
http://www.gartner.com/webletter/cardonet/article1/article1.html
Last Accessed 22/2/02]
- IBM’s
e-procurement strategy
http://www-1.ibm.com/procurement/html/eprocurement/eprocurementstrategy.html
Last Accessed 22/2/02]
- Study: E-procurement still in
early stages
http://www.itworld.com/Man/2672/IDG010417eprocurement/
Last Accessed 22/2/02 Last Accessed 22/2/02]
http://www.healthdatamanagement.com/html/StockStory.cfm?DID=6086
Last Accessed 22/2/02 Last Accessed 22/2/02]
- Success
Factors for e-Procurement: Enabling Buyer and Supplier Connectivity
http://www.hurwitz.com/primaryresearch/eprocurementoverview.html
Last Accessed 22/2/02]
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