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Chapter 7E-procurement

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e-procurement: The electronic acquisition of goods and services for organizations

The electronic integration and management of all procurement activities including purchase request, authorization, ordering, delivery and payment between a purchaser and a supplier

Key procurement activities within an organization

3Figure 7.1  Key procurement activities within an organization

Requirements for procurement systems

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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.

Electronic procurement system

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Figure 7.2 Electronic procurement system

Source: Tranmit plc

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Types of procurement

Production-related procurementNon-production related procurement

How items are bought:Systematic sourcing(negotiated contracts

with qualified suppliers)Spot sourcing(fulfilment of an immediate

need at the lowest possible price)

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How important is procurement?We estimate that for every dollar a company earns in revenue, 50 cents to 55 cents is spent on indirect goods and services – things like office supplies and computer equipment.That half dollar represents an opportunity: By driving costs out of the purchasing process, companies can increase profits without having to sell more goods. Hildebrand (2002)

The benefits of e-procurement as follows:

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Reduced purchasing cycle time and costEnhanced 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 buyer’s workload)Increasing buyers’ productivity (enabling them to

concentrate on strategic purchasing issues)Lowering prices through product standardization and

consolidation of buysImproving 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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Risks and impact of e-procurement

Organizational risksNeed to redeploy staff

Technology risksIntegration with existing financial systems

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Implementing e-procurement

Stock control systemCD/web-based catalogueE-mail/workflow systemOrder-entry on web siteAccounting systemsERP systems

Use of different information systems for different aspects of the fulfilment cycle

11Figure 7.3  Use of different information systems for different aspects of the fulfilment cycle

E-mail notification of requisition approval

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Figure 7.4  E-mail notification of requisition approval

Source: Tranmit plc

The three main e-procurement model alternatives for buyers

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Figure 7.6  The three main e-procurement model alternatives for buyers

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Table 7.7 Types of B2B marketplaces identified by Kaplan and Sawhney (2000)with examplesSource: Adapted and reprinted by permission of Harvard Business Review from table on p. 99 from ‘E-hubs: the new B2B marketplaces,’ by Kaplan, S. and Sawhney, M., in Harvard Business Review, May–June 2000. Copyright © 2000 by the Harvard Business School Publishing Corporation, all rights reserved

Types of marketplace

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Sell-side e-marketplace: A Web-based marketplace in which one company sells to many business buyers from e-catalogs or auctions, frequently over an extranet

Buy-side e-marketplace: A corporate-based acquisition site that uses reverse auctions, negotiations, group purchasing, or any other e-procurement method

Implementation risks

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Authentication – fraudMaverick purchasingWith traditional procurement processes, paper requisitions are so time-

consuming to complete. They find other ways to purchase something, whether it is by placing an order directly with a supplier or by using a credit card or petty cash. This is known as ‘maverick purchasing’ or ‘rogue spending’, though to many end users who are simply trying to buy something to get a job done, it is not ‘maverick’ but in the best interests of the organisation. When they do use the traditional system, they sometimes have to make several phone calls to different authorisers or to the buyer to speed up the transaction

Lock-in to suppliers:Cost-savings not realizedCost and difficulty of implementing systems

B2B Marketplaces

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International benchmarking study:معاييرUK, 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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Covisint example - DaimlerChrysler AG - 2001512 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.

Criteria in selecting marketplaces

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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 التجارية االتحادات من مدعومFunding sourceEase of using exchange through all stages of buying

process from order to receiptTechnical changes needed to integrate with system –

are industry standards being established through XML?