e­procurement in Project Management AACE International E-Procurement in Project Management Revolution or Evolution

e­procurement in Project Management What is e-procurement Electronic procurement (e-procurement) is the acquisition of goods, materials and services using the Internet to source bidders, transmit criteria, request pricing, and commit and track orders. EDI – Pre-curser to the Internet Electronic Data Interchange, capable of transmitting criteria and requests, obtaining pricing and confirming Purchase Orders electronically.

e­procurement in Project Management Electronic procurement (e-procurement) is the acquisition of goods, materials and services using the Internet to source bidders, transmit criteria, request pricing, and commit and track orders. Electronic Commerce(e-commerce) e-commerce is any commercial activity on the Internet which encompasses on-line shopping, direct sales, marketing, on-line services, and any other commercial activity which is directed towards the Internet public as a whole; including e-procurement. What is e-procurement

e­procurement in Project Management Internet - Integral Part of Business Strategy Growth of e-commerce has been rapid and is expected to double again by The trend within e­ procurement is even greater, with an anticipated increase of more than 3 fold within the same time frame, and is the most active of the B2B applications. Source IDS, Department of Commerce

e­procurement in Project Management The Electronic Marketplace Marketplace Portals Internet Web Sites designed for B2B activity. Horizontal Portal Specific to an industry or market sector – combined resources to improve buying power (Collaboration). Vertical Portal Collection of industries complementing each other through economies of scale and broad-range partnerships. Meta-Market Interconnectivity of different industries linking portals of a common platform such as Ariba or Commerce-One.

e­procurement in Project Management Why is e-procurement Significant On-line access to potential Sellers and their product catalogues. Establishment of a community (a marketplace) enhancing the purchasing power (leverage) of a single enterprise through co­ operative association with other businesses. Reverse Auction capabilities reduce acquisition costs of unbranded commodities. Opportunity to exchange market intelligence and supplier performance evaluations within a larger network. Opportunity to reduce the cost of the procurement transaction when purchasing MRO parts and unbranded commodities.

e­procurement in Project Management Why is e-procurement Significant Traditional Procurement Demand Buyer Source Bidders Issue Bid Request Bidders Bids Evaluate Award Selected Supplier

e­procurement in Project Management Why is e-procurement Significant e-procurement On-line Product Catalogue Demand Customer Pricing Buyer Award Selected Supplier Evaluate Sellers Seller Profile

e­procurement in Project Management Why is e-procurement Significant Reverse Auction Demand Buyer On-Line Reverse Auction Post / Revise Price Bidders Select low bid Award Selected Supplier Bid Period Time Limit Notify

e­procurement in Project Management Marketplace Successes (Perceived) Collaborative portal consisting of GM, Ford, Daimler Chrysler and other partners for the automotive industry. Aerospace net marketplace created for aircraft manufacturers and their suppliers. Net marketplace for the grocery industry launched as a collaborative project by worlds leading food, beverage and consumer product manufacturers. Leaders in the Mining & Metals industry have teamed together to form a common marketplace through which all procurement for the industry will be managed.

e­procurement in Project Management Impact on Project Management Portals are suitable for commodity and MRO buying activity and primarily for operating companies or contractors. EPCM procurement does not necessarily fit the commonly accepted model for e­procurement. Why is e-procurement an issue for Project Management and the EPCM business? Client expectations Client subscribed portals Competition Traditional EPCM system providers Portals for EPCM & AEC sectors

e­procurement in Project Management Impact on Project Management Client expectations EPCM and AEC Industry to be at the leading edge of e­ procurement technology. Maintenance of comprehensive seller databases complete with evaluations and qualification of seller performance. Client subscribed portals General Markets - 30 Mining & Metals -19 Chemicals & Plastics-24 Energy (Oil, Gas & Electricity)- 7 Pulp & Paper- 7

e­procurement in Project Management Impact on Project Management Competition Fluor, Bechtel, Amec, Morris Knudsen and SNC-Lavalin all have an active interest in portals. Traditional EPCM system providers Blueline, Timberline, Primavera, and Constuctionworks all are developing web-enabled applications or have launched portals for the construction industry. Portals for EPCM and AEC sectors Bidcom, buzzsaw, Cephren, PrimeContract, Build­online, AEC Connect.

e­procurement in Project Management Impact on Project Management How will e-procurement impact EPCM procurement? Cost of procurement will increase as a direct result of transaction fees charged (i.e. 0.5% absorbed by the Seller and 1.0% as a fee charged directly to the Buyer). Only those potential sellers who have registered on the particular platform will be included within the e­ procurement database. In addition to the subscription fees the seller incurs a cost for every portal he joins (initial set- up, product catalogue, and maintenance) The e­procurement product catalogue does not properly respond to the EPCM industry requirements for the tendering of engineered equipment designed to unique specifications.

e­procurement in Project Management Impact on Project Management How will e-procurement impact EPCM procurement? Reverse Auction practices are not suitable for the material procurement of goods requiring compliance with established specifications or quality criteria. The Non-integration of data will be an issue. Most EPCM Contractors have project management systems which function independently of the existing e­procurement platforms. Information recorded or created within the project management application program will need to be re-entered into the e-procurement web application, and vice versa. Clients may require us to use the same portal to which they subscribe.

e­procurement in Project Management Developing an e-procurement Strategy The current trend in portals where e­procurement is managed as a chargeable transaction has little or no attraction within the EPCM industry; especially when Sellers are also charged fees to register and maintain a product catalogue. Less promoted but very promising are the Web enabled systems which also support e­procurement. These are sold as application programs and Internet usage is not subject to transaction fees. MyAircraft.com is a portal for the aircraft industry, employing a web enabled ERP application WebPlan. CBC.com (Commonwealth Business Council) operates on a non-profit basis and uses Elcom.coms purchasing system. Ogma Consulting markets a web enabled purchasing system. i2, S.A.P. and PeopleSoft are all aggressively introducing their own products.

e­procurement in Project Management Developing an e-procurement Strategy Traditional Procurement Demand Buyer Source Bidders Issue Bid Request Bidders Bids Evaluate Award Selected Supplier

e­procurement in Project Management Developing an e-procurement Strategy Web enabled procurement application Product Database & Supplier Evaluation Demand Buyer Award Selected Supplier Evaluate Sellers Seller Profile & Catalogue Source Bidders Bidders Bids On-Line Bid Request Notify Order execution Supplier Performance Evaluation

e­procurement in Project Management Developing an e-procurement Strategy Web enabled applications are particularly affected by the common platform problem. Sellers are limited as to how many different platforms they can support and how many resources they can assign to maintaining the information. A collaborative approach to the exchange of information is required. XML appears to be the new protocol, however there is no agreed standard.

e­procurement in Project Management Conclusion While e-procurement may be regarded as a revolution it is in fact an ongoing evolution of procurements exchange of electronic information. What is new is Managements involvement in e­procurement while EDI remained relatively ignored. Many portals regard e-procurement as a potential source of revenue and have focused on the high-volume low-value catalogue purchases which typically have a relatively high procurement transaction cost within an organization. A 1% or 1.5% transaction fee is therefore deemed to be competitive

e­procurement in Project Management Conclusion EPCM procurement activity tends towards low-volume high value purchases which are not suited to the current transaction fee strategy. Some clients have already invested heavily in there own portals and may require EPCM Contractors to use theirs. Sellers incur significant costs to register, digitalize product catalogues and maintain the information in a variety of portals using a wide range of platforms. Eventually sellers will force the industry to standardize or establish a collaborative approach to the exchange of information. Web enabled application systems are becoming more readily available, and these will provide the next stage of progression within the e-procurement process.

e­procurement in Project Management AACE International E-Procurement in Project Management Revolution or Evolution