Electronic Purchasing e-Procurement Electronic Purchasing

What is e-procurement? A system utilizing Internet technology to streamline the purchases of goods and products to reduce costs

Procurement process and Electronic Commerce For the begining I would like to explain some important definitions for the further presentation: Purchasing process is a narrow process within the procurement process and refers to the actual buying of materials and those activities associated with the buying process (Kalakota, Robinson 1999, 233-235). Procurement has a broader meaning and includes purchasing, transportation, warehousing, and inbound receiving. Procurement is a closed loop process that begins with the requisition and ends with payment (Shaw and others 2000, 392; Kalakota, Robinson 1999, 233-235). E-Procurement systems usually consist of two parts: a workflow system that supports internal processes in a client company so that employees entitled to make orders can do so through their computer; and an Extranet that connects this workflow system with one or more suppliers (Dai and Kauffman 2001; European Commission 2000, 151-152). In this case, Internet technologies are utilized to move ordering process closer to the end user, alleviating structured workloads in functional departments, such as purchasing and accounts payable, freeing them to handle more complex, strategic tasks (Archer, Gebauer 2001, 7-8; Lefebvre and others 2001; Ody 2001, x-xi). The Supply Chain includes business partners (suppliers, manufacturers, distributors, retail outlets, and customers) that use transactions to purchase, convert/manufacture, assemble or distribute goods and services to the consumer or end user. Electronic Commerce (e-Commerce) is any transaction conducted over computer-mediated network channels that transfers ownership of, or rights to use products or services. A transaction is an event occurring within selected e-Business processes (e.g., the procurement process). An e-Commerce transaction is »completed« when an agreement is reached between a buyer and a supplier online to transfer the ownership or the right to use of products or services (Mesenbourg 2001, 1-21). 3

Differences between manual and electronic purchasing

Process Flows

Why switch to e-Procurement? Manual procurement is expensive Small purchases can cost as much as large purchases to process Manger’s time is required for trivial purchases Purchases made manually may miss out on quantity discounts Orders can be lost or delivered late

Channel Fragmentation

Evaluation of e-Procurement models

Three types of e-Procurement solutions

EDI Networks Handful of trading partners and customers Simple transactional capability Batch Processing Expensive

Business to employee Requisitioning Applications Makes buying easier and faster for employees Automated approval systems Provides supplier management tools for professional buyer Without Order Employees Products Managers

Corporate Procurement Portals Provides better control over procurement process Custom negotiated prices in multi-supplier catalog Provides spending analysis tools

Corporate Procurement Portals

1st Generation Trading Exchanges Information and content hubs – no transaction capabilities Contains Industry postings, job postings and news Product and catalog information services Sales channels for distributers

2nd Generation Trading Exchanges Automated requisition and purchase order processing Supplier, price and product discovery services Catalog and credit management

3rd Generation Trading Exchanges Partners can synchronize operations enabling real – time fulfillment All players in the supply chain can get access to procurement activities Inventory is reduced – information is increased

Industry led consortiums Buyer consortiums – these are companies that get together to make high volume purchases that reduce prices Supplier consortiums – companies that get together to sell similar products, keeping prices high Future consortiums will have a global focus

Software Evaluation Checklist

Software evaluation checklist –Requisition Management Is the selection and purchase of goods automated from the desktop? Can requisitions be created without data entry? Can users pick from non-catalogued items?

Software evaluation checklist –Catalog Management Is there multi-supplier search capability? Is there access to supplier maintained web-based catalogues? Can the number of preferred suppliers be controlled?

Software evaluation checklist -Orders Management Are requisitions automatically converted into purchases? Is there an activity log for all activities associated with an order? Is the approval process easy to navigate?

Software evaluation checklist – Supplier Management Is there good two-way information flow between the employee and the supplier? Is there real-time capability to check product availability? Are all documents associated with requisitions sent electronically? E.g. Pos Invoices Shipping notices

Software evaluation checklist – Back office integration Does the system easily interface with other applications? Does the system provide easy administrative tools for management?

Software evaluation checklist –Overall sophistication Are there advanced reporting functions – including analyses of organizational purchasing functions? Are procurement activities visible along the entire supply chain?

Journal Question 6 Choose a business operating in Qatar or one that you are familiar with. Describe the purchasing practices of this business. Make three suggestions that the company could adopt to improve these practices.