e-Procurement

The ability to purchase all your organisation's needs from a one-stop-shop offers logical time and money savings benefits - when that location is a web site and orders can be lodged and processed electronically the business case can become compelling.

An increasingly proven method of achieving this is electronic procurement (e-procurement) which uses electronic catalogues and secure access to inventory databases to automate buying and selling.

Benchmark Research reports that 63% of high-performing companies (in the US, the UK and Germany) have saved between 10% and 50% with e-procurement solutions up to the beginning of 2002.

Typically, an e-procurement web site allows qualified and registered users to look for buyers or sellers of goods and services who may specify prices or invite bids. Volume purchases may qualify customers for discounts or special offers.

Such sites are designed to streamline a company's purchasing processes by placing and approving orders and arranging delivery thereby eliminating many paper-based procedures and labour-intensive processes.

Using e-procurement allows much tighter control over spending and authorisation, easier transaction processing and helps avoid stockpiling of product because you always know what's available. It also allows companies to place orders for themselves or on behalf of customers at weekends or after hours confident products are available and orders will be processed the next working day.

Remote access via the web to accurate inventory information can improve customer relationships, reduce purchasing overheads, streamline inventory management and improve manufacturing cycles.

How e-procurement Works

  • e-Procurement platforms are set up by either one large buying enterprise, or group of purchasers seeking to capitalize on bulk purchasing power. Alternatively one or more supplying companies or an independent third party may set up an e-procurement site.
  • Suppliers either load their catalogues, complete with photos, specifications, price-points and bulk purchase discounts into the system, or integrate the system with their own electronic catalogue. 
  • The purchasing company's staff are given pre-determined access rights to the system to purchase anything from pencils to airline tickets, depending on the supplier and terms negotiated.
  • The system creates electronic requisitions for approval then routes the order through to the supplier ensuring payment and distribution are arranged accordingly all via the Web.
  • Suppliers look to integrate their supply chains with the e-procurement platform and invite approved purchasers to participate.
  • Delivery of the products can also be tracked on most e-Procurement systems.


Benefits

  • Companies can save up to 20% on purchasing costs through an on-line e-procurement system by tracking purchases, consolidating suppliers and negotiating better discounts. The OECD estimates larger companies with a turnover above $NZ500 million spend $US75 to $US150 on processing any given purchase. Whilst New Zealand has mainly smaller companies, it is clear that significant cost savings can be achieved by the majority of small, medium and large organisations.
  • Manage all approved suppliers on-line.
  • Browse, select and process orders quickly.
  • Purchasing orders and reports can be produced in a choice of formats including XML, EDI, HTML, fax and email. Most systems will also integrate with ERP systems eliminating time-consuming error-prone double handling.
  • Purchasing managers have more time to source, analyse and negotiate better deals.
  • Better forecasting and accounting efficiencies, depending on the availability of specific software

Who should consider e-procurement?

Medium to large sized organisations and government departments regularly purchase the same products from a limited number of companies are ideal candidates for e-procurement.

Many businesses turn to e-procurement systems to control, simplify, and automate the purchase of goods and services from multiple suppliers. The key is to find the right products from the most right supplier at the right time and the best price as well as ensuring the responsiveness and service levels are appropriate for your business purchasing needs.

Often one company might find itself a niche with a proven set of customers and encourage others in a similar field to join them on-line as the business case is proven. Concurrently they may find their client base grows with more customers keen to capitalize on the benefits as savings and efficiencies become obvious.

As the e-procurement model matures it is embracing more than simply office supplies and goods that might re required for maintenance and repair purposes. A much wider range of goods and services including raw materials, parts and components for manufacturing are included.

There are several approaches to e-procurement taken by different vendors to manage supplier relationships. There are catalogue and transaction-based e-procurement products and those that support supplier-relationship management strategies which require strategic partnerships and integration with third-party products.

Some approach the service from an asset management angle geared for maintenance and repair operations. This established schedules and tracked in-house availability of product and assets and over time evolved e-procurement capabilities. Other supply chain vendors provide sophisticated systems for optimising production such as manufacturing and assembly.

But real e-procurement - where it becomes a key part of the supply chain - requires a lot more commitment from partners involved in managing more complex B2B relationships often requiring additional technology and capabilities.

This requires integration between the purchasing process and information residing in inventory systems, logistics systems, and other supplier back-end systems and often requires a great deal of customising..

Best of breed e-procurement systems should have the ability to locate suppliers, evaluate their offerings, and make comparisons. They also need to ensure that the proper contractual terms are applied to each order.

e-Procurement: key considerations

This checklist has been kindly provided by e-procurement specialists PSB Group, as a guide to organisations considering electronic procurement.

Existing procurement strategy

  • Do you have a good handle on your company's  procurement spend already?
  • Has your company already established procurement policies and streamlined the supply base?
  • Does your company have a strategy for how e-Procurement fits into the overall procurement strategy and do decision-makers understand where the major benefits/savings are for your organisation?

The Vendor

  • Financial standing of the vendor - the ability to be around for the long-term.
  • What is the vendor's core business? Is e-Procurement merely a bolt-on as part of its additional products and services.
  • Quality of vendor staff - do the vendor staff know what they're talking about and are they good to work with.
  • Will they provide ongoing training and support?
  • Where are the vendor staff located?Does the vendor have references?
  • Who are their key reference sites?
  • Can the vendor host the solution?
  • Does the vendor embrace widely used technology standards e.g. XML for document exchange and UNSPSC for catalogue content.

The Technology

  • Who is the software developer? Is it the vendor, or a third party?
  • Who supports the software? Is it supported locally?
  • How good is the technology team?
  • How dependent is the vendor on the software developer?
  • What functionality is included:
    i. Electronic purchase orders
    ii. Automated purchasing work-flow
    iii. Spending limits.
    iv. Reporting - what kind?
    v. 'Round-tripping' (going out to a particular suppliers transactable website)
    vi. Invoice matching
    vii. Smartforms
    viii. Special requests
    ix. Online auctions etc
  • What portion of the software's functionality will your organisation actually use?
  • Will the technology meet medium and long-term e-Procurement objectives e.g. is it scalable?
  • Is the technology easy to use?
  • What is the interface like?
  • How easy is it to integrate the vendor's technology into your back-end systems?
  • Can the technology/software work with other procurement initiatives such as corporate purchasing cards
  • What technology are your organisation's key trading partners using?

The Suppliers

  • What technology are your key relevant suppliers using?
  • If the technology is different from your technology, is it easy for suppliers to access it? Will it be expensive for them? How long will it take?
  • Are your key relevant suppliers ready for e-Commerce? Or, can they be?
  • Can the technology chosen interface with leading supplier hubs e.g. the SupplyNet e-marketplace.
  • Who will manage the catalogue content? Will it be cheap to do so?

The Total Cost of Ownership of the solution

  • Can the solution be hosted?
  • What is the upfront cost?
    i. Software?
    ii. Consulting?
    iii. Change management costs?
    iv. Integration costs?
  • What is the ongoing cost?
    i. License fees?
    ii. Maintenance and support?
    iii. Transaction fees?
  • What costs will suppliers have to incur?
  • Does the vendor have multiple pricing plans?
  • Are these costs transparent?

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