BPT3133 – PROCUREMENT IN INDUSTRIAL MANAGEMENT e - PROCUREMENT BPT3133 – PROCUREMENT IN INDUSTRIAL MANAGEMENT

Chapter Outline What is e-procurement? Drivers of e-procurement The benefits of e-procurement The current state of e-procurement initiatives The barriers of adoption Measuring the benefits of e-procurement E-Business applications

Learning Objective Understand the concept of e-procurement Identify the benefits and potential barriers to the successful adoption of e-procurement Explain the applications of e-procurement

What is e-Procurement? “the term used to describe the use of electronic methods in every stage of the buying process from identification of requirement through to payment and potentially to contract management” OR “using the internet to operate the transactional aspects of requisitioning, authorizing, ordering, receipting and payment processes for the required services or products”

What is e-Procurement? Key processes in most e-procurement models: E-sourcing – for contractual processes tools include e-tendering, e-RFQs (request for quotations) and e-auctions E-procurement – for transactional processes tools includes marketplaces using techniques such as e-catalogues E-payment tools include virtual or embedded PC (procurement cards), e-invoicing and self-billing

e - Procurement

Drivers of e-Procurement Internal and external strategic integration Globalization and communication Data information management New business processes Replacement of legacy systems Strategic cost management

Benefits of e-Procurement Reducing purchasing cycle time Enhancing budgetary control Eliminating administrative errors Increasing buyer’s productivity Lowering prices through product standardization and consolidation of purchasing power Better information management

Benefits of e-Procurement

Current State of e-Procurement Successful of e-procurement initiatives generally occur in two areas: Procurement of office equipment and supplies using stand-alone desktop requisitioning tools focus has been on simple, indirect materials sometimes called MRO goods (maintenance, repair and operations) often failed to integrate with the supply chain and do not enable supply to be matched precisely to demand Strategic sourcing using e-requests for quotation and for proposal (often jointly known as e-RFX) as well as online auction tools to lower the input cost of goods and services and the procurement process costs goods and services can be uniquely defined and categorized

Barriers of Adoption Potential high cost of integrating e-procurement tools with enterprise resource planning (ERP) systems Difficulty of building a solid business case for another e-procurement project Current spend by some of the commodities groups is unknown

Barriers of Adoption

Measuring the Benefits Principal metrics that will demonstrate a return of investment in e-procurement are: Hard (direct measurable) benefits: price savings process cost reduction reduction in cycle times (days / weeks) consequent reductions in inventory holdings (value / stock turnover ratios) Soft (indirectly measurable) benefits: increase individual time freed up through more efficient processes enabling staff to spend more time on value-added aspects such as supplier development or contract management

Measuring the Benefits

E-Business Applications Integrate suppliers and distributors Share information Link ERP systems to sales personnel in the field Outsource manufacturing and logistics systems Facilitate supplier, on-site engineering and maintenance activities.

E-Business Applications Enterprise Systems ERP Systems

Summary Implementing e-procurement requires systematic planning coupled with process and behavioral changes Organizations must address the current flawed designs of their existing procurement process and only then build these applications around their re-engineered networks.