OHT 7.1 © Marketing Insights Limited 2004 Chapter 7 E-procurement

OHT 7.2 © Marketing Insights Limited 2004 Learning objectives Identify the benefits and risks of e- procurement Analyse procurement methods to evaluate cost savings Assess different options for integration of organisations’ information systems with e-procurement suppliers

OHT 7.3 © Marketing Insights Limited 2004 Issues for managers What benefits and risks are associated with e- procurement? Which method(s) of e-procurement should we adopt? What organisational and technical issues are involved in introducing e-procurement?

OHT 7.4 © Marketing Insights Limited 2004 How important is e-procurement? In Q1 2001, polling similar organizations showed that two thirds of companies had started to implement e-procurement systems. However, complete solutions were rare: only about one in six actually has a live system in place. Of the rest, nearly half (47%) have some form of interim solution or are part way through implementation programmes

OHT 7.5 © Marketing Insights Limited 2004 Key procurement activities within an organization Figure 7.1 Key procurement activities within an organization

OHT 7.6 © Marketing Insights Limited 2004 Requirements for procurement systems Baily et al., 1994 says 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.

OHT 7.7 © Marketing Insights Limited 2004 Electronic procurement system Figure 7.2 Electronic procurement system Source: Tranmit plc

OHT 7.8 © Marketing Insights Limited 2004 Turban et al. (2000) summarize the benefits of e- procurement as follows: Reduced purchasing cycle time and cost Enhanced 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 buys Improving 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).

OHT 7.9 © Marketing Insights Limited 2004 Use of different information systems for different aspects of the fulfilment cycle Figure 7.3 Use of different information systems for different aspects of the fulfilment cycle

OHT 7.10 © Marketing Insights Limited notification of requisition approval Figure 7.4 notification of requisition approval Source: Tranmit plc

OHT 7.11 © Marketing Insights Limited 2004 Document management software for reconciling supplier invoice with purchase order data Figure 7.5 Document management software for reconciling supplier invoice with purchase order data Source: Tranmit plc

OHT 7.12 © Marketing Insights Limited 2004 The three main e-procurement model alternatives for buyers Figure 7.6 The three main e-procurement model alternatives for buyers

OHT 7.13 © Marketing Insights Limited 2004 Integration between e-procurement systems and catalogue data Figure 7.7 Integration between e-procurement systems and catalogue data

OHT 7.14 © Marketing Insights Limited 2004 An online catalogue of items for purchase Figure 7.8 An online catalogue of items for purchase Source: Tranmit plc

OHT 7.15 © Marketing Insights Limited 2004 Implementation risks Authentication – fraud Maverick purchasing Lock-in to suppliers Cost-savings not realized Cost and difficulty of implementing systems

OHT 7.16 © Marketing Insights Limited 2004 B2B Marketplaces International benchmarking study: –UK, 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.

OHT 7.17 © Marketing Insights Limited 2004 Types of B2B marketplace What businesses buy? How businesses buy? Operating resourcesManufacturing resources Systematic sourcingMRO Hubs Catalogue Hubs Spot sourcingYield Managers Exchanges

OHT 7.18 © Marketing Insights Limited 2004 Covisint example - DaimlerChrysler AG 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 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.

OHT 7.19 © Marketing Insights Limited 2004 Criteria in selecting marketplaces 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 Funding source Ease of using exchange through all stages of buying process from order to receipt Technical changes needed to integrate with system – are industry standards being established through XML?