Chapter 4 Information Systems and Technology

4 - 3 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Adoption Rate of Internet-Based Procurement To identify new suppliers:80.7% Purchasing indirect materials:70.9% As part of RFP48.8% On-line collaboration with suppliers:42.8%

4 - 4 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Examples of the Potential Contribution of a Computerized Purchasing System Source: Adapted from Lisa Ellram and Laura Birou, Purchasing for Bottom-Line Impact: Improving the Organization through Strategic Procurement (Burr Ridge, IL: Irwin Professional Publishing, 1995), p. 135.

4 - 5 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Simplified Flowchart of an Automated Purchasing System

4 - 6 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. EDI Benefits EDI Benefits EFT paperless purchasing professionalism increased productivity inventory and lead time reduction building enhanced communication with suppliers internal systems impact increased data accuracy support for bar coding fosters JIT relationship

4 - 7 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. EDI Versus XML EDIXML Optimized for:Compressed messagesEasy display and programming Requires:Dedicated EDI serverWeb server Server costs:$10,000-$100,000$5,000 Uses:Value-added networkExisting Internet connection Message format:Months to masterLearned in hours Requires:C++ programmersJavaScript, Visual Basic, Python or Perl script writers Readable by:MachineHuman and machine Source: Gartner Group, found in Anne Chen, “Getting to XML,” eWeek, August 6, 2000

4 - 8 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Problems Related to Implementing e-Procurement The requirement for explicit approval prior to making an on- line purchase -e.g., manual sign-off Reliance and comfort with fax and lead to clumsy links between buyers and suppliers Transaction-by-transaction review prior to payment rather than paying on proof of shipment Haphazard review of buying and supplying behavior that leaves people unsure of the degree of success of e-procurement

4 - 9 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. E-Procurement Applications The buying organization can purchase and install on its servers a package from a solutions provider The buying organization can use a third-party to host the e- procurement application for the organization An e-marketplace serving multiple buyers and multiple sellers can purchase and operate the e-procurement application “Content Vendors” may supplement the e-procurement package by creating catalogs or providing access to existing ones

McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Steps for Setting up an e-Procurement System for Indirect Materials 1.Selecting a solutions-provider and determining the type of relationship 2.The buyer(s) determines how many suppliers and which suppliers to keep in its supply base for indirect purchases 3.The buyer(s) negotiates terms and conditions with the chosen suppliers, including deeply discounted prices in return for volume 4.Digitized versions of the suppliers’ catalogs are loaded alongside the e-procurement application

McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Steps for Setting up an e-Procurement System for Indirect Materials 5.Employees use computer browsers to search the catalogs of designated suppliers, selected items for purchase, and create requisitions and a P.O. is generated 6.The P.O. is streamed directly into the supplier’s inventory application and the order is processes, and the goods shipped 7.Invoicing and/or payment is made; sometimes through and electronic bill presentment and payment process

McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. When to Use Online Auctions The good or service has the characteristics of a commodity -e.g., there is a clear and unambiguous specification There are multiple suppliers available and willing to compete for business The organization has access to the technology necessary to run the auction

McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Three Types of e-Auctions Open offer negotiations -Suppliers select items for bidding and enter as many offers as they want until closing -Names not disclosed to other bidders Private offer negotiations -Suppliers review offers from the buying organization that includes target price and quantity -Suppliers select item(s) and offer prices -Status levels: accepted; closed; BAFO; open Posted price -Buyer posts price and first supplier that meets price is accepted

McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. e-Commerce Implications for Purchasing Should we be a leader or a follower? What should be acquired through e-commerce? What tools should we use to acquire those items? Who should we use as service providers?