1. Chapter 7
E-procurement

2. Learning outcomes Identify the benefits and risks of e-procurement
Analyse procurement methods to evaluate cost savings
Assess different options for integration of organizations’ information systems with e-procurement suppliers.

3. Management issues
What benefits and risks are associated with e-procurement?
Which method(s) of e-procurement should we adopt?
What organizational and technical issues are involved in introducing e-procurement?

4. How important is procurement?
We estimate that for every dollar a company earns in revenue, 50 cents to 55 cents is spent on indirect goods and services—things like office supplies and computer equipment.
That half dollar represents an opportunity: By driving costs out of the purchasing process, companies can increase profits without having to sell more goods. Hildebrand (2002)

5. Procurement and E-procurement
Procurement refers to all activities of obtaining items from a supplier, include purchasing as well as inbound logistics, warehousing, etc.
E-Procurement—the E integration and management of all procurement activities including purchase request, authorization, ordering, delivery, and payment

6. The 5 rights of e-procurement
at the right price
delivered at the right time
are of the right quality
of the right quantity
from the right source.
Baily et al., 1994

7. Figure 7.1 Key procurement activities within an organization

8. Figure 7.2 Electronic procurement system Source: Tranmit plc

9. Mini Case 7.1 Schlumberger
Read the mini case study on p. 383 and answer these questions
What special about the procurement process at Schlumberger?
What purchasing software do they use?
What advantages does this software provide than the traditional EDI?

10. Activity Read the Activity 7.1 on p. 385
Answer the questions at the end

11. Types of Procurement What is bought? How are items bought?
Production-related
Non-production related
How are items bought?
Systematic sourcing—long term relationships
Spot sourcing—fulfillment of immediate need

12. Online Procurement 8 types of intermediaries Tradition manufacturers
Direct sales manufactures
Value added procurement partners
Online hubs
Knowledge expert
Online information services
Online retailers
Portal communities

13. Figure 7.3 E-business e-value grid Source: Riggins and Mitra (2007)

14. Drivers of e- Procurement
Case Study 7.1
Read the case on pp and answer the questions on p. 389
Ref. p. 390 for a summary of benefits and berriers

15. Estimate e- Procurement Cost
Savings = requisition No *(Cost1-Cost2)
Impact of cost saving on profitability
Ref. table 7.3 on p. 391 for procurement cost in different industries

16. Activity
Using Excel to complete the Activity 7.2 on pp

17. Risks and Impact of e-Procurement
What are the main reasons for low adoption of e-Procurement?
According to Potter(2000), Security and faith in trading partners.
What are the main organizational risks?
Displace employees and Maverick purchase.
Activity 7.3
Complete the Activity exercise on p. 393

18. Risks and Impact of e-Procurement
Failure to Achieve real cost reductions
Technology risks
New technologies and models are emerging on an on-going basis. Hard to decide which one to use.

19. Implementing e-Procurement
Companies should consider improving business processes rather simply automate the existing process
The biggest challenges are
Training / Change management
Supplier relationship management
IS manager and procurement team must work together
Different types of IS can be used for different parts of procurement cycle

20. Figure 7.4 Use of different information systems for different aspects of the fulfilment cycle

21. Figure 7.5 E-mail notification of requisition approval Source: Tranmit plc

22. Figure 7.6 Document management software for reconciling supplier invoice with purchase order data Source: Tranmit plc

23. Implementing e-Procurement
Integrating with Supplier Systems
There are typically 3 alternatives to look at: 1:M, M:1, and M:M. Ref. Fig. 7.7on p.398
The pros and cons are summarized in Table 7.6 on p. 399

24. Figure 7.7 The three main e-procurement model alternatives for buyers

25. Figure 7.8 Integration between e-procurement systems and catalogue data

26. Figure 7.9 An online catalogue of items for purchase Source: Tranmit plc

27. B2B Marketplace Mini Case Study Case Study
Visit Alibaba.com to see what opportunities it opens to SMEs
Case Study
Read the case study Covisint on pp
Discuss the question on p. 404

28. Figure 7.10 Jack Ma, CEO Alibaba.com Source: FT.com

29. Figure 7.11 Ford supplier portal provided by Covisint Source: Covisint.com

30. Figure 7.12 Supplier route to government portal (www.supply2.gov.uk)

31. Types of Marketplace Vertical marketplace—serves the same industry
Horizontal marketplace—serves multiple industries
Reverse aggregation—combines the purchase power
Forward aggregation—combines multiple suppliers or supply chain functions
Other categories—ref. p. 406, table 7.7
Metamediaries

32. The Future of e-Procurement
Software agent—software that can assist human by automatically gathering information from internet based on user input

33. NEXT CLASS
Read the Econsultancy Interview on pp of Chapter 8 and visit the Guess.com to answer the following questions:
Do you see the branding or the store when you first visit the Guess.com?
How do they choose online partners?