Hello, maziani-ga!
I have provided a basic overview of the definition and some of the
advantages and disadvantages of e-procurement. Since the topic is
quite broad, I have kept my answer as simple and basic as possible.
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WHAT IS E-PROCUREMENT?
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e-Procurement is an online network of supply and service providers
used by the Business to Business ecommerce sector.
Some definitions and overviews of e-procurement can be found below:
From Bouivant, Sixth Heritage International Text
http://www.washington.edu/admin/purchstores/stores/eprocurement/def1.html
"E-Procurement is the business-to-business (B2B) purchase and sale of
supplies and services over the Internet. eProcurement software makes
it possible to automate some buying and selling. Companies
implementing eProcurement systems expect to be able to control
inventory more effectively and reduce purchasing agent overhead."
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From WhatIs?.com
http://whatis.techtarget.com/definition/0,289893,sid9_gci214418,00.html
"E-procurement is the business-to-business purchase and sale of
supplies and services over the Internet. An important part of many B2B
sites, e-procurement is also sometimes referred to by other terms,
such as supplier exchange. Typically, e-procurement Web sites allow
qualified and registered users to look for buyers or sellers of goods
and services. Depending on the approach, buyers or sellers may specify
prices or invite bids. Transactions can be initiated and completed.
Ongoing purchases may qualify customers for volume discounts or
special offers."
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"Some would say electronic procurement or "e-Procurement" is plain old
purchasing with a high-tech twist. It offers a lot more advantages and
opportunities, though, for both buyers and suppliers. Basically,
eProcurement involves automated purchasing systems using software
applications that are "Web" or Internet-based. For example, a common
Web browser user can log into an eProcurement system to view vendor
offerings and catalogues, and place orders. That said, eProcurement is
a step above the open marketplaces or shopping malls commonly found on
the Internet. An eProcurement network typically uses sophisticated
technology that provides a secure marketplace, sales platform and
transaction tracking system available only to selected buyers and
suppliers."
From "About e-Procurement." RBC Financial Group.
http://www.rbc.com/sourcing/eproc_intro.html
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ADVANTAGES OF E-PROCUREMENT
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Cost Savings
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Cost savings is hailed as the primary advantage of e-procurement.
Once a company has invested in the software necessary to facilitate
online buying, employees can purchase goods electronically that have
been pre-approved by their corporation. Companies may purchase from
catalogs hosted internally by the company, use external supplier
catalogs, or both. The cost of implementing the system will vary
depending on the degree of versatility a company desires in the
e-procurement process.
Read "How to: Save money with e-procurement," by Carol Hildebrand.
SearchCIO. (Aug. 13, 2002)
http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci843895,00.html
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One type of e-procurement bands several companies within a particular
industry together to position themselves to gain greater leverage in
buying power and negotiation for cheaper prices. These e-procurement
"marketplaces" are often specific to a particular industry. One type
of typical eProcurement conglomerate is called a "buying group".
Healthcare providers, for example, often initiate and recruit members
into buying groups to purchase their equipment at lower prices online.
Healthcare equipment suppliers also compete as vendors to the buying
group, gaining the advantage of offering their equipment to a host of
potential customers all in "one place".
=
"While smaller companies don?t benefit from the classic definition of
e-procurement, they can benefit from things such as digital
marketplaces, or trading exchanges. In the traditional sense,
e-procurement puts a single buyer online with many suppliers. A
digital marketplace puts many buyers (small businesses) online with
many suppliers. "The marketplace forms a community," remarks Jeffery.
"In a community, you can have a market maker that acts as a sponsor
for that community - and that sponsor drives aggregated buying power
across large numbers of small businesses." Phelan agrees, "The idea
here is to try generating a critical mass in which the community can
purchase through the exchange. The negotiated price will be better
because the communities demand a higher volume." The trading exchange
will then try to spread the cost over the membership companies
associated with the community.
From Untitled article by Stacy Gray. Integrated Solutions, August 2000
http://www.integratedsolutionsmag.com/Articles/2000_08/000809.htm
Greater Efficiency in the Buying Process
=========================================
When various aspects of the purchase cycle are automated, the process
becomes more efficient. Consolidation of the entire process under one
system makes tracking the purchase process easier from beginning to
end.
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"Automating the procurement process can, in theory, reduce
unauthorized spending, slash administrative costs and enable companies
to better manage purchasing by analyzing spending patterns. In fact,
Degnan cites research showing that the average cost for processing a
purchase order manually is $114 per P.O. By automating that procedure,
the cost goes down to an average of $31.50 per purchase order, she
says. In terms of time, e-procurement drives days out of the process -
from just over a week to two days, Degnan adds. And unauthorized, or
maverick, spending drops by 51%.
From "How to: Save money with e-procurement," by Carol Hildebrand.
SearchCIO. (Aug. 13, 2002)
http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci843895,00.html
=
"The e-procurement system helps companies consolidate data on
procurements of various goods, direct or indirect. These data enable
them to go in for bulk purchases, on which suppliers extend handsome
discounts. For instance, the ten different independent departments of
the company may be buying a particular product in small numbers.
However, a centralized and well-networked procurement system in the
organization will help track the periodic demand for the product and
bulk purchase orders can be made accordingly. If the company can
easily demonstrate to the supplier that there is a consistent demand,
it can successfully leverage its purchasing orders. Moreover, by
channeling all orders for certain parts and supplies through a
specified route, the purchasing company can reduce the number of
transactions needed for these items."
From "A cost saving process." CIOL (2001)
http://www.ciol.com/content/search/showarticle1.asp?artid=35424
Greater Efficiency in Indirect Operating Expenses
==================================================
E-procurement can be advantageous in the area of MRO (Maintenance,
Repair, and Operating equipment)
These are routine purchases which include items like office supplies,
travel expenses and other equipment needed to run the business, but
not necessarily integral to the company's operational success.
=
"The earliest and biggest trend in e-procurement is the purchasing of
indirect goods, such as office supplies and MRO items. A customer can
contract with one web-based supplier to manage all of its MRO
warehouse items, including maintenance spare parts, located in many
areas of the country or of the world. The key is the use of
internet-enabled systems provided by the supplier. Substantial
benefits can be realized that begin with eliminating the need for MRO
parts and supplies management by company personnel, freeing their time
to focus on critical-support items."
"Material related costs are reduced by reducing the number of
suppliers a company deals with to one, eliminating the need to process
purchase orders, count individual parts, reducing order scheduling,
eliminating expediting, simplifying receiving systems, eliminating
receiving inspection, eliminating most unpacking, eliminating the
stocking of inventory, and eliminating excess material spoilage."
From "MRO e-Procurement & Inventory Management Services." Rockford
Consulting Group (2001) http://rockfordconsulting.com/mro.htm
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DISADVANTAGES OF E-PROCUREMENT
===============================
Price
======
The major disadvantage is the financial commitment a company must make
in order to invest in the software necessary to participate in the
e-marketplace. And, of course, the costs can vary depending on the
applications.
=
"For companies that plan to buy and install in-house e-procurement
software, the price can range from $200,000 to $3 million, says Sharyn
Leaver, an analyst at Forrester Research in Cambridge, Mass. "And that
just covers software license costs and getting suppliers connected,"
she says."
"For full e-sourcing applications, such as e-RFPs and e-auctions, the
investment tends to be less than $4 million," says Robert Harlan,
director of the Internet negotiation program at Motorola's broadband
communications sector in Horsham, Pa. "For [software such as] Ariba,
it can be between $10 million to $15 million, depending on the scope
of the implementation."
"Degnan is a little more temperate with the cost estimate, saying that
the average cost of implementing in-house e-procurement software is
just over $1 million. Hosted e-procurement, in which companies pay a
monthly fee to a company to host its electronic catalogs outside the
firewall, is the cheapest way to go, she says. Companies that maintain
a mix of internal and external catalogs and maintain ties with a large
number of suppliers can expect to spend the most."
From "How to: Save money with e-procurement," by Carol Hildebrand.
SearchCIO. (Aug. 13, 2002)
http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci843895,00.html
Implementation Problems
========================
Just because the software set-up is available, implementation is not
necessarily easy. Getting employees to use the e-procurement service
can be difficult. And surprisingly, equipment suppliers are not always
anxious to join in the process, either!
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"According to an October 2001 Forrester report titled "E-procurement
Applications," companies reported four types of problems with
e-procurement projects:
* Back-end system integration is a bear.
* User expectations/change management can be difficult. Thirty-two
percent of those interviewed for the Forrester study said that they
wrestled with getting employees to use the new software. "It's not
just about technology," says Frances Howarth, the research director of
e-business at Aberdeen. "Change management is an essential cornerstone
of a good e-procurement implementation."
* Suppliers don't always want to get on board. This is a surprise to
many companies, but 26% of the Forrester respondents reported being
blindsided by their suppliers' reluctance to do their part of an
e-procurement project.
* Content management is tough. Internally hosting electronic catalogs
can be a cumbersome process, survey respondents said."
From "How to: Save money with e-procurement," by Carol Hildebrand.
SearchCIO. (Aug. 13, 2002)
http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci843895,00.html
Loss of direct relationship between the Buyer and the Seller
==============================================================
The lack of personal contact between the two parties can be
off-putting to some companies. E-procurement relationships are reduced
to electronic transactions with no personal interaction. Companies
must choose whether this is the way they want to conduct business
between the different entities that sustain them.
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"Some exchanges don?t let the purchasing agent collaborate with the
seller. "They don?t let buyers and sellers ask questions or know each
other until there is some form of payment. And that isn?t smart," adds
Krause. "Let?s say the buyer is looking for a particular item, and the
seller says, ?I think we could cut your costs by 50% if you switch to
something in this material.? The exchange should not stand in the way
of that."
From Untitled article by Stacy Gray. Integrated Solutions, August 2000
http://www.integratedsolutionsmag.com/Articles/2000_08/000809.htm
===
I hope the information I have provided is helpful. There are many
aspects to this very broad topic, since it encompasses so many
industries. However, according to your request, I have tried to keep
it as simple and to the point as possible, without getting to
technical!
Sincerely,
umiat-ga
Google Search Strategy
definition of e-procurement?
why use e-procurement?
advantages of e-procurement
disadvantages of e-procurement
how can a company benefit from e-procurement |
