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OHT 7.1 Chapter 7 E-procurement © Marketing Insights Limited 2004 OHT 7.2 Learning objectives • Identify the benefits and risks of eprocurement • Analyse procurement methods to evaluate cost savings • Assess different options for integration of organisations’ information systems with e-procurement suppliers © Marketing Insights Limited 2004 OHT 7.3 Issues for managers • What benefits and risks are associated with eprocurement? • Which method(s) of e-procurement should we adopt? • What organisational and technical issues are involved in introducing e-procurement? © Marketing Insights Limited 2004 OHT 7.4 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 © Marketing Insights Limited 2004 OHT 7.5 Key procurement activities within an organization Figure 7.1 Key procurement activities within an organization © Marketing Insights Limited 2004 OHT 7.6 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. © Marketing Insights Limited 2004 OHT 7.7 Electronic procurement system Figure 7.2 Electronic procurement system Source: Tranmit plc © Marketing Insights Limited 2004 OHT 7.8 Turban et al. (2000) summarize the benefits of eprocurement 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 eprocurement systems). © Marketing Insights Limited 2004 OHT 7.9 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 © Marketing Insights Limited 2004 OHT 7.10 E-mail notification of requisition approval Figure 7.4 E-mail notification of requisition approval Source: Tranmit plc © Marketing Insights Limited 2004 OHT 7.11 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 © Marketing Insights Limited 2004 OHT 7.12 The three main e-procurement model alternatives for buyers Figure 7.6 The three main e-procurement model alternatives for buyers © Marketing Insights Limited 2004 OHT 7.13 Integration between e-procurement systems and catalogue data Figure 7.7 Integration between e-procurement systems and catalogue data © Marketing Insights Limited 2004 OHT 7.14 An online catalogue of items for purchase Figure 7.8 An online catalogue of items for purchase Source: Tranmit plc © Marketing Insights Limited 2004 OHT 7.15 Implementation risks • • • • • Authentication – fraud Maverick purchasing Lock-in to suppliers Cost-savings not realized Cost and difficulty of implementing systems © Marketing Insights Limited 2004 OHT 7.16 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. © Marketing Insights Limited 2004 OHT 7.17 Types of B2B marketplace What businesses buy? How businesses buy? Operating resources Systematic sourcing MRO Hubs Catalogue Hubs www.barclaysb2b.com www.sciquest.com Spot sourcing Yield Managers www.elance.com Manufacturing resources Exchanges www.e-steel.com www.plasticsnet.com © Marketing Insights Limited 2004 OHT 7.18 Covisint example - DaimlerChrysler AG - 2001 • 512 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 2001. • 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. © Marketing Insights Limited 2004 OHT 7.19 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? © Marketing Insights Limited 2004