chapter 9 e-procurement

Chapter 9e-Procurement

www.wiley.com/go/ebusiness 2

Program

The Purchasing Process Purchasing models:

– Buygrid framework

– Kraljic’s framework

e-Procurement

The Purchasing Process


Purchasing

(Externally) acquisition of goods, materials and services

At optimal conditions Needed for production or sales and maintenance


Organizational buying

‘the decision making process by which formal organizations establish the need for purchased products and services, and identify, evaluate and choose among brands and alternatives.’


The Five Rights

The acquisition of materials and services: Of the right quality In the right quantity At the right time At the right price From the right supplier


Classes of Products

Basic raw materials Components Semi Manufactured Articles Capital goods MRO End-Products (for direct sale) Services


Business Value

Industrial firms: 58% of each Sales $ spent on purchases from outside sources.

From 36% for instrument manufactures to 84% for petroleum and coal products.


20%

80%

Number of products

PurchasingRevenue

70%

95%

100%

100%

Pareto Analysis


Pareto Analysis

A-products: 20% of the products account for 80% of purchasing amount.

B-products: 50% account for 15%. C-products: 30% account for 5%.

Purchasing Models


Modelling the Purchasing Process

The Buygrid framework: – Internal Perspective

Kraljic’s framework: – External Perspective


Buygrid FrameworkNew Task Modified

RebuyStraight Rebuy

Anticipation of need

Determ. C.

Desc. C.

Search

Acq. Prop.

Suppl. sel

Sel. Order rt.

Feedback


Buygrid framework: Organization of Buying Process

1. The Buying Process (Process is ‘creeping commitment’)

2. Recognition of a need

3. Determination of characteristics and quantity

4. Description of characteristics and quantity


Buygrid framework (2)

4. Search and Qualification of potential sources

5. Acquisition and Analysis of Proposals

6. Evaluation of Proposals and Selection of suppliers

7. Selection of an order routine

8. Performance feedback and evaluation


Three Basic Steps

Information Negotiation Settlement


Buying Situations

‘Newness’ of the buying situation: New Task Modified Rebuy Straight Rebuy

Typically: NT SR MR


Kraljic’s Framework

Routine

e-Procurement


Purchasing as part of Supply Chain Management

Collaborative Planning: the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.


Developments in Purchasing

Purchasing’s Impact on Profitability:

1. Major area for (potential) cost savings

2. Major impact on quality

3. Technology Development and Improvement of Product/Process Design


Purchasing Processes

Slow and Inefficient (C-type products) Communication Intensive Little IT support Candidate for BPR


Approver Requisitioner

Accountant

approved

requisition

purchaseordercopy

purchaseorder

invoice &delivery note

payment to customer

Supplier

Approver Requisitioner

Accountant

approved

requisition

purchaseordercopy

purchaseorder

invoice &delivery note

payment to customer

Supplier


IT and Purchasing

CD-Rom for product and supplier info. EDI for contracting and ordering Electronic Catalogue in centralized database Internet Technology


e-Procurement

‘The use of Internet technologies over Intranets, Extranets or the web to streamline the procurement process’

‘Electronic procurement automates, streamlines and customizes a company’s operating resource purchasing process’


e-Procurement Models

Hub and Spokes approach: Buyer-Centric: the buyer organization is at the

hub, connecting suppliers at the spokes Seller-Centric: the supplier is at the center, with

buying organizations connected at the spokes e-Marketplace: a third party is at the hub, with

buying and selling organizations trading with each other.


Internet-based Procurement

Search engines: support information phase e-Catalogs: allow to browse, search and place

orders Internet EDI: less costly than VAN EDI Online auctions and Bidding systems: support

negotiating phase MRO Procurement: Highest Predicted Impact


Requisitioner

• Requisitionerprofile• Search for suppliers• Management approval

Supplier•Catalogue mgt• Price info.• order entry•Inventory mgt

Paymentauthority

viewpurchasing catalogue

authorizerequisition

request

catalogue browsing/querystatus

purchaseorder

request

officialpurchase order

checkpayment

confirm payment

invoice

Requisitioner

• Requisitionerprofile• Search for suppliers• Management approval


Paymentauthority

Requisitioner

Buying Organization• Requisitioner profile• Search for suppliers• Management approval


Paymentauthority

viewpurchasing catalogue

authorizerequisition

request

catalogue browsing/querystatus

purchaseorder

request

officialpurchase order

checkpayment

confirm payment

invoice

OBI – Architecture


Components of e-Procurement

Requisition management Transaction management Connectivity management Content management

– Up-to-date data

– Technical functionality


Requisition Management

End user processes order Selection in e-catalogue Workflow support (e.g. authorization)


Transaction Management

Processing order to supplier through EDI, e-mail, etc.

Standards:– XML/EDI

– Open Buying on the Internet (OBI)


Connectivity Management

Integration with Supplier and Internal systems – Internal (ERP): Budget control Order Registration Accounting Payment


Content Management

Heart of e-Procurement System Data administration Allows:

– Information Sharing

– Reduction number of suppliers

– Use of Buying Power


e-Catalogs

Electronic representations of information about products and services of an organization

Advantages: – greater flexibility, personalize content, standard

interface, reduce cost of coordination, data gathering and analysis.

Disadvantages: – cost of system integration, distributed order and

delivery volumes by individual employees


Internal Ordering Process

Employee

Budget Control

Accounting

Supplier

e-Catalogue

e-Procurement System


Types of e-Catalogs (Peer to peer through) supplier managed catalogs (Peer to peer through) buyer managed catalogs (Intermediated through) electronic marketplace

managed catalogs– Public model: single aggregated

– Personalized model: additional personal info

The Catalog Management Intermediary


Turban Et Al. (2000) summarize the Benefits of e-Procurement:

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).


Supply Chain

A network of connected and interdependant organizations mutually and co-opratively working together to control, manage and improve the flow of materials from suppliers to end-users.


e-Procurement Solutions

Ariba (www.ariba.com):– Operating Resource Management (OMRS)

– ORMX: provider based

– Every employee can order from behind his PC

– Only buying

Commerce One (www.commerceone.com):– Marketsite (supplier)

– Buysite (buyer)

– Collaborate

chapter 9 e-procurement

Documents

products account

coal products

right pricefrom

right timeat

right quantityat

right qualityin

process process

quantitybuygrid framework