e-Procurement

... Many companies are finding e-Procurement [to be] an effective

way to maintain their supplier lists. E-Procurement gives companies

the ability to compare supplier prices, service levels, and product

quality (Jaeger, 2011).

Concept Overview

Definition

e-Procurement refers to web-based procurement networks in which one or more companies source their suppliers at

the lowest costs possible (Ong, 2002). The term e-Procurement is sometimes used interchangeably with 'business

marketplaces' (B2B), 'electronic supply chains', 'trading hubs', or 'trading communities'.

Description

From a conceptual perspective, e-Procurement is very similar to the classical tendering process: it helps companies

source input products and services at the lowest possible cost while ensuring that those inputs meet technical and

other specifications (Ong, 2002). The process of e-Procurement incorporates two processes: e-Requisition and e-

Sourcing. The former refers to the purchase of goods and services by the end user, while the latter emphasises the

negotiations between the company and its suppliers (BuyIT: Measuring the Benefits: What to Measure and How to

Measure It).

Web-based procurement has been emerging rapidly because markets are dynamic and constantly require

companies to increase productivity and manage costs effectively (Ageshin, 2001). e-Procurement offers a number of

critical advantages: better prices, standardisation throughout the company, cost reduction, the ability to centrally

track high-volume and low-value expenditure (BuyIT: Measuring the Benefits: What to Measure and How to Measure

It). e-Procurement can also help tackle corruption and increase integrity in public procurement processes as it

provides every detail on the nature of expenditure and purchases (Warnes, 2011). e-Procurement has become a

popular option in the private and public sectors in Europe. In the UK it is underpinned by UK Government targets

(Barry, 2011).

e-Procurement can be implemented manually or through automated software. ERP, e-MRO, e-Sourcing and e-

Informing are all the types of e-Procurement. Web-based ERP software from vendors (e.g. SAP AG, Oracle, The

Sage Group) are designed to optimise resource planning, generate recommended purchasing schedules,

automatically generate purchase orders, ensure that materials are available on time and issue reschedule notices to

suppliers. ERP can also generate purchase orders for maintenance, repair and operating supplies to enable the

smooth running of the production process. E-Sourcing (or reverse auctioning) as a type of e-Procurement requires

the use of the Internet for the identification of new suppliers for a category of purchasing requirements. E-Informing

can be used for the simple job of exchanging purchasing information between buyers and suppliers (BPC).

Business Evidence

Strengths

e-Procurement enables manufacturing companies to develop new products faster based on customer feedback

or new research. This results in higher customer satisfaction, innovation and can boost profit due to a reduced

material costs (Fox et al., 1999).

e-Procurement can help companies get in touch with several providers, compare and get the best price

available in the market (Peleg, 2002).

Automated procurement can help decrease the time taken by the production cycle, hence making any

manufacturing company more responsive to external changes (Peleg, 2002).

Weaknesses

While engaging with many different providers has its benefits, there are many benefits that can be drawn from

a long-term relationship with one supplier, that is, a definite assurance of quality or reduction of price

uncertainties (Peleg, 2002).

It is seen that there are multiple standards in the e-Procurement market now that gives rise to ambiguities

about the product/service and ultimately an increase in purchase cost (Marks, 2000).

When a radical technical change takes place in an organisation, there is a need to revisit the internal

processes of a company and get ownership from the executive board (BuyIT: Measuring the Benefits: What to

Measure and How to Measure It).

Case Evidence

Indian Farmers Fertilizer Co-Operative Ltd (IFFCO), one of the largest fertiliser manufacturers in the world,

achieved an advantage of faster turn-around of deals when it switched to e-Procurement. A bid that used to

take 21 days under the new system is closed in 14 and there is now an additional provision of having a two-day

bid which was not previously available. Courtesy of Microsoft's ASP technology, the company now saves on

filing and paperwork while bidders save on travelling, preparing and dispatching bids. (Narasimhan, 2007)

In Scotland an e-Procurement system has been successfully used to roll-out school kitchens. e-Procurement

led to savings of more than £24m in Aberdeenshire Councils (Scottish Government Report, 2009).

Eastman Chemical Company made its supply chain more strategic by automating its purchasing. The company

reduced its costs by 5-10%, order-fullfilment cycle from one week to 24 hours and administration costs by

$100,000 annually. It was computated that in ten months Eastman was able to receive a 126% return on

investment (Aberdeen Group, 2001).

Business Application

Implementation Information

At the end of the 1990s e-Procurement implementation failure amounted to nearly 80%: those companies that

rushed into creating web portals for online shopping neglected to invest in distribution systems in order to deliver the

goods that were purchased. Therefore, the implementation ended up being non-profitable. For example, Etoys lost

more than US$4 on every order and drugstore.com lost US$16 on the delivery of every non-prescribed item (Neef,

2001).

Implementation Steps

1. e-Procurement brings a large scale cultural change and it is important to implement it through a pilot

approach instead of a 'big bang' one: start with selecting a population of people and then gradually

spread the practice as benefits become more conspicuous.

2. Create preparedness and motivation for the end user to learn and get accustomed to a new system.

3. Envision new and improved internal processes within the company and the cultural change that is

about to be brought in.

BuyIT: Measuring the Benefits: What to Measure and How to Measure It

Success Factors

In order to be successful, e-Procurement cannot be treated as an isolated project of the purchasing

department. There is a need to involve other organisational functions (e.g. sourcing, IT) and suppliers (BuyIT:

Measuring the Benefits: What to Measure and How to Measure It).

Factors such as automating the requisition, order, and tracking process, recording information about company

spending patterns for analysis and managing electronic invoicing play an important role in the success of e-

Procurement (Preite, 2004).

Very few companies are observing the advantages achieved by e-Procurement projects when they are

implemented accurately (BuyIT: Measuring the Benefits: What to Measure and How to Measure It.

It is strongly advised to check that the data that feeds into the procurement system is accurate (Preite, 2004).

It is essential to clarify the goals: e-Government projects that failed to do so have a 70% failure risk (Maio et

al., 2000).

Measures

Hard/concrete measures: return on investment in e-Procurement when price savings and cost reduction of

process is analysed (BuyIT: Measuring the Benefits: What to Measure and How to Measure It).

Soft/intangible benefits: e.g. how much free time individuals have due to more effective processes. The best

way to spot cost saved from e-Procurement is to measure savings in two categories - business as usual and

the implementation of an e-Procurement system (BuyIT: Measuring the Benefits: What to Measure and How to

Measure It).

Professional Tools

Video

Kivetta's COO explains e-Procurement

http://cipsintelligence.cips.org/video/63wicKmw9UY

File Downloads

CIPS Source Downloads

BuyIT: e-Sourcing

http://cipsintelligence.cips.org/opencontent/e-sourcing

BuyIT: Building the business case for e-Procurement

http://cipsintelligence.cips.org/opencontent/building-the-business-case-for-e-procurement-2007

BuyIT: Selecting an e-Procurement solution

http://cipsintelligence.cips.org/opencontent/selecting-an-e-procurement-solution

Further Reading

Web Resources

B2B and online exchanges: analysis, Bloomberg Business Week

http://kburl.me/zxtov

UK Government guide on e-Procurement

http://kburl.me/ixhkg

e-Procurement: UK Department for Business Innovation and Skills

http://kburl.me/qzr7i

Traffic for London: e-Tendering

http://kburl.me/kbgo7

E-Procurement at Schlumberger

http://kburl.me/xf8pz

Print Resources

Introduction to procurement systems

www.amazon.com/Introduction-Building-Procurement-Systems-

ebook/dp/B000SK2YV0/ref=sr_1_4?ie=UTF8&qid=1325804316&sr=8-4

How e-procurement helps in cost-cutting

www.amazon.com/-Procurement-Strategy-Implementation-Dale-

Neef/dp/0130914118/ref=sr_1_1?ie=UTF8&qid=1325804316&sr=8-1

Why suppliers should target states

www.amazon.com/Suppliers-Should-Target-Government--

procurement/dp/B000UM6WW8/ref=sr_1_5?ie=UTF8&qid=1325804316&sr=8-5

Theories and case studies for e-Procurement in emerging economies

www.amazon.com/-procurement-Emerging-Economies-Theory-

Cases/dp/1599041537/ref=sr_1_8?ie=UTF8&qid=1325804316&sr=8-8

Internet tools and the relationship of a customer-supplier

www.amazon.com/Internet-Customer-Supplier-Relationship-Stefano-

Ronchi/dp/0754637468/ref=sip_rech_dp_3?ie=UTF8&qid=1325804316&sr=8-8

References

Aberdeen Group (2001) FedEx Taps e-Procurement To Keep Operations Soaring, Costs Grounded. Aberdeen

Group Inc: Boston.

Ageshin, E.A. (2001) e-Procurement at Work: A Case Study. Production and Inventory Management Journal,

First Quarter.

Barry (2011) Cash Springboard for Netalogue. Western Mail, 21 October.

Brull, S.V. (2000) Such Busy Bees in B2B. Business Week, March 27.

BPC. E-Procurement solutions. [Online] Available at: www.bestpricecomputers.co.uk/glossary/e-

procurement.htm [Accessed 25 January 2012].

BuyIT: Measuring the Benefits: What to Measure and How to Measure It.

Fox, S., MacKenzie, R., Walburger, C. and Wood, J. (1999). Digital Market, Inc.: Creating Value by Speeding

New Product Introduction. Stanford Global Supply Chain Management. Forum Case No. SGSCMF-005-1999.

Jaeger, J. (2011) Procurement and Compliance Teaming Up To Manage Risk. Compliance Week. October.

Maio, A.D., Caldwell, F. and Kao, L. (2000) E-Government Strategy: Cubing the Circle. Gartner Research

Note.

Marks, P. (2000) E-procurement in Perspective. Computer-Aided Engineering, (50)19, no.2.

Narasimhan, B. (2007) Harvesting IT benefits. Real CIO World, November 15.

Neef, D. (2001) E-Procurement: From Strategy to Implementation. Prentice-Hall PTR/SunMicrosystems Press.

Ong, D. (2000) Putting B2B Hype in Perspective. Business Times (Singapore), 3 April.

Peleg, B., Lee, H.L. and Hausman, W.H. (2002) Short-term E-procurement Strategies vs. Long-term Contracts.

Stanford University: CA.

Preite, J. (2004) Automation: What Holds Back E-procurement Success? SSON, Vol. 5(9).

Scottish Government (2009) Aberdeen Council PECOS Roll-out to School Kitchens. Report. [Online] Available

at: www.scotland.gov.uk/Topics/Government/Procurement/eProcurement/schoolkitchens [Accessed on 14

January 2011].

Solomon, H. (2000) 2000: The Year of the B2B Boom. Computing Canada, Vol. 26(2), pp. 24.

Warnes, J. (2011) Combating Corruption in the EU Through e-Procurement. [Online] Available at:

blog.transparency.org/2011/02/16/combating-corruption-in-the-eu-through-e-procurement [Accessed on 5

January 2012].

Weil, M. (2000a) Web-based Procurement Taking Off. Manufacturing Systems, Vol. 4/5.

Weil, M. (2000b). Buying into e-Procurement. Manufacturing Systems, Vol. 18(5), pp. 47-56.