People Innovation Excellence

E-PROCUREMENT

by : Darjat Sudrajat, SE., MM.

Electronic procurement (e-procurement) is electronic integration and management of all procurement activities or acquisition of goods and services, including purchase request, authorization, ordering, delivery and payment, between a purchaser and a supplier (Chaffey, 2015; Turban et al., 2012). The activities were conducted with the right price, the right time, the right quality, the right quantity, the right source. Different types or applications of e-procurement:

  • e-sourcing. Finding potential new suppliers using the internet during the information-gathering step of the procurement process
  • e-tendering. The process of screening suppliers and sending suppliers requests for information (RFI) or requests for price (RFP)
  • e-informing. Qualification of suppliers for suitability. It doesn’t involve transactions but instead handles information about the supplier’s quality, financial status or delivery capabilities.
  • e-reverse auctions. Enable the purchasing company to buy goods and services that have the lowest price or combination of lowest price and other conditions via internet technology
  • e-MRO (maintenance, repair, and operating) and web-based ERP. These involve the purchase and supply of products which are the core of most e-procurement applications. The software used manages the process of creating and approving purchasing requisitions, placing orders and receiving the goods or service ordered

E-procurement methods can be organized into four segments, namely purchase at buyer site (tendering, reverse auctions, internal aggregation or desktop purchasing), purchase at seller site (sellers’ catalogs, auction, negotiation, aggregators of catalogs or e-distributor), purchase at an exchange (auction, negotiation, bartering, catalogs), others (group purchasing). The benefits of e-procurement some of which

  • Increasing the productivity of purchasing agents, possibly reducing purchasing agents’ overhead
  • Lowering purchase prices through product standardization, reverse auctions, volume discounts, and consolidation of purchases
  • Improving information flows and management
  • Minimizing the purchases made from noncontract vendors thereby reducing the risk of maverick buying and controlling inventory more effectively
  • Improving the payment process and savings due to expedited payments
  • Establishing efficient, collaborative supplier relations due to high transparency and information sharing with business partners
  • Improving the manufacturing cycle for suppliers
  • Ensuring delivery on time, every time
  • Slashing order-fulfillment and processing times by leveraging automation
  • Reducing the skill requirements and training needs of purchasing agents
  • Reducing the number of suppliers, etc.

There are three main e-procurement model alternatives for buyers, namely:

  • One-to-many (sell-side/supplier site), trade via supplier’s website. The advantages for buyer consist of searching and onus of maintaining data on the supplier. The disadvantages are a different interface on each site (catalog and ordering), restricted choice, poor integration with ERP/procurement systems, and limited purchase systems.
  • Many-to-one (buy-side/buyer site), trade via buyer’s website. The advantages for buyer encompass simplicity (single interface), wider choice than sell-side, integration with ERP/procurement systems, and good purchase control. The disadvantages are onus of maintaining data is on the buyer, software license costs, and retraining.
  • Many-to-many (neutral exchanges), trade via the intermediary website. The advantages for buyer namely simplicity (single interface, potentially widest choice of suppliers or products and prices, often unified terms and conditions and order forms. The disadvantages are difficult to know which marketplace to choose (horizontal and vertical), poor purchase controls, uncertainty on service levels from unfamiliar suppliers, interfacing with marketplace data format, and relatively poor integration with ERP.

References:

Chaffey, D., 2015, Digital Business and E-Commerce Management: Strategy, Implementation and Practice, Sixth Edition, Pearson Education Limited, United Kingdom.

Turban, E. et al., 2012, Electronic Commerce 2012: A managerial and Social Networks Perspective, Seventh Edition, Pearson Education, London


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