Transcript Chapter 7

OHT 7.1
Chapter 7
E-procurement
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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
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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?
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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
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Key procurement activities within
an organization
Figure 7.1 Key procurement activities within an organization
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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.
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Electronic procurement
system
Figure 7.2 Electronic procurement system
Source: Tranmit plc
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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).
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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
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E-mail notification of
requisition approval
Figure 7.4 E-mail notification of requisition approval
Source: Tranmit plc
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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
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The three main e-procurement model
alternatives for buyers
Figure 7.6 The three main e-procurement model alternatives for buyers
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Integration between e-procurement
systems and catalogue data
Figure 7.7 Integration between e-procurement systems and catalogue data
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An online catalogue of items
for purchase
Figure 7.8 An online catalogue of items for purchase
Source: Tranmit plc
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Implementation risks
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•
•
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Authentication – fraud
Maverick purchasing
Lock-in to suppliers
Cost-savings not realized
Cost and difficulty of implementing systems
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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.
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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
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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.
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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?
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