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Chapter 9 e-Procurement

Chapter 9 e-Procurement. 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

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Chapter 9 e-Procurement

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  1. Chapter 9e-Procurement

  2. Program • The Purchasing Process • Purchasing models: • Buygrid framework • Kraljic’s framework • e-Procurement www.wiley.com/go/ebusiness

  3. The Purchasing Process

  4. Purchasing • (Externally) acquisition of goods, materials and services • At optimal conditions • Needed for production or sales and maintenance www.wiley.com/go/ebusiness

  5. 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.’ www.wiley.com/go/ebusiness

  6. 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 www.wiley.com/go/ebusiness

  7. Classes of Products • Basic raw materials • Components • Semi Manufactured Articles • Capital goods • MRO • End-Products (for direct sale) • Services www.wiley.com/go/ebusiness

  8. 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. www.wiley.com/go/ebusiness

  9. Pareto Analysis Purchasing Revenue 100% 95% 80% 70% 100% 20% Number of products www.wiley.com/go/ebusiness

  10. 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%. www.wiley.com/go/ebusiness

  11. Purchasing Models

  12. Modelling the Purchasing Process • The Buygrid framework: • Internal Perspective • Kraljic’s framework: • External Perspective www.wiley.com/go/ebusiness

  13. Buygrid Framework www.wiley.com/go/ebusiness

  14. Buygrid framework: Organization of Buying Process • The Buying Process (Process is ‘creeping commitment’) • Recognition of a need • Determination of characteristics and quantity • Description of characteristics and quantity www.wiley.com/go/ebusiness

  15. Buygrid framework (2) • Search and Qualification of potential sources • Acquisition and Analysis of Proposals • Evaluation of Proposals and Selection of suppliers • Selection of an order routine • Performance feedback and evaluation www.wiley.com/go/ebusiness

  16. Three Basic Steps • Information • Negotiation • Settlement www.wiley.com/go/ebusiness

  17. Buying Situations ‘Newness’ of the buying situation: • New Task • Modified Rebuy • Straight Rebuy Typically: NT  SR MR www.wiley.com/go/ebusiness

  18. Routine Kraljic’s Framework www.wiley.com/go/ebusiness

  19. e-Procurement

  20. 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. www.wiley.com/go/ebusiness

  21. Developments in Purchasing Purchasing’s Impact on Profitability: • Major area for (potential) cost savings • Major impact on quality • Technology Development and Improvement of Product/Process Design www.wiley.com/go/ebusiness

  22. Purchasing Processes • Slow and Inefficient (C-type products) • Communication Intensive • Little IT support • Candidate for BPR www.wiley.com/go/ebusiness

  23. www.wiley.com/go/ebusiness

  24. IT and Purchasing • CD-Rom for product and supplier info. • EDI for contracting and ordering • Electronic Catalogue in centralized database • Internet Technology www.wiley.com/go/ebusiness

  25. 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’ www.wiley.com/go/ebusiness

  26. 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. www.wiley.com/go/ebusiness

  27. 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 www.wiley.com/go/ebusiness

  28. OBI – Architecture Supplier Supplier Supplier catalogue browsing/query catalogue browsing/query Catalogue mgt Catalogue mgt Catalogue mgt • • • status status Requisitioner Requisitioner Requisitioner Price info. Price info. Price info. • • • order entry order entry order entry • • • Inventory mgt Inventory mgt Inventory mgt • • • purchase purchase view view order order purchasing catalogue purchasing catalogue request request check check authorize authorize payment payment official official requisition requisition purchase order purchase order confirm confirm request request payment payment Buying Organization Payment Payment Payment Requisitioner Requisitioner Requisitioner profile profile profile • • • invoice invoice authority authority authority Search for suppliers Search for suppliers Search for suppliers • • • Management approval Management approval Management approval • • • www.wiley.com/go/ebusiness

  29. Components of e-Procurement • Requisition management • Transaction management • Connectivity management • Content management • Up-to-date data • Technical functionality www.wiley.com/go/ebusiness

  30. Requisition Management • End user processes order • Selection in e-catalogue • Workflow support (e.g. authorization) www.wiley.com/go/ebusiness

  31. Transaction Management • Processing order to supplier through EDI, e-mail, etc. • Standards: • XML/EDI • Open Buying on the Internet (OBI) www.wiley.com/go/ebusiness

  32. Connectivity Management Integration with Supplier and Internal systems – Internal (ERP): • Budget control • Order Registration • Accounting • Payment www.wiley.com/go/ebusiness

  33. Content Management • Heart of e-Procurement System • Data administration • Allows: • Information Sharing • Reduction number of suppliers • Use of Buying Power www.wiley.com/go/ebusiness

  34. 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 www.wiley.com/go/ebusiness

  35. Employee e-Catalogue Budget Control Supplier e-Procurement System Accounting Internal Ordering Process www.wiley.com/go/ebusiness

  36. 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 www.wiley.com/go/ebusiness

  37. 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). www.wiley.com/go/ebusiness

  38. 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. www.wiley.com/go/ebusiness

  39. 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 www.wiley.com/go/ebusiness

  40. www.wiley.com/go/ebusiness

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