E-Procurement

1.Concept
2.Application
3.Competitive advantage

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 E-Procurement- Concept
 INTRODUCTION
 LARGE Companies spend 5 - 10% of revenue
on non-production goods - a $500 billion a
year market
 Procurement inefficiencies are very high
 non-productive goods account for over 1/3 of

corporate expenditures
 95% of non-productive goods are acquired

using paper-based processes

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 E-Procurement- Concept
 STRUCTURAL TRANSITION: From Isolated Purchasing to
Real Time Process Integration
 Corporate purchasing is undergoing a structural
transition
 You say “Purchasing” and I say “Procurement”
 purchasing refers to actual buying of materials

 procurement is broader -- it includes purchasing,

transportation, wear-housing and inbound receiving
 procurement is migrating from traditional paper-
based processes to e-procurement

Managers need a detailed understanding of how

the next generation of e-procurement apps are
being developed

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 WHY IS PROCUREMENT A TOP-MANAGEMENT ISSUE?

 Procurement is evolving from a support function to a

weapon in a corporation’s competitive arsenal
 Goal of automation is to free professional buyers to
focus their attention on more strategic issues
 Five biggest challenges faced by CPO’s today are:
 reducing order processing costs and cycle times
 providing enterprise-wide access to corporate
procurement capabilities
 empowering desktop requisitioning through self-
service
 achieving integration with key back office systems
 elevating procurement to a position of strategic
importance within the organization
 Operational cost management is a central objective of e-
procurement

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 Application:
OPERATING RESOURCE PROCUREMENT AT MICROSOFT

1. Summer 1996 implemented a new tool - “MS

MARKET”: an online ordering system working on
Microsoft’s intranet
2. In its first year of operation MS Market was used to
purchase $1 billion in supplies by 6000 employees
3. MS Market cost Microsoft $1.1 million MS Market
used primarily (70%) for high-volume, low value
transactions
4. Ms Market’s use has grown steadily - today it
exceeds $3 billion annually

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 PROCUREMENT BUSINESS PROBLEM:
Lack of Process Integration

 Need for an integrated solution - e-procurement chain

management is evident
 Big challenge is structured migration
 A successful system must be designed for causal use by
untrained employees
 Guidelines for evaluating integration alternatives
 management control by purchasing managers
 online product selection - online catalogues
 electronic ordering - seamless transition from
requisition to purchase order
 application integration w/ existing systems
 information and reporting - for supplier negotiation
and reconciliation

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 Next Generation Integrated Procurement
Applications

 Three basic categories of e-procurement apps:

 buy-side desktop requisitioning

 buy-side centralized procurement

 sell-side applications

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 Elements of Buy-Side e-Procurement Solutions

 a buy-side app is seamless and integrated the

entire procurement process and resides on an
intranet
 a good buy-side application:
 automates selection and purchase of goods from the
desktop
 cuts the administrative overhead
 integrates the sourcing, ordering and payment
processes
 electronically sends and receives the full range of
requisition documents from buyers
 accurately and quickly reports on purchasing
activities
 controls the number of preferred customers

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 Buy-Side Requisitioning Process
 The buy-side Requisitioning Process
 secure personal log-in
 Gauze authorized supplier catalogs
 real-time requisition / order creation
 requisition / order submission
 purchase controls / rules
 workflow and approval routing
 order dispatch and fulfillment
 order status tracking
 Ariba Technologies: Spotting a Buy-Side Opportunity
 first to market an operating resource management system (ORMS)
 not cheap - ariba’s ORMS costs millions
 ORMS focuses on customer’s needs
 ORMS being challenged by ERPs like SAP
 Buy-Side Requisitioning Integration Issues
 employee connectivity w/ powerful interface
 back-end systems connectivity w/ ERP
 supplier connectivity - streamline and automate

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 Buy-Side Applications for the Procurement
Professional

• The key to successfully achieving procurement effectiveness is

the application of spending analysis and planning across the
entire spectrum of procurement
• Spending Analysis and Planning Functions:
• data collection
• multidimensional analysis (OLAP)
• supplier management decisions
• configuration of spending controls
• continuous feedback to refine controls

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 Elements of Sell-Side e-Procurement
Solutions
 Moving beyond business-to-supplier model toward trading
communication - vertical portals / hubs for communication
in specific markets
 Three factors must be addressed to ensure success with
this new model:
 supplies integration into extranet
 supplier content - rigorously maintained
 customer internal rollout - scalable
 Maintenance wear-house, a Home Depot subsidiary
 supplies for repair and replacement products for multi-
housing, lodging and commercial properties
 Vertical Procurement Portals (info mediaries or hubs)
 a sell-side destination site
 i.e.: Chemdex.com & SciQuest.com
 vertical procurement portals are a growing and
important trend

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 Class Forum
 Competitive advantage

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 Competitive advantage
Central Themes: Organizations must…
Understand the Current Environment:
Current Procurement  Historical cost drivers declining
Environment  Risk of currency fluctuations continuing

 Competition increasing

Generate Synergies Effective Organizations: Procurement VP

Across Global
Americas Asia/Pacific Europe
Procurement
Organizations Chips Chips Chips

Monitors Monitors Monitors

Optimize Global Efficient Processes:

Procurement Process  Focus on materials valuation vs. quotation comparison

 Use L.E.W. and M.O.M. to benchmark prices and to gain

information about supplier’s pricing strategy

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 Competitive advantage
Opportunities Identified: New Cost
Reduction Strategies
Specifications Review Specs for opportunities for
Rationalization standardization of materials to
achieve economies of scale.

Supplier Process Analyze supplier manufacturing

Analysis process for opportunities for
material conversion arrangements
and self-manufacture.

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 Competitive advantage
Implications:
Expanded role of New Role:
procurement specialist Initiates internal/external
reviews; Global mindset
Increased focus on New Skills:
multidisciplinary teams Strong teamwork and
and cross-matrixed leadership abilities
organizations
Continued trends of New Competition:
large corporations Not only for markets, but
resulting in more global also for materials and
competition technology
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 CONCLUSION
 To improve procurement companies must:
 focusing purchasing on strategic, value-added
upstream portions of the business rather than
transactional downstream activities
 increasing purchasing role in companies total
spending, including such nontraditional areas as
operating resource procurement
 centralizing procurement activities to concentrate
the total spending and improve negotiating power
 The savings gained from procurement
automation drop directly to the bottom line to
deliver a substantial boast in profitability

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 Group Assignment

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