Title: Discussion of the various ways in which information technology

has changed the purchasing department, in particular how the

Internet has impacted on the purchasing department.

Student Number: S399209

Module title: Business Organisation & IT, HC003

Date: 16th Feb 2010

Word count: 2013

Business Organisation & Information Technology Page 1

 CONTENT

1. Introduction…………………………….…………………………………….Page3
2. Information Technology and Purchasing……………………………………Page 3
3. E-purchasing…………………………………………………………..…….Page 4
3.1. E-sourcing……………………………………………………………...
….Page 5
3.2. E-procurement…………………………………………………..
………….Page6
3.3. Electronic Data Interchange (EDI)………………………………….
……..Page 7
4. Examples………………………………………………………………...…..Page 7
4.1. Slow implementation……………………………………………………..Page 7
4.2. Fast Implementations……………………………………………………..Page 8
5. Conclusion………………………………………………………………………...Page 9
Bibliography……………………………………………………………….……….Page 10

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The purpose of this paper is to discuss of the various ways in which information
technology has changed the purchasing department, in particular how the Internet has
impacted on the purchasing department. Will be outlined the most well known
information system, their objectives and the e-purchasing. An example from daily
business life will be illustrated in the second part of this paper.

1. Introduction
IT is transforming the way that business is conducted. Computers prepare
invoices, issue checks, keep track of the movement of stock, and store personnel and
payroll records. The personal computers are changing the patterns of office work, and
the spread of information technology is affecting the efficiency and competitiveness of
business, the structure of the work force, and the overall growth of economic output.
Purchasing department has been radically changed by the development of the Information
Technology (IT). Simply the communication channels widened enormously, and the
information exchange has became significantly faster and broader, simplifying several
steps with regards to purchasing, and also enhancing the fast decision making. Also the
quality has improved, costs have been reduced, and speed has increased. Many
communication channels are available like Internet, email, telephone, mobile
communications, fax, video conference calls, GPS, etc. business is now able to operate in
24 hours, seven day a week.
2. Information Technology and Purchasing
The Internet can be used by purchasing department for many specific purchasing actions,
like;
- information search (accelerate the flow of information and increase processing
capabilities. The information collected by the buyer may give a clearer picture on
the market what will be useful during the negotiation of prices with supplier)
- for transactions (advantages in the form of lower transaction costs can be realized
if both supplier and buyer are connected to the same electronic marketplace)

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 - follow up the delivery (online web tracking or other integrated systems)
- book in advance the stock from Suppliers database
The Internet allows companies to exchange data and information in secure line. These
applications are significant quicker than the traditional way.
Griffin (1990) identified the main cost elements of Information Systems. These are:
hardware and software investments, their installation and maintenance, environmental
cost (recycle pay in advance), running and security cost, networking cost, training the
users. Server room needs to be allocated.
The integrated systems, like Enterprise Resource System (ERR), Material Requirements
Planning (MRP), System Application and Products (SAP) etc. gives many complex
integrated solutions for companies. These integrated systems give complete solutions for
all departments of the organization.
The benefits for Information System are:
- information relevance (more reliable than the human made information)
- accurate and up to date information are available
- speed of information delivery
- improved customer service
- gaining competitive advantage and avoiding competitive disadvantage
- support for core business function
- improved management function
- improved product quality
- improved communication (internal and external)
- impact on the business through innovation
The threats of IT systems are the accidents, nature disaster, sabotage, vandalism, theft,
hacking, spam and computer viruses.
Another big issue of Internet transaction and communication is trust. This is a necessary
ingredient in the completion of business agreements.
The Computer Purchasing Systems in practice may be used for, stock control and
requisition, purchase order placing, expediting, goods receipt, reporting, transaction
processing, data capturing and to allocate stock (barcode system).
3. E-purchasing

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 E-purchasing creates value for organization by reducing cost of goods and services,
giving higher productivity and reducing processing cost and gives better information and
better planning. The e-purchasing can be split in two parts, the e-sourcing and e-
procurement as illustrated in Figure 1.

Payment Knowledge

E-procurement
E-procurement Receive Specification

E-sourcing
E-sourcing
Order Tender

Authorise Negotiation

Requisition Contract

E-Purchasing

Figure 1
3.1 E-sourcing (strategic direction) using the Internet and it covers the elements of
buying process which are:
- knowledge specification
- request for quotation, e-auction, e-tenders
- evaluation – negotiation
E-sourcing system should enable the sourcing team to:
- analyze and model complex decisions in real time
- automate the management to contract amendments and renewal
- collaborate with suppliers
- provide real time information
E-sourcing use the internet to make decisions regarding how and where services or
products are obtained. E-marketplaces play an important role in this activity, since the
price and availability of products from multiple suppliers can be checked from a single
point. Another benefit for E-marketplaces in terms of product sourcing is that not only
they provide detailed product information from existing suppliers, they also give access
to new potential partners and suppliers. Furthermore, the use of reverse auctions and

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online exchanges enables procurement officers to obtain better prices as they encourage
competitive bidding between suppliers.
3.2 E-procurement (process driven) covers the following areas of the buying
process: - requisition, authorization, order, receipt, payment
E-procurement is Business to Business (B2B) purchase and sales over an electronic
network such as the Internet. The Internet's rapid growth has driven many companies to
add an electronic commerce component to their operations to gain competitive advantage.
A well managed E-procurement also could help to reduce inventory levels.
Kalakota an Robinson (2001) have identified seven basic e-procurement models:

Models
EDI Networks
Business to employee (B2E)
requisition applications
Corporate procurement
portals
First generation trading
exchanges: community
catalogues
Second generation trading
exchanges: transaction
oriented
Third generation trading
exchanges: collaborative
supply chain
Industry consortia: buyer
and supplier led
Characteristics
Trading partners and customers
simple transaction
cost value added network charges
fast buying
automated approvals and standardized requisition
procedures
provide supplier management tools
improved control over procurement process,
business rules can be implemented
custom, negotiated prices posted in a multi-supplier
catalogue
spending analysis and multi-supplier catalogue
management
industry content, news
new sales channel for distributors and producers
product content and catalogue aggregation service
requisition process and purchase order transactions
supplier, price and products availability discovery
catalogue and credit management
synchronize operations and enable real time
fulfillment
process transparency, resulting in restructuring of
demand and the supply chain
the next step in the evolution of corporate
procurement portals

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 3.3 Electronic Data Interchange (EDI)
The EDI were developed in 1970s to exchange of business transactions in
electronic format. The main functions for EDI are: query handling, transaction handling,
funds transfer and technical data. The benefits for using EDI are; reduced cost,
elimination of paperwork, time saving and increased efficiencies, improved supplier
management, enhanced service and quality, improved access and communication.

4. Examples
Few examples brought from the world of the pharmaceutical business and
Clinical Research Organization (CRO) outsourcing. The changes due to the IT
development could be categorized in many different ways, all very valid ones, I chose to
bring separate examples to its ‘slow implementation’, and to its ‘fast implementation’.
4.1 Slow implementation
It utilizes more the ability of calculating/computing of the IT devices – not that
much the speed of interactions through the novel communication channels. The example
I would like to give is around the costing process when preparing a complex clinical trial
to be outsourced to a CRO. A task with this level of complexity, requiring the work of so
many service lines, individuals with various hourly rates, working of various task
durations – most of the time in various countries – so preparing an overall proposal to
undertake a clinical trial cannot be done in any other ways than by using ultra
sophisticated pricing tools. Most of the times these pricing tools are based on the main
features of Microsoft Excel, some other times specially designed software platforms are
prepared to handle this specific task. Speaking of Microsoft Office Applications – which
are probably the most commonly used ones of the type in Europe – needless to point out
that the Proposal Document reviewed by the Sponsor company purchasing (outsourcing)
department is initially prepared in MS Word – saved in final stage as Adobe .pdf – to
prevent accidental modifications. When the outsourcing process leaves the proposal stage
and enters the Bid Defense phase, it is the most common to have the clinical trial
displayed as a MS Project simulation, where both the Sponsor Purchasing Department

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and the CRO to be hired can go through the entire project length, try various scenarios,
adjust timelines, etc. Last but not least during the purchasing process MS PowerPoint
presentations are most commonly employed to outline the message to be conveyed and to
enhance the communication.
Still at the IT ‘slow’ implementation, I would like to point out the boost of the various
communication channels in line with the integration of the advanced IT technologies. The
most information pathways are through e-mails and phone calls, but also specially
designed internet secure web areas are quite often available to deposit and access
essential documentation and updates when necessary. The uses of such web areas are
obviously very restricted by applying the strictest policies to ensure the confidentiality of
the data exchanged are always maintained. Phone communications and face-to-face
meetings just very recently are to be dropped to the favor of video-conference calls which
can host several participants at the same time, regardless of their geographic position.
One word for the contrary IT does indeed enhance communication to an incredible
extent, however it cannot replace the human contact not even the most developed video
conferences will ever be able to offer the same level of confidence between the parties in
business as a single handshake, and a clear look in each other’s eyes. Body language is
mostly excluded whilst the communication uses advanced IT technology and it’s been
said that more business is being done besides a white sheet table than in any large
meeting rooms.

4.2 Fast Implementations

I would like to point out a single example to a process which utilizes the ‘speedy’ way of
the IT technology. This is the large scale drug distribution from the depots of country
level coverage in the direction to the regional depots and pharmacies (the example taken
is from Converged Enhanced Ethernet (CEE) and drug distribution in Romania). CEE is
an enhanced single interconnect Ethernet technology designed to enable the convergence
of various applications in data centers, such as LAN, SAN and HPC. These applications
are designated for transport over existing storage networks with a high throughput and
low-latency communication. CEE may also be called Data Center Ethernet. The price of
any pharmaceuticals may depend on a number of things, details of which the frame of

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this paper will not permit to analyze in-depth. One of the determining factors however is
the price induced directly by the market itself. This becomes increasingly important when
it comes to trading between National Depots and the regional ones as well as trading with
the pharmacies. The available offers and the needs in this close community will drive the
prices extensively. This is further complicated by making the price of the various
products dependent on the volume of the transaction as well as on the other items
purchased at the same time. It all works rather as an auction, and it is all online, real time
purchase. The players are in complex communication among each other on an ongoing
basis, and the deals are being instantaneously sealed when the reach the common sense.
To be able to do such auction-based trading, the IT had to reach an extremely high level
of development. Major investments had to be carried out to upgrade the available
equipments to ensure this level of communication between the parties. Being a country
just recently catching up and somewhat behind in their infrastructure, the relevant
purchasing departments had to undergo a thorough change. There were players, who
preferred to stay conservative and pursue to earlier fashion of business: after a few years
they are no longer on the market. This is the level of seriosity how such things shall be
perceived.

5. Conclusion
The advance of IT changed completely the main stream of purchasing in
relatively short time, and applying the most recent technology has become a matter of
survival for the parties in business. With the rapid changes in technology in the recent
time, business organizations are rushing to keep pace with these changes. However,
mostly don't give sufficient thought and attention to how they can best execute them.
Many of us may not notice or may forget an organization's culture and people behind
these developments.

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Bibliography

Ricky W. Griffin, Management, (3rd Edition) (1990), Houghton Mifflin

Ravi Kalkota, Marci Robinson, (2001) M-Business: The Race to Mobility, McGraw-Hill
Companies
Emiliani, ML 2000, ‘Business-To-Business Online Auctions: Key Issues For Purchasing
Process Improvement’, Supply Chain Management, vol. 5, no. 4, pp. 176-186. MCB UP
Ltd
Oliver Dempsey (2008), Business Organisation and Information Technology, IIPMM
Graham Curtis and David Cobham (6th Edition) (2008), Business Information Systems,
FT Prentice Hall
Donald W. Dobler, David N. Burt (1996), 6th Edition, Purchasing and Supply
Management – Text and Cases, The McGraw-Hill International Editions
Conor Hannaway, Gabriel Hunt (1999), The Management Skills Book, Gower
Paul Bojic, Andrew greasley, Simon Hickie (4th Edition) (2008), Business information
Systems, FT Prentice Hall

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