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E-Business, Management Textbook, Workbook

E-Procurement : Chapter 6

Organizations need to purchase two types of products - production related and non-production related goods. Production goods are purchased by the organization to process them, add some value and sell them. Non-production goods, also known as operating resource products are meant for organization’s own consumption. These goods are categorized into general and administrative, capital equipment, travel services and entertainment, and MRO items. Of all the types of operating resource products, MROs are most critical to the organization’s production operations and plant maintenance. Companies in industries such as power generation, aviation and automobile manufacturing incur high levels of MRO expenditures on the plant floor.

Many companies adopt e-procurement technology for procuring production goods and exclude operating resource products. It is observed that companies spend 30% of their expenditure on procuring operating resources with a major portion of it being spent on MRO. Traditional paper-intensive procurement methods suffer from several inefficiencies and are not cost-effective. E-Procurement streamlines the purchasing process and helps organizations achieve process efficiency.

The e-procurement technology should not offer stand-alone solutions to each step in the procurement cycle but should offer an integrated solution. A buy side e-procurement solution should be user friendly and help employees place order and purchase goods from their desktop with ease. It should provide a list of preferred suppliers for each product and help reduce non-compliance with the organization’s business rules for purchasing. The different types of integration needed in buy-side applications, to facilitate seamless interaction are: employee connectivity, back-end systems connectivity, and supplier connectivity.

The success of sell-side e-procurement solution depends on the supplier's technological infrastructure, ability to integrate with different technological platforms and ability to cut costs and improve products. In recent times, several suppliers of a single product have been coming together to form vertical portals. Vertical portals are commonly seen in industries such as steel, paper, and chemicals where fragmented markets and price variations make it difficult for buyers to make a purchasing decision.

The procedure for obtaining an effective e-procurement system involves the following steps: establishing and quantifying procurement chain goals, evaluating the existing procurement process, constructing systematic methods for measuring the results of the e-procurement solution, developing a supplier relationship strategy, selecting an appropriate e-procurement application, integrating it with the existing system, and educating employees.

The best practices in e-procurement include: using a procurement card system and an electronic funds transfer system, clarifying the employees' role in the procurement process, using a strategic approach to implementation and participating in collaborative e-procurement. Collaborative e-procurement is being adopted by many companies to realize high levels of process efficiencies.

Chapter 6 : Overview

Operating Resource Procurement
Procurement Business Problems and Guidelines to Integration Alternatives
Elements of Buy Side E-Procurement Solutions

Elements of Sell Side E-Procurement Solutions
Implementing E-Procurement
Best Practices in E-Procurement