Current Purchasing and Supply Chain Practices in E-procurement - Essay Example

Number Due Current Purchasing and Supply Chain Practices in E-procurement Introduction E-procurement is thebusiness-to-business, business-to-government or business-to-consumer process of making purchases or selling supplies, services or work through the internet or other forms of information systems. Indeed as e-commerce continues to gain root courtesy of the developments realized in Information and Communication Technology (ICT) it seems every single sector is being transformed. E-procurement therefore involves the use of Electronic Data Interchange and Enterprise Resource Planning. It is basically facilitated through the use of various software applications which enhance the process of supplier management and complex auctions. The value chain process of e-procurement consists of e-tendering, indent management, e-auctioning, catalogue management, order notice, e-invoicing, e-payment and contract management. It basically involves the conventional supply chain processes which are enhanced through the use of information systems. In public sector organizations, e-procurement is becoming a common affair given its increased benefits. Some of the benefits realized through e-procurement include increased efficiency and cost savings. Indeed, these have always been major concern in government contracting. Similarly, e-procurement improves the transparency of the procurement process. Conventional procurement is normally characterized by rampant corruption especially in the public sector. A supply chain network enables the distribution options for the procurement of both raw material and finished products. In this regard, the major aim of a supply chain network is to satisfy the needs of the consumer as soon as they appear. This is certainly an important component of e-procurement (Ageshin, 2001). It should be realized that e-procurement is not simply a process of making online purchases. It must provide an open and effective communication line with all the potential suppliers throughout the business process (Waters, 2007). Research and New trends Businesses are today compelled to adapt and reconfigure their IT systems, assets and business operations in order to meet the increasingly changing demands of the customers. There is a growing need to compress the long business cycles and to differentiate from the increased competition (2007). In this respect, new trends in e-procurement are constantly adopted with the major aim of enhancing operations through efficiency, costs reduction and output maximization. The systems are facilitated through the adoption of new architectural styles. The e-procurement and purchasing process involves the following steps (Dolgui, Soa, & Zaikin, 2005). Purchase approval and supplier evaluation The e-procurement supply chain process normally begins by the demand or need of the material by a user. In this respect, a number of electronic documents are normally used. They include forecasts and customer orders, purchase requisitions, stock checks and material requirements. The process of purchase approval involves a number of steps and will normally depend on the size of the purchase and whether the client is making first time purchases. Depending on the size of the purchase, there can be a need for supplier evaluation which begins with from the determination of the purchase need (Forrest, 2006). Bidding and supplier selection The selection of suppliers is actually one of the most important activities in this respect. In any case, any mistakes or errors at this time can be very damaging and long-lasting. Once all the bids are received and the negotiation process has occurred, the sourcing team will then select an appropriate supplier and the approval is then authorized through the purchase approval step (Foust, 2013). Purchase approval Once the supplier has been selected, purchasing grants an authority or approval to purchase the product or service. This is facilitated through the use of an electronic drafting of a purchase order (PO). This is also referred to as a purchase document and it must be done carefully considering that it is a legally binding document. It is standard for all purchase orders to include certain conditions of the contract on the reverse side of the agreement. The order contains very critical information relating to the purchase such as material specification, quantity, price, quality requirements, method of delivery and a range of other details. In this stage, computerized databases are being adopted as many companies shift to “paperless” offices (Jung, Chen, & Jeong, 2007). Transmittal of Purchase Requirements This step involves the release and reception of the purchase requirements. While it is fairly normal routine process it might not be the most efficient part of the purchasing cycle. The requirements are submitted electronically or through mail or fax. Electronic Data Interchange (EDI) is normally used to reduce the order cycle time. There has been an increasing us of EDI due to its efficiency and the need to shorten the cycle time as much as possible. The shipping process involves a number of documents most of which are transmitted electronically. They include the material packing slip, bill of lading, and the discrepancy report. Continual measuring and managing supplier performance After the contract is awarded, it is normally important to track the performance of the suppliers in order to determine the best. Indeed, measurement and management of the suppliers is an integral part of the purchasing cycle. In any case, it is wrong for the buyers to assume that the purchasing cycle ends once the ordered item is received or when the supplier is selected. Through continuous measurement, it becomes possible to identify various areas which require improvement or reasons for supplier nonperformance. In this case, the most desired outcome is improved supplier performance. Without effective measurement and evaluation, the buyer will lack the right quantitative information to support future purchase decisions. Web technologies for e-procurement Indeed, it is often realized that the features and requirements of the present supply chain process in e-procurement match the advantages and features of software development. The use of information technology in this supply chain process is therefore very essential and critical. The information technology needs to be rapidly changeable and reusable. Similarly, the software architecture used in this case should be flexible, agile and deployable across a multi-enterprise scope. There is an increasing adoption of Electronic Data Interchange (EDI) in this process. This is the computer to computer exchange of electronic messages in a formatted manner known as transaction sets. The message contains data elements each connoting a piece of information. E-tendering and e-ordering E-tendering refers to an internet based process where the whole tendering process beginning from advertising to the submission of tender related information is done online. This greatly enhances efficiency as most paper based processes are eliminated or reduced. It further facilitates a more speedy exchange of information. Today, organizations have to handle many procurement needs and this involves the use of different information systems from different vendors. In this case, the use of conventional means of tendering becomes very cumbersome. Through e-tendering, the entire incoming tenders are stored in a single place and evaluation tools make it possible for easy comparison. Through e-tendering, there is a reduced cycle time and a highly fast and accurate evaluation and pre-qualification process (McDermont, 2006). More importantly, the increased audit trail enhances efficiency and transparency. It should be realized that e-tendering comes in various platforms and services. Some of these systems are relatively simple technical solutions revolving around electronic document management and e-mail. On the other hand, there are some complex and sophisticated e-tendering systems such as Tender Tailor which involve a lot of collaboration functionality. They have better evaluation functionalities and can streamline the tender process from the beginning to the end through highly automated processes (Heywood & Barton, 2002). E-ordering is presently used in procurement and supply chain management to replace the conventional ways of making orders such as the use of emails or faxes. It uses new electronic and automated modes of data transfer among the business partners. The benefits of e-ordering include its ability to be used in any organization irrespective of size. In the same way, it reduces both order lifecycle and the time spent in the whole process. More importantly, e-ordering greatly reduces the communication costs associated with paper, fax emails or other conventional forms of making orders. It is therefore an important part of e-procurement given that it enhances the supply chain process. Enterprise Resource Planning ERP and supply chain management is a formalized process of planning all the resources in a business enterprise. Through this process, companies can establish operating systems that are very critical in enhancing the e-procurement process. The essence here is to ensure effective performance measurement in order to meet financial and business objectives. ERP systems usually integrate both internal and external management of information across the organization. The areas of focus include finance, accounting, customer relationship management, etc. Through an integrated software application, ERP systems focus on the automation of these activities. ERP has therefore become an important component of supply chain management in the context of e-procurement. Many organizations presently consider ERP as the backbone for organizational excellence since it brings together various organizational systems. It further facilitates flawless transactions and production (Blackwell, 2011). Indeed, the efficient e-procurement system of McDonald’s is always the major reason for their successful supply chain operations. McDonald’s e-procurement system is very efficient not only to its logistics process but across the whole supply chain management. McDonald’s uses the Emac Digital e-procurement system which was developed specifically to serve the corporation’s 27,000 franchises across the world. Emac Digital which was launched in 2001 enables MacDonald’s franchises across the world to effectively procure everything required to run the restaurants (Forrest, 2006). Indeed, the system is very fast and efficient to serve the huge number of franchises. McDonald’s indicates that through its e-procurement it has managed to cut costs by 85% (Abramson & Harris, 2010). E-invoicing The challenges evidenced in conventional invoicing procedures have always been acknowledged across the business world. The growth of e-procurement and supply chain management has created the need for e-invoicing which has grown extensively in the recent years. In any case, the benefits of e-invoicing have been documented quite extensively by many organizations. It basically involves the replacement of paper documents with electronic invoices. The introduction of automated invoicing into the financial supply chain creates a lot of efficiencies in other operations (Braim, 2006). It enhances activities such as receipts settlement, spend management and supply chain finance. It is normally recommend that organizations which consider electronic invoicing should think quite holistically about the financial supply chain benefits. Supplier Relationship Management Supplier Relationship Management (SRM) involves the strategic planning and managing all interactions involving third party organizations which supply goods and/or service to the organization. This is done to ensure maximization of the value of those transactions. Indeed, SRM involves creating a loser and collaborative relationship with all the major suppliers so as to uncover and realize new value in addition to limiting risk. SRM is an enterprise-wide assessment of suppliers’ need in the context of the overall business strategy (Zsidisin, 2002). The focus is therefore to create a mutually beneficial two-way relationship with strategic partners in order to deliver and realize better innovation and competitive advantages. Considering these benefits, SRM is definitely an important part of e-procurement. In order to enhance the efficiency and effectiveness of the procurement process, all the support functions should also be streamlined to provide the best services. In conventional practice, SRM seeks to expand the interaction of the major suppliers beyond the mere buy and sell relationship. It should encompass joint activities such as research and development and joint demand forecasting. In this respect, there are a number of technology systems which have been developed to provide solutions to SRM in e-procurement (Buker, 2013). The systems are used in gathering and tracking the performance of the suppliers across, regions, sites and business units. It must however be emphasized that while SRM software are valuable, they cannot actually be implemented without an effective business structure and an effective SRM strategy in the organization. E-auctioning E-auctioning is applied in the contract stage in closing the deal with the suppliers as long as the parties have come to a conclusion. Like in conventional auctions, e-auctioning operates with an upward or downward price. The upward price mechanism can be used by the selling organization while the downward price mechanisms is used by the by the buying organization. It uses an internet based open or closed system in supporting the supply chain process (Shin, 2005). E-procurement is therefore seen to involve the wide application on online platforms which must always work effectively to support each other. At the basic stage e-procurement essentially involves the use of electronic systems in supporting traditional procurement. Some of the systems include personal and mainframe computers, ERP and EDI (Reason & Evans, 2000). E-informing One of the most important aspects in supply chain management is the flow of information. Each party in the chain process should be aware of the state of the goods and the timelines involved. In this respect, information sharing must occur in a very efficient and effective manner to enhance the process. One of the most notable challenges in SCM is always the lack of proper channels of communication which translate into many delays and inconsistencies (Essig, 2001). E-informing is therefore an effective solution currently used in e-procurement and supply chain management. It is not directly related to any stage in the [procurement process. Rather it is the process of collecting and distributing information across the parties in the procurement process. It basically uses various forms of internet technology in ensuring that the information is relayed to the right party in a timely and effective manner. More importantly, every player in the procurement process will have access to the information relating to the situation and location of the goods at every particular time. This greatly reduces time wastage associated with the lack of such important information. Purchase-to-Pay Abbreviated as P2P, purchase-to-pay is a business process which covers the activities involved in requesting, purchasing, receiving and accounting for goods and services in procurement process. It is basically a process of automating the whole purchase and payment process by connecting procurement to the invoicing operations to create an intertwined business flow. Some of the benefits of P2P include financial and procurement visibility cost savings, efficiency and cost control. Through automation, the incoming invoices are handled without the need of manual intervention. This automation has become very popular in e-procurement by creating much efficiency in the supply chain process. These systems are normally designed to provide organizations with much control and visibility throughout the transaction process. This begins from the time the item is ordered unit it is received. P2P further provides total insight into the financial and cash flow commitments of the organizations. It is presently deemed to be an important tool in implementing Resource Accounting and Budgeting processes. Today, most organizations consider P2P to be an indispensable part of their processing and purchasing policies in order to create financial vigor and efficiency in purchasing (Corini, 2000). Considering that e-procurement focuses on creating efficiency through the automation of the whole process, it becomes very crucial for all the support activities to be automated as well. P2P is therefore an important part of this supply chain process as it leads to a lot of cost savings in addition to creating efficiency in the process. The focus here is to ensure a well-coordinated and collaborative association between the various functional departments especially finance and procurement. Strategic sourcing Strategic sourcing is a modern procurement process which seeks to continuously improve and re-evaluate the various procurements activities of an organization. It is a major component of supply chain management and involves a number of activities. These include assessing the current spending of an organization and assessing the market supply. In addition, strategic sourcing focuses on total cost analysis to determine how much it costs to provide the goods or services. It seeks to negotiate with suppliers before the implementation of a new supply structure. This is achieved through the use of a sourcing plan which is the final plan of all the strategic sourcing initiatives in the organization. The focus and objective of the sourcing plan is to manage the quality of all sourcing events and ensure proper management of time (McKendrick, 2001). Conclusion It is seen that supply chain management is a very complex but important part of the e-procurement. Its complexity arises out of the need to ensure proper coordination of all the support activities. In this respect, a number of new trends are constantly emerging with an aim of addressing some of the challenges realized in SCM. At a time when technology is used to create efficiency in all business processes, SCM is a major beneficiary in this respect. A number of business solutions have been formulated specifically to address many aspects of e-procurement. In order to facilitate e-procurement, there is an important need for the automation of all the support activities from making order to the deliveries. As such, the supply chain operations must be fully automated in order to create the efficiency. An organization like McDonald’s which has adopted effective e-procurement systems have always benefited from the improved supply chain operations. References Abramson, M. A., & Harris, R. S. (2010). The procurement revolution. Lanham [Md.: Rowman & Littlefield. Ageshin, E. A. (2001, January 1). E-procurement at work: a case study... Production & Inventory Management Journal , 3, pp.45. Blackwell, R. D. (2011). From mind to market: reinventing the retail supply chain. New York: HarperBusiness. Braim, S. W. (2006). Procurement transformation. Tokyo, Japan: Asian Development Bank Institute. Buker. (n.d.). ERP & Supply Chain Management. Buker, Inc - Management Education and Consulting. 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