E-Procurement and Supply Chain Technology Guide - Term Paper Example

E-Procurement and Supply Chain Technology Guide Name: University: Course Title: Instructor: Date of Submission: Introduction Technological advancements in the last couple of decades have significantly enhanced the processes and systems through which business organizations transact their sourcing, supply and procurement functions. E-business on the other hand has altered how business organizations interact with their suppliers. Various studies have indicated that technological advancements such as the internet technology have made procurement functions in business organizations more efficient and transparent. E-procurement or rather Electronic Procurement is a business-to-business (B2B) concept involving purchasing and selling of supplies as well as services over the internet and other networking and information systems like Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) which are online based. E-procurement is also referred to as supplier exchange online sites or websites facilitate communication between registered and qualified sellers as well as buyers seeking products and services. It is due to these capabilities, that e-procurement has emerged as a crucial and an integral component of the overall supply chain system of business organizations (Ageshin, 2001, p.48 to 52). The purpose of this report is to develop a guide on electronic procurement (e-procurement) for business organizations and suppliers. The Elements of E-procurement E-procurement in itself is not a single application, but rather a combination of various tools. As business organization focus on improving their efficiency and performance in the market place, six distinct for m of e-procurement applications have emerged. These applications include the following. First, web-oriented enterprise resource planning (ERP) which involves the creation and approving of purchasing requisitions, placing orders for purchases, as well as receiving goods and services via online based software system. Second, electronic maintenance, repair and overhaul (e-MRO) which works just like enterprise resource planning (ERP), but deals with non product related MRO goods and services. The third element is e-sourcing which involves the use of the internet for identifying new group of suppliers to supply a given category of purchasing requirements. Fourth, e-procurement also involves e-tendering. This involves contacting suppliers online and requesting them to provide information and prices, as well as receiving their responses on the same. The fifth element is concerned with e-reverse auctions, which involves buying goods or services from either known suppliers or unknown suppliers over the internet. Finally, e-informing is an integral element of e-procurement (Ageshin, 2001, p.48 to 52). Web Based/Online Procurement Systems Many companies direct enormous resources towards the management of inter-organizational processes and functions such as procurement, collaboration, development of new product, and financial transactions among others. B2B procurement processes and function is among the costly for organizations. This is because procurement is focused on both direct and indirect purchases where direct purchases deal with raw materials and components which are processed into finished products while indirect purchases involve goods and services which are essential for efficient internal business processes. The emergence of web based procurement has enabled many organizations improve their sourcing and supply function strategically and minimize costs of the procurement function. There exist four basic models of e-procurement creating unique value for both buyers and sellers in a B2B transaction. Successful organizations engage in more than one if not all the models (Shaw and Subrumaniam, n.d, p.3 and 4). Figure 1 below represents the four models of B2B e-procurement. Figure 1: Models of B2B e-procurement Source: Shaw and Subrumaniam, n.d, p.4. Table 1 below summarizes the value created by the various models of B2B e-procumbent for companies. These models include buy-side system of procurement, private B2B e-market, industry B2B exchange, as well as third-party B2B e-market. Adaptes from: Shaw and Subrumaniam, n.d, p.5. E-procurement and the Supply Chain Management Task The procurement function in business organization is a function that occurs within the overall supply chain management task within an organization. The procurement process involves sourcing and receiving goods or services. Basically, e-procurement is primarily concerned with using web-based technology for the complete management lifecycle of supply chain in an organization. The procurement function of an organization involves activities such as requisition or approving, sourcing, ordering, contract management, as well as payment processing/receipt. According to Leon-Pena (2008, p.77), the supply chain management task involves the following business functions: forecasting of demand for a company’s products; sourcing and procurement; inventory and store/warehouse management; as well as distribution logistics among other business supply management tasks. These activities demonstrate the fact that procurement is an act of “big shopping” which requires efficient strategy. In order to be efficient and sustainable procurement strategy adopted by a business venture must emphasize optimization as well as systemization of organization’s strategic and operational information, as well as method adopted by the business companies involved. In this way, the supply management task will enhance/optimize the company’s procurement processes as well as value across the chain from the supplier of the supplier to customer of the customer (Leon-Pena, 2008, p.77). According to Coban (2012, p.57); and Christopher, Peck, and Towil (2006, p.277), an effective supply management is a key component in the attainment of increased shareholder value as well as profitability of an organization. In addition, the management of procurement as an act of “big shopping” in organization is tasked with management of costs, and the enhancement of compliance organizational standards in addition to key performance indicators. Supply chain management refers to the management of activities taking place in supply chains with the aim of maximizing the value of the customer and earns the business a sustainable competitive advantage. Supply chain firms present their effort collectively to create and run products supply chain in the most efficient ways possible. Comprehensive supply chains cover every aspect of product from development stages, sourcing, production, the logistics involved and all information flow within the firms involved in the supply chain. Firms within a supply chain link through physical flow of goods and information (Mentzer, 2001). Owing to the competition within the global market, especially in the retail sector, strategic delivery of products and services which are devoid of errors and within the stipulated time frame is an imperative. E-procurement is a supply chain functions which increases efficiency and saves time since it is conducted over the internet without sellers and buyers being necessarily physically present. E-Procurement and the Distribution Function The e-procurement system utilized by modern business organizations always focused on significantly reducing the cost of purchases in order to offer the lowest price to the customer. In order to do this, e-procurement provides companies with a platform through which to ensure that their procurement bypasses intermediaries are online and efficient. In addition, e-procurement utilizes the services of the manufacturers in the distribution function. At General Motors for instance, approximately 80% of the company’s inventory is supplied from its distribution centres which are located across a wide range of geographical locations in the US. E-procurement process at the company enhances the efficiency and saves both time and costs in its procurement and distribution function. After ordering online, the products that are meant for use within a given country are packaged in pallets while imported products are packaged in re-usable boxes illustrating the company’s bid to enhance a green procurement and distribution process (Ageshin, 2001, p.48). E-procurement makes the distribution centres more economical to manage owing to the fact that most processes are conducted over the internet after the supplier provides both information and prices to the buyers. The introduction of e-procurement is among the latest addition to the segment of the supply chain management (Weil, 2005, p.51). However, for the process of e-procurement to be effective, all employees at the distribution centres must have access to the information regarding inventory within the centre. At General Motors, two scans are made identifying pallets and the source of the products. Hand held computers are utilized in inputting information about the received products into the main central server. The Advantages and the Disadvantages of E-procurement Erridge, Fee and Mcllroy (2001, p.164) identify four main areas on the benefits of e-procurement. They indicate that e-procurement has both strategic and operational benefits to a company. With regard to operational benefits, e-procurement can significantly minimize the costs incurred in administration of the whole process of procurement as most of the activities involved are conducted over the internet. Secondly, e-procurement facilitates the process of auditing throughout the procurement transactions. With regard to the strategic benefits, Erridge, Fee and Mcllroy (2001, p.164) argue that e-procurement provides companies with an increased control as well as influence over the expenditure by the procurement function and process. This control and influence enhance not only the professionalism, but also the status of the entire procurement function of a company. E-procurement also enable companies to manage the overall supply base. Just like everything that has advantages; e-procurement also exhibits certain disadvantages. First, e-procurement does not conclusively resolve the issue regarding how online systems could be applied in the provision of services such as those of facilities for instance catering and cleaning services. This is particularly critical because real time measurement of service performance play significant role in the monitoring of the effectiveness of the process of supply. In addition, various studies have indicated that it is difficult to measure service quality with regard to online based procurement functions. Though some advancement have been made in order to resolve these inefficiencies, they are still based on people system and not. Another significant concern for e-procurement function is related to the security of data especially with reference to electronic payments. However, with regard to this concern immense advancements regarding data encryption have been achieved to make electronic payments more secure. This is due to the fact that secure transfer of data, information as well as payments over the internet is a key criterion for measuring performance of online functions and systems such as e-procurement (Erridge, Fee and Mcllroy, 2001, p.164 to 166). Case Study: the Case of General Motors The General Motors (GM) is a US based automobiles company which due to its characteristic can effectively demonstrate how business organizations can use e-procurement in their functions. Ageshin (2001, p.50 to 52) note that GM started actively pursuing e-procurement in 1999 and expected to achieve the following: minimize both cost and time of procurement systems; cost reduction in ordering and purchasing of goods; better and quicker flow and sharing of information throughout its supply chain; improved forecasting and planning for the company as well as its suppliers; optimize its supply chain; product customization and build-to-order competencies; minimal product development life cycle; better customer service; and create favourable and enabling environment for research and development. In order to further the benefits of its e-procurement initiatives, GM partnered with DaimlerChrisler and Ford to achieve economies of scale and scope. The company has been able to effectively deal with single system characterised with common protocols vs. multiple buying systems/networks within the automobiles industry. GM also launched an e-procurement system/network dubbed TradeXchange which enabled the company to purchase MRO supplies estimated at $ 4 million from the catalogues of uto five suppliers enrolled with the TradeXchange e-procurement network. In January 2000, GM sold $ 1.8 million worth of seven presses in an online auction and bought $ 1.7 million worth of materials from another online auction. Despite these benefits, analysts also predict several stumbling blocks. These challenges include destabilization of relationship with traditional suppliers in the automobiles industry, the competitive bidding model incorporated in the company’s e-procurement process, power distribution between the company and its suppliers, risk s associated with the company’s attempt at developing industry-wide e-procurement standards, and the use of raw untested technology as the core of the e-procurement process (Ageshin, 2001, p.52). The Future of E-procurement Abramson and Harris (2003, p.252) explain that advancement in information technology is currently providing possible solutions to numerous problems and challenges in the procurement functions in many sectors. As such, e-procurement has emerged as an innovative, more cost-effective and better subsystem within the overall supply chain system of many companies. As such as the world moves towards being a global village, information and communication technology continue to increasingly play a crucial role. It amplifies concepts such as electronically network society (social), electronic commerce (economic), electronic politics and campaigning (political), as well as electronic government (governmental) among many others. This implies that the procurement functions of companies be they public or private must go online if they are to remain relevant. Due to continued popularity of the concept of e-commerce, associated functions such e-procurement are set to increase in future. As technology advances so does networked information and communication properties which facilitate online based procurement functions such as information sharing, data processing as well as data management among others. Therefore, in future, many companies and organizations are set to apply information technology in automating and streamlining their procurement transactions. This is more so because many companies seek to drive and sustain their profit margins besides increasing their efficiency and productivity (Reinhuber, 2010, p.14). E-procurement tools discussed in the elements section above enable companies foster effective and efficient management of materials, minimize total costs of procurement, access a wider supplier market, and gain competitive advantage against rivals in the market place. As the business environment continue to be more dynamic and experience increased change due to globalization, increased competition, changing business models, changing customer needs and experiences, as well as advancement in technology, online based business functions and processes such as e-procurement will continue to play a crucial role in business companies. As a result, many businesses and companies will venture into the concept of e-procurement due to the benefits that will be associated to this concept. Recommendations A successful supply chain is a valuable asset for business organizations which enable them gain competitive advantage. An interactive and highly efficient supply chain ensures that goods and services reach consumers at the right time, in right place, and at the right price. As such, business organizations must continue to emphasize and apply technological advancement in fostering a cost-effective strategy for their procurement functions thereby minimizing costs to the various companies, partners, customers and the environment thus, gaining competitive advantage. It is recommended that the continued use of the technology in procurement functions enhance proper inventory control and reduce stock mismanagement. Moreover, it is recommended that business companies such as General Motors engage in a continuous improvement process that ensures the technology becomes better over time. Also, it is crucial to deal with potential legal matters such as the privacy of customers in the case where an infringement on customers’ privacy occurs (Ageshin, 2001, p.48). E-procurement function facilitates cost cutting measures through efficiently integrating the various members of supply chain to ensure cost-effective and timely supply of products. Moreover, planning and risk management has been an issue of major concern with regard to making procurement processes effective and efficient. The international shipment of goods is a process faced by a host of risks. As such, supply chain designers and managers should regularly evaluate and re-craft supply chains in reaction to market changes such as new product launches, new acquisitions, credit availability, global sourcing, the need to defend intellectual property as well as the capacity to retain asset and shipment safety (Cousins et al., 2006, p. 3577). E-procurement provides a platform through which business companies can minimize or rather avoid these risks. It is of great significance to highlight and quantify risks associated with supply chains. Business companies must establish procurement metrics besides guidelines for evaluating, managing and mitigating such risks. By adopting e-procurement, supply chain procedures will be to faster to implement and become more inclusive in the establishment of possible risks as well as simpler coordination with customers, suppliers plus other relevant stakeholders over the internet. An effective risk management strategy within the entire procurement system assists users to identify rules and approaches, designate responsibilities, control responses and keep track of current conditions. Effectiveness as far as supply chain management is concerned is the primary concern for most managers charged with the responsibility of coordinating supply chain operations (Newlands and Hooper, 2009). Customer service implies efficiency in delivering products with reference to amount, price, condition, time, place and documentation. This is not as simple as it sounds. Through the adoption and implementation of e-procurement, companies will be able to fully achieve customer satisfaction (Lee, 2002). Cost control is also another problem encountered by supply chain managers in many companies across the world with regard to their procurement function. Rising freight prices, increasing global customers, technological advancements, accelerating labour rates, increasing health care costs, upcoming regulatory frameworks as well as fluctuating commodity prices are some of the factors attributable to the increasing pressure on supply chain operating costs (Newlands and Hooper, 2009). There are various metrics that can be used by companies to control such costs. It is important for supply chain managers to maintain their focus on the major metrics relevant to their company as a business entity. When all procurement functions are conducted over the internet it becomes easier to establish and maintain such metrics. As a result, the procurement function of a company becomes more effective. Conclusion The purpose of this report was to develop a guide on electronic procurement (e-procurement) for business organizations and suppliers. From the foregoing discussion it can be noted that the procurement function of a company is a complex process that entails coordination of interlinked businesses activities in supply of products and services. The process cuts across transit, warehousing/storage of unfinished goods/raw materials, products under manufacture/work-in-progress stock as well as finished products from the point of manufacturing, processing or production to the point of consumption. As such, the supply chain management function addresses numerous problems ranging from configuration of distribution network; crafting and implementing distribution strategy; handling logistics trade-offs; and managing information, inventory, as well as cash flows. Supply operations have been faced with daunting difficulties hence initiating the need to come up with approaches that reduce these inefficiencies. E-procurement is an integral strategy which can enable a company to minimize numerous inefficiencies and challenges with regard to supply chains. This report has comprehensively covered the elements of e-procurement, and analyzed e-procurement function in relation to both the supply chain management task as well as the distribution function in business companies. Other areas comprehensively and analytically covered by this report include the advantages and the disadvantages of e-procurement and the future of e-procurement. This report has also provided a case study of General Motor’s use of e-procurement. Finally, based on the foregoing discussions, this report has presented various recommendations for business organizations and suppliers with regard to e-procurement. Bibliography Abramson, M. A. & Harris, R. 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