Identifying, Developing and Implementation the Chain Supply Technology - Research Paper Example

Table of content Abstract 2 1.0 Introductions and definitions 3 2.0. Current Status and future Directions 4 2.1. E-procurement contains the following elements 5 3.0 Using E-procurement Systems 5 4.0. Benefits of e- procurement 6 4.1 Elimination of the administrative cost 6 Figure 1: The administrative costs of a traditional procurement system compared with the costs of e-procurement 7 4.2 Reduction of the Purchase cycle time 8 4.3 Improved controls 8 4.4 User compliance 8 4.5 Reduction in order error rate 8 4.6 Management information benefits 9 5.0 Challenges in the implementation of the e procurement 9 6.0 Risks involved with the implementation of the system 9 7.0 Case study: Glaxo Smithkline opts for independent solution 10 8.0 Conclusion 10 Table of contents 1 Abstract 1 1.0 Introductions and definitions 2 2.0. Current Status and future Directions 3 2.1. E-procurement contains the following elements 4 3.0 Using E-procurement Systems 4 4.0. Benefits of e- procurement 5 4.1 Elimination of the administrative cost 5 Figure 1: The administrative costs of a traditional procurement system compared with the costs of e-procurement 6 4.2 Reduction of the Purchase cycle time 6 4.3 Improved controls 7 4.4 User compliance 7 4.5 Reduction in order error rate 7 4.6 Management information benefits 7 5.0 Challenges in the implementation of the e procurement 8 6.0 Risks involved with the implementation of the system 8 7.0 Case study: Glaxo Smithkline opts for independent solution 9 8.0 Conclusion 9 Abstract This paper is an e procurement guide to help the suppliers and organization in identifying, developing and implementation this chain supply technology. It aims at providing individuals and business in achieving effective and efficient supply chain management. 1.0 Introductions and definitions Supply chain management involves the flow of goods and services from the point of production to consumption. Procurement manager facilitates the flow in such a way that the requirements of the organization are matched in timely manner and at prices which are advantageous to the company. Supply chain is an important process in attainment of the company objectives. Oliver Keith notes that it is the route which we have to follow in order to achieve the firm’s objective. The concept of supply chain has been with us for a long time, actually since man started exchanging goods and services. The term was coined by Oliver Keith, a consultant with one of the firms Booz and Allen. Supply chain is all about managing a network of interconnected businesses which are involved in delivering the goods and services to the end consumer. In the course of this process, information flowing from one stage to another is very important in ensuring that effective decision making process is carried out. To facilitate this technology must be employed at all stages; this not only ensures that the information flows freely but also within the required speed as well as accurately. Supply chain technology today is more than just computers, it spreads across different aspects, from automations, data recognition equipments, enhanced communication and different types of automated services and hardwares. Organizations have embarked in adoption of technologies which help in the improving the supply chain management. These capabilities help the organization get higher efficiency and also reduce the cycle team while at the same time ensuring that delivery is done on a timely manner. These actions improve the overall chain agility. (Kearney 2004) The rise of electronic business in the late years of the 90s created new opportunities in procurement. Use of internet as a business system platform has brought major changes in status and operations of a firm’s .In general terms information technologies have transformed the way firms and government operate. Nelson et al (2001) notes that purchasing constitutes a huge proportional of the organization’s operations. To decrease the costs involved in purchasing, internet technologies electronic technologies have become and integral part in the recent past for both the private and public enterprises. Despite the fact that electronic technologies present huge opportunities for growth of an organization many firms are still cautious in their adoption. One supply chain technologies which has been transforming this process is the e –procurement. Electronic procurement is defined as the business to business, or business to individual or customer purchase and sales of goods and services using the internet as the media as well as other networking and information systems. (CAPS Research 2003) Electronic Procurement is a way through which the Internet is used to make it easier, faster, and cheaper for businesses to buy goods and services that they need. The overall objective of electronic procurement is to streamline the purchasing process in order for the business to focus more their time on serving customer and earning income. This paper is an e procurement guide to help the suppliers and organization in identifying, developing and implementation this chain supply technology. It aims at providing individuals and business in achieving effective and efficient supply chain management. 2.0. Current Status and future Directions The days when business solely relied on the traditional slow manual processes for handling procurement are long gone. Recent studies show that e-procurement continue to be embraced and adopted by businesses and public organizations. The business to business network connects the organizations with the suppliers making the supply chain system easy to manage. Literature shows that E-procurement gained prominence from 1999 when online buying, auctions become a common thing in the internet, it use has continued to expand with more and more people embracing it in supply chain management. The convenience that was offered by online buying despite brought by a new trend led to e-procurement hitting almost one hundred and fifty billions in terms of transaction that were conducted in only one year. A study which was carried out by Deloitte Consulting found out that eighty per cent of the firms that used e- procurement systems were happy with the changes that it brought into their organizations. E- Procurement continues to grow, right from its infancy and the hype it received after the adoption by Walmart and General Electric to the current scene where majority of the organizations and companies have adopted its use in supply chain management. 2.1. E-procurement contains the following elements Web-based enterprise resource planning (ERP) allows the users to create and approve requisition as well as placing orders ,creating ,approving purchasing requisitions, placing purchase orders, as well as receiving goods and services using a software which is based on the internet technology. Electronic maintenance, repair and overhaul (e-MRO). It has the same characteristics as Web based ERP but in this case, the goods and services which are ordered are basically non products related to maintenance, repair and overhaul. E-sourcing is the element which enables the users to identify new suppliers in a given category of requirement using the internet. It mainly supports the specification stage where it is used in the prequalification of suppliers and identifying those who proceeds to the selection stage. The suppliers gets to market themselves and the buying company or organization gets to facilitate the sourcing of suppliers. E-tendering as an element allows the users to send requests which are directly related to the information and prices through the internet technology. The suppliers in return give a feedback through the same forum. This tool supports the selection phase, through acting as a communication channels between the procuring firm and the suppliers. The complete tending phase is covered here, right from the REOI to RFP and contracting. The tool does not include the final part of the selection stage where the supplier is engaged. E-reverse auctioning allows the users to buy goods and services from different supplier, both known and unknown using the internet. E-informing involves collecting and distributing information on supplies either from external or internal parties using the internet. 3.0 Using E-procurement Systems It is widely accepted that a good e-procurement system assists the organization plan its interactions with key suppliers. It provides the users with a built in tools helping in controlling costs and unsure supplier performance. It also gives a platform where an open line communication can be kept especially between the potential suppliers. Through the system managers can confirm prices, leverage on earlier agreements to ensure a competitive advantage. Formulating an e performance strategy requires one to recognize that nature and pricing of the goods and services to be procured will have an impact on the way they should procure. For instance, those who are selected to procure IT services usually get billed on a monthly basis in arrears; they require a system which fits their life cycle and can manage to deliver efficiently .The system required for this type of service is totally different from products which are commodity items. Implementation of e procurement can fairly easily be done through starting with non essential commodity and learning from the process. Whatever lesson that will be learned from this process, can be applied in other parts of the business. Before the implementation process is carried out one should first develop, the business case where it can be justified based on other alternatives which are found to be less effective in terms of the results and cost deliveries. The organization should conduct a process analysis to ensure that it is carried out properly and get the required results. The spending patterns also need to be analyzed to ensure that whatever system which is implemented remains error free and delivers the required results. The next step involves contacting the suppliers and then determining the criteria which will be used in selecting the e procurement solution.( Beck, Roman; Wigand, Rolf and König, Wolfgang 2005) 4.0. Benefits of e- procurement The benefits that are achieved e-procurement are significant and the business case for its adoption by organizations and business is compelling. With the cost effectiveness of the system, business has a lot to gain through using the system in the chain supply management. The return for investment is guaranteed despite the cost that one may incur when establishing the system. Statistics from previous studies speak for themselves, in one study that was conducted by Deloitte Consulting, the number of organizations and companies which had adopted the system saved between five to fifteen percent in their corporate spending once the invested on this system. A different study which was conducted by Aberdeen Group found that businesses which had adopted this chain management technology managed to save the transaction costs by seventy percent. There is clear evidence that reducing the supply costs by five to ten percent leads to an increase of profit margins. (Aberdeen Group 2003) 4.1 Elimination of the administrative cost E-procurement automates much of the administration tasks which are associated with purchasing making it a paperless process. Traditional procurement was mainly paper based where all the communications between the parties was done manually. There were a number of people who were required to make the process successful. With adoption of the system, there will be no need of preparing invoices on paper or even catalogues and quotation. All this can be done electronically eliminating the need for hiring employees to carry the task manually. The volumes of papers which would have been needed to accomplish the task have also been eliminated. This not only ends up saving some costs for the business or organization but also in helping the organization adopt green strategies. In essence the number of trees being cut to supply the business with enough papers for us will have reduced to carry out procurement transaction will have reduced drastically. The time which is required to undertake a procurement procedure also ends up being reduced, this allows the employees to concentrate in activities which are more beneficial to the company. (Aberdeen Group 2003) (Tanner, Christian 2003 The e-procurement provides the people handling the requisition process with a very efficient, quick and simple ways of raising a requisition right from the web. It is then electronically relayed to the people who are supposed to authorize and the convert it into an electronic purchase order and send it through the web to the supplier. In medium to large business, the time and effort that is saved can be equated to thousands of man hours every year. (As shown in figure 1) This means that saved time can be utilized to give the company more revenue. There is enough evidence to show that many businesses and organizations that use paper based procurement waste a lot of time and efforts in the course of the process. There is also a danger of not completing the function effectively costing the business some costs and revenue.(Dai, Qizhi and Kauffman, Robert 2002) The time spent by accounts staff and purchasing staff alike reconciling these documents can often be significant. Administration of procurement if done in traditional method leads to unnecessary wastage. E procurement leads automation of tasks and reduction of inefficiency in the business; this in return leads to increased revenue for the business. (Aberdeen Group 2003) Figure 1: The administrative costs of a traditional procurement system compared with the costs of e-procurement Function Traditional Process E-procurement Requisition Generation 66.76 29.2 Requisition Distribution 7.36 0.0 Order Generation 8.87 1.5 Order Distribution 1.87 0.0 Expediting 0.91 0.3 Goods Receipt 3.83 1.5 Invoice Processing 10.40 0.7 TOTAL 100.0 33.2 Adapted from (Aberdeen Group 2003)The above table, taken from a report by Warwick Business School, highlights the administrative costs of a traditional procurement system compared with the costs of e-procurement (using the manual system costs as the base index (= 100) 4.2 Reduction of the Purchase cycle time In many businesses, the time it takes from the time of requisition to delivery can be long making it unfeasible for goods and services which need a quick supply. These delays are usually caused when the requisition needs to be approved manually by several people. With e procurement the flow is streamlined leading to avoidance in unnecessary delays. The systems allow the requisition to be checked automatically against the configured setting and at the same time authorisation takes place electronically. This speeds up the whole process and also enables a complete analysis of the cycle making it easy for the procurement staff to identify the challenges. The system empowers the employees to get the work done quickly without having to sacrifice the control systems of a business. Calculating the benefits which are derived from a reduction of the purchase cycle time one will appreciate that the business gains significantly through adopting the electronic procurement. (Aberdeen Group 2003) 4.3 Improved controls Since the processing of the procurement is done centrally and automatically e procurement provides a platform where relevant analysis and reports can be easily produced. The procurement employees are equipped with information which they need to manage the process effectively. Apart from reducing the administrative duties the system gives the staff a chance to scrutinize the whole process and prevent any leakages in the process. The system ensures that approvals are standardized and formal workflow which ensures that there is full compliance with policy. (Tanner,C; Wölfle,R; Schubert,P and Quade,M 2007) 4.4 User compliance Apart from realizing greater management control e procurement helps in maximizing compliance, ensuring that goods and services are only procured from the approved suppliers. This services two purposes, the organization get the value if its money since approved suppliers will strive hard to ensure that they always provide high quality goods and services. At the same time it allows the companies to gain leverage for better deals with those who are supplying. E- Procurement offers the end users those who want to procure goods and services a quicker channel. It enables the business to complete the order process and in a friendly manner. They are able to track the order progress ensuring that that there is a strict compliance with the company policy. (Minahan 2005) 4.5 Reduction in order error rate While using the system, the chances of making order errors are greatly reduced. The fact that orders are made through selecting items from catalogues which are within the system reduces the chances of making an error will be minimal. With the system the information is hard coded in relation to the user making it hard to have coding errors, this in essence provides a detailed, reliable and accessible data. A business or an organization which has put in place measures to minimize errors achieves greater efficiency raising the chances of increased profits. 4.6 Management information benefits A successful system provides the user with high quality and detailed information, the management can rely on this information making the decision making process easy. Reports which are generated from the system are very beneficial to the organization as they greatly tell of the business position, the deals which have been successful and those which are pending. It provides a forum through which effective monitoring can be done and the necessary actions are taken without having to wait for too long. (Tanner,C; Wölfle,R; Schubert,P and Quade,M 2007) There must be systems and processes in place to realize the full advantages. Tools are needed in creation of the standard procurement documentation, requests for proposals and quotation. 5.0 Challenges in the implementation of the e procurement Despite the fact that the system adoption has been increasing and the users have gained numerous benefits such as reduction in administrative costs, saving costs and time, availability of information and increased compliance, there are some challenges that those who are using the system as facing. E-procurement has its share of disadvantages, such as: Human or system errors in orders Software and systems which fail to meet the business needs A situation where the supply fail to offer the necessary support There might be some lapses in the generation and maintenance of product information Lack capacity to make searches The introduction of the system means that there is need for internal culture change something that may require the employees to adopt, this might meet some resistance The employees and other stakeholders need to be trained on how the system works, this may increase the costs of running a business. There might be a potential change in vendors or available goods, hampering the smooth running of the organization. 6.0 Risks involved with the implementation of the system Every coin has two sides, and the same case applies to e-procurement process, the implementation comes with certain risks, one of the risk involves missing the chances to implement the procurement strategies which improve the supply chain management without the need for huge investment. It is widely agreed that many of the benefits which are derived through the implementation of the system can be achieved through just improving the procurement practice. For instances the proponent of supply chain technologies observe that e procurement reduces the chances of organization engaging in maverick buying, however there are other measures that can be implemented by the firm and still give the same results and do not entirely need the electronic tools. (Tanner,C; Wölfle,R; Schubert,P and Quade,M 2007) A firm which is looking at adopting e procurement system may over invest expecting to gain maximum benefits through the process. There is a danger of tying most of the organization funds on a system which might end up giving the undesired results. If the organization failed to carry out an adequate evaluation of the enhancement of the tools, there is a great likelihood that the system might not give the required results. There is also a risk that the users might resist from adopting the system despite the benefits that it might present. This usually happens when proper negotiations and consultation has not be done, a situation where some of the stakeholders in the organization as well as other parties which are involved are not involved in the process. There is also a risk that suppliers might not offer the required cooperation with the use of these tools. Some of them might not be well equipped or sufficiently powerful to instill the required compliance .Other might not have the necessary capacity such as reliable internet based technology which would give them the needed access to the tools which are used in the system. In situation where the market in question is competitive yet it offers low profit margins, the supplier may not be comfortable to participate in some of the elements such as e reverse. (Tanner,C; Wölfle,R; Schubert,P and Quade,M 2007) 7.0 Case study: Glaxo Smithkline opts for independent solution GSK is a drug manufacturing multinational company which has operations in 38 countries, 80 manufacturing sites and more than 100,000 employees. The company has revenue of 37.2 USD and its spending is in tune of 13 USD.Before the implementation of the e procurement system, the research scientist relied on paper based ordering system, phone communication with the suppliers. This not only wasted a lot of time for the scientists but also prevented them from fully devoting their time on their core business. The company was not getting the best negotiated deals leading to loss of funds. In view of these shortcomings a multi disciplinary team was formed to come up with the possible solutions. The team after deliberation and serious consideration chose an open based procurement system, one which is not tied to any supplier. As a result of the system implementation the contract compliance has increased by twenty percent. Also the procurement system has streamlined the process leading to capturing of more spend information. The lesson from the GSK case study is that having quality and accurate catalog is essential for end user compliance. Adapted from Aberdeen Group (2005) Best Practices in e–procurement, Reducing Cost and Increasing Value through Online Buying 8.0 Conclusion E- Procurement has transformed the way businesses and organizations are run. It has improved the organization procuring system through eliminating some of the processes which were tedious and time consuming. It has led to overall improvement in firm’s efficiency increasing the chances of higher revenue and ultimately profits for the business. With the system, information which is real time and detailed is readily available, aiding in quick decision making. Although the initial cost may be higher as far as its implementation may be concerned, the savings which will be realized in terms of costs, time and effort will far outweigh. A conclusive evaluation of the system before it is implemented will go along way in reducing the risks ultimately leading to the successful adoption. 9.0 Bibliography Tanner,C; Wölfle,R; Schubert,P and Quade,M (2007) Current Trends and Challenges in Electronic Procurement: An Empirical Study, 20th Bled e-Conference eMergence: Merging and Emerging Technologies, Processes, and Institutions June 4 - 6, 2007; Bled, Slovenia Aberdeen Group (2003): Service Spend Management: Addressing the Total Cost Lifecycle, Boston Kearney, A.T. (2004): Making Procurement a Priority, Chicago, 2004. Aberdeen Group (2005): Best Practices in E-Procurement: Reducing Costs and Increasing Value through Online Buying, Boston, Beck, Roman; Wigand, Rolf; König, Wolfgang (2005): The Diffusion and Efficient Use of Electronic Commerce among Small and Medium-sized Enterprises: An International Three-Industry Survey, in: Electronic Markets, Vol. 15, No. 1, 2005, pp. 38-52. Minahan, Tim A. (2005) Five Strategies for High-Performance Procurement, in: Supply Chain Management Review, September 2005. CAPS Research (2003) Managing Your “Services Spend” in Today’s Services Economy, Tempe AZ, CAPS: Center for Strategic Supply Research Dai, Qizhi; Kauffman, Robert J. (2002): B2B E-Commerce Revisited: Leading Perspectives on the Key Issues and Research Directions, in: Electronic Markets, Vol. 12, No. 2, 2002, pp. 67-83. Möhrstädt, Detlef; Bogner, Philipp; Paxian, Sascha (2001): Planning, Using, and Deploying Electronic Procurement, original title: „Electronic Procurement planen - einführen - nutzen“, Stuttgart: Schöffer-Poeschel, 2001. Tanner, Christian (2003): E-Procurement-Study: E-Supplier – Current Situation of Procurement Providers, original title: „E-Procurement-Studie: E-Supplier – Situationsaufnahme bei E-Procurement-Betreibern“, Basel: University of Applied Sciences Basel (FHBB), Institute for Business Economics (IAB), Working Report E-Business No. 18, 2003. Read More