Examples of e-Procurement Applications and Tools - Essay Example

? Examples of e-Procurement applications and tools The advancement of communication technologies such as intranet, extranet, Electronic Data Interchange, and Virtual Private Network (VPN) has propelled companies into coordinating their purchasing, production, and distribution activities via the internet. E-business refers to the application of technologies, especially Information and Communication Technologies (ICTs), to undertake or sustain business activities and processes, inclusive of research and development, procurement, design and development, manufacturing, operation, logistics, finance, value chain integration, HRM, design and development (Boone and Kurtz 2011, p.4). Procurement refers to the process by which companies purchase goods and services from a diverse range of suppliers. E-procurement infers the business to business (B2B) or business-to-consumer, business-to-government purchasing of work, goods or services via the internet, besides other information-based and networking applications such as Enterprise Resource Planning and Electronic Data Interchange (Turban, David, Lee, Liang, and Turban 2011, p.5). Procurement can be a critical part of a company’s overall strategy for cutting down costs. E-procurement methods incorporate methods such as electronic data interchange (EDI), online marketplaces/ e-marketplaces, and a combination of the two. E-procurement can be facilitated through the application of either a manual process or employing of automated software such as Enterprise Resource Planning Tools (ERP tools). E-procurement value chain comprises of aspects such as Contract Management, Vendor Management, e-Auctioning, Indent Management, e-Tendering, and Catalogue Management (Harrison and Hoek 2008, p.12). E-procurement ICT incorporate components such as e-procurement software, B2B auctions, B2B market exchanges and purchasing consortia that are directed at automating workflows, consolidating and leveraging organizational spending power and citing fresh sourcing opportunities online. The most cited procurement use of the Internet revolves around consummating the transaction and attainment of technical advice. Top performing organizations mainly conduct more than 20% of their e-procurement transactions online, besides utilizing the internet for e-procurement applications such as communicating with vendors, verifying vendor price quotes, as well as purchasing from the vendor’s catalogues (Boone and Kurtz 2011, p.212). Technological advancement has led to the onset of commercial transactions such as Electronic Funds Transfer, supply chain management, internet marketing, Electronic Data Interchange, online transaction processing, and inventory management systems (Neef 2001, p.36). Types of e-procurement There are several examples of e-procurement tools, each of which avails benefits to manufacturing enterprises in ensuring that raw materials and other essential manufacturing components are delivered on time to meet production schedules in the most effective manner to maximize profit margins. Web-based ERP Web-based ERP is engaged in creating and endorsing purchasing requests, placing procured orders and receiving goods and services via application of a software system based on internet technology. ERP software packages from vendors such as Oracle, SAP AG, and the SAGE Group are designed to maximize the resource planning of an enterprise. In the manufacturing industry, web-based ERP is designed to generate purchasing schedules so as to achieve a perfect just-in-time (JIT) assembly cycle (Li 2007, p.300). One of the outstanding characteristics of ERP software is its capability to generate purchase orders via and production application of the bill of materials for the finished products as a basis. ERP systems also issue reschedule notices to suppliers (Neef 2001, p.38). Other types of e-procurement software include Vendor Management Systems, e-MRO (maintenance, repair and overhaul), SAAS transformation, e-Tendering, e-marketsites, e-Sourcing, and e-informing. Electronic Data Interchange (EDI) as an e-procurement Tool Electronic Data Interchange (EDI) predominantly deals with the manner in which information is communicated during the procurement. EDI refers to the electronic transfer of business information through aspects such as bills of lading, purchase orders, invoices, and inventory data, among other types of confirmations between organizations or trading partners via a standardized format (Li 2007, p.302). EDI is also employed by individual organizations so as to transfer data between diverse divisions or departments such as finance, purchasing, ad shipping. Some of the distinct characteristics of EDI that sets it apart from other forms of exchanging information encompass the fact that EDI incorporates business to business transactions, whereby individual consumers do not directly utilize EDI to purchase goods or. EDI can occur point to point whereby organizations communicate directly with one another via a private network. In addition, EDI encompass instances in which organizations communicate via the internet (open EDI), and lastly, through value-added networks (VANs), which allow easy transfer of information. The internet plays a significant role in EDI whereby companies translate files used in the EDI and transfer them to another organization’s computer system through the internet, email or file transfer protocol services (Turban, David, Lee, Liang, and Turban 2011, p.6). The benefits of EDI include enhanced document processing, reduced cycle time, enhanced data accuracy, invoice tracing/control, minimization of costs, and enhanced quality of information, direct funds deposit and closed loop process (Neef 2001, p.40). Some of the key business drivers leading organizations to adopt internet-based solutions entail supply chain management. The core focus of chain partners revolves around managing material flow through aspects such as material replenishment, warehousing, and shipping (Stanford-Smith and Kidd 2000, p.5). The incorporation of EDI into e-marketplaces has delivered enhanced potential. Online Marketplaces Online marketplaces bring together many buyers and sellers in an online environment and acts as an intermediary between the two parties. Besides, connecting buyers and sellers, online marketplaces providers avail more value to the procurement process via offering a diverse range of services such as inventory management and process enhancement, arranging financing, and tracking shipments (Hutt and Speh 2010, p.310). Other Approaches Besides EDI and online marketplaces, there are other approaches to e-procurement. Some of the approaches incorporate software applications that enable purchasing agents to establish systems for managing aspects such as invoices, purchase orders, receipts, and request for quotations. Companies can also rely on third party organizations whereby the organizations use the systems through the web. When engaging a potential PSP, some of the principal attributes that are analyzed include the capability to fulfil demand forecasts, keenness to follow standard e-business processes, meeting the set terms and conditions of procurement such as the time taken to accept orders, capability to absorb changes to orders, delivery time adherence, tracking abilities, and the rejection process (Sharman, Rao and Raghu 2009, p.307). Other approaches to e-procurement detail online auctions whereby companies procure goods and services for both contract and spot buys. The success of online auctions depends on a number of factors such as the bidders engaged in the procurement, the number of bidders, and the duration of the bidding periods. Advantages of e-procurement Systems Irrespective of the approach or method employed there are wide arrays of gains that can be obtained from the utilization of e-procurement systems, as opposed to manual based systems or oral communications. E-procurement benefits are widely quoted in the SCM and e-procurement literature. Research indicates that buyers report that the conversion from paper-based to e-purchasing resulted to a reduction of 5% to 10% on purchasing price, 25% to 50% reduction at inventory level, 5-day reduction in cycle time, and a significant saving in per requisition administrative cost (Li 2007, p.304). The core advantages of utilizing e-procurement system include enhancing efficiency and cost savings. The operations advantages of e-procurement include shortening of delivery time, enhancing the matching of orders, eliminating paperwork and associated costs, enhancing ease of auditing tracking, minimizing inventory levels, and enhancing efficiency. E-procurement also possesses marketing/purchasing advantages such as speeding up buying process, empowering employee requisition, and enhancing discounts for marketing potential (Li 2007, p.305) . E-procurement systems attract finance benefits such as enhancing top line revenue growth, cost savings, generating returns, and integration with accounting systems. E-procurement allows buyers to control spending, as well as lowering acquisition costs. In addition, the system enhances supplier relationships by minimizing returns and customer supports costs. E-procurement systems aid in reducing procurement and sales costs, besides enhancing the efficiency of the process. For instance, EDI permits commercial transactions to take place in minimal time with minimal errors compared to traditional paper-based systems (Hutt and Speh 2010, p.45). E-procurement minimizes the amount of resources that inventory departments must invest in by combining the manufacturing process to closely related processes such as just-in-time. E-procurement eradicates paper forms, thus reducing postage costs and space and expenses accompanying paper based record storage. Online marketplaces expand the range of sellers and buyers, besides making the transactions more transparent. Online marketplaces minimize procurement and sales costs and enhance the efficiency of the process (Boone and Kurtz 2011, p.215). E-marketplaces aggregate content as it is easy to explore fresh sources and pricing. Disadvantages of e-procurement Systems Despite the outlined advantages, e-procurement systems also attract some disadvantages. E-procurement systems/electronic orders are prone to errors and snags, although largely emanating from human error. In addition, some companies have been disappointed by the e-procurement software applications as some lack some specifications, thus failing to meet their needs (Gattorna 2003, p.188). The top hindrances to the successful adoption of e-procurement revolve around enabling suppliers to support e-transactions, besides generating and maintaining electronic product information. Factors Influencing e-procurement Adoption and Use Despite the massive benefits that can be derived from e-procurement technologies, their adoption is still at the infant stage. An assortment of factors may affect a firm’s decision to adopt and implement e-procurement ICT. There are several variables that influence a firm’s decision to implement e-procurement technologies. The variables include aspects such as individual variables; task and innovation related variables, as well as organizational and environmental characteristics. Some of the organizational and environmental characteristics that positively correlate with the adoption of ICT in SCM include: organizational size, decentralized organizational structure, supply chain strategy integration, environmental uncertainty, and transactional climate (Gattorna 2003, p.25). The stated factors differ in potency depending on the context or technology. The overriding factors prominent during the adoption of e-procurement encompass aspects such as organizational, innovation, and environmental factors. Large organizations are highly likely to facilitate ICT innovation and subsequent adoption owing to their financial capacity, infrastructure endowment, and organizational power. Similarly, the characteristics of innovation as held by the adopting firm can significantly influence the process of e-procurement implementation (Parente 2008, p.12). The relative advantage, compatibility, and complexity are some of the characteristics prominent in the formation of the adoption attitude. Types of e-business Business to business (B2B) B2B takes the form of automated processes between trading partners and is undertaken in instances with high volumes. B2B also incorporates marketing activities between businesses and not merely final transactions emanating from marketing (Hutt and Speh 2010, p.7). B2B is employed to highlight sales transactions between businesses. For instance, the website WWW.alibaba.com, serve multiple SME’s within the international trade community whereby the website has close to 2 million registered users from more than 200 countries and territories. The site attract close to 300,000 visitors daily, most of them global buyers and importers seeking trade with sellers in China and other manufacturing countries. Business to Consumer (B2C) This incorporates activities of commercial organizations serving the end consumer with products and services. B2C, on the other hand, encompasses exchange and transaction of information, goods, or services between a business and the consumer (s). The B2C can aid to limit set up costs of merchandising store, as well as instituting an efficient supply chain (Gattorna 2003, p.50). For instance, WWW.amazon.com has established itself as an enviable retailer. The site offers online customers the largest selection of more than 20 product items such as books, CD, toys, women accessories, shoe, and home improvement products, among other products. The website has successfully oriented itself as the world’s most customer-centric company, whereby clients can easily find and discover anything they wish to purchase online. Consumer to Consumer (C2C) C2C incorporates a web-based form of commerce whereby consumers sell directly to other consumers. The website, WWW.ebay.com, which prides itself as the “world’s online marketplace”, has over the years developed into an enviable e-procurement model. People visit eBay to buy and sell thousands of categories from collectibles such as house wares, books, and clothing, among other items. Buyers have a chance to select available items in the website and buy them in an auction-style format, as well as fixed price format (Boone and Kurtz 2011, p.220). Business to Government (B2G) Businesses usually conduct transactions electronically with the government regarding diverse business activities such as licensing or reporting requirements, as well as in instances in which businesses sell products or services to government (Boone and Kurtz 2011, p.216). For instance, WWW.gprocurement.go.th, a Thailand e-government procurement site is directed at minimizing cost, enhancing productivity of public procurement, and availing businesses with better access and enhanced efficiency to government markets, as well as raising transparency within the government. Business to Employee (B2E) This infers instances in which information and services are made available to employees online (Hutt & Speh 2010, p.21). A B2E portal may incorporate aspects such as personalized data (incorporating personalized information such as personal hyperlinks and stock quotes). Toyota Application of e-procurement Systems Supply chain management is a crucial component in any organization. The procurement of materials (such as raw materials) and services can become a significant stumbling block if not handled well, especially for organizations that are engaged in the production of deliverable goods. Devoid of a regular and reliable supply of raw materials, the manufacturing process will ultimately come to a halt, which in turn perpetuates the missing of delivery dates and eventually, a backlog of orders. E-procurement can be an essential factor in ensuring that materials are delivered promptly in order to meet the set production schedules (Sharman, Rao and Raghu 2009, p.308). Toyota’s e-procurement allows the firm to derive benefits such as cost savings and subsequent enhancement in return-on-investment, shorter order cycle time, and ultimately, inventory reduction owing to quick transmission of order related information. Other benefits include just-in-time inventory and procurement practices, enhanced supply chain efficiency by availing real-time data relating to product availability, inventory level, shipment status, and production specifications. Lastly, the e-procurement system avail an effective linkage of client demand information to upstream SCM functions, as well as facilitating “pull” (demand oriented) SCM operations (Sharman, Rao and Raghu 2009, p.308). Companies such as Toyota, Amazon, Dell, Walmart, and eBay, among others attribute their success to their implemented supply chain management (SCM) model that is significantly reinforced by IT and e-commerce technologies. The companies utilize web-based technologies to support chief procurement processes such as requisition, sourcing, contracting, ordering, and payment (Sharman, Rao and Raghu, 2009). Toyota’s e-procurement system enables the firm to share critical information such as catalogue (inventory) and sales information with the bulk of its suppliers. The possession of such information aids Toyota’s suppliers to plan and manage their operations better, besides enabling the firm to coordinate its inventory orders effectively. As a result, it becomes easy to implement just-in-time (JIT) delivery strategy (Parente 2008, p.10). Web-based e-procurement system enables the sharing of critical information centring on sales estimates, production timetable, inventory levels, and the set product specifications/design among trading partners. Toyota utilizes the concepts of automated e-procurement/ electronic B2B trade based on strategic leveraging of its operations. The implementation of e-procurement systems has been motivated by significant process savings from automation, compliance, and purchasing advantages. Toyota’s supply chain applications incorporate components such as procurement/SRM, ERP/financials, order management, production planning and scheduling, warehouse management, transportation management, and EDI. ERP functionality incorporates aspects such as inventory management, sales order processing, forecasting, procurement, capacity planning, warehouse management, and financials. Other components include data warehouse, CRM (customer relationship management), SRM (supplier relationship management), and Analytics/ DSS (Li 2007, p.293). Toyota’s e-procurement system has allowed the company to minimize overhead costs, as well as aiding the company in making management decisions. Other benefits include controlling inventory levels, consolidating information on vendors in one place. The implemented e-procurement systems have aided the company to reduce its procurement cycle by up to 70% along with an approximate 20% reduction in service spends (Li 2007, p.302). As a result, the model has attained a broad international footprint and is widely praised for its functionality (Sople 2012, p.89). Some of the chief inbuilt features include workflow and authorization, reporting capabilities, automated invoicing and payment, seamless data sharing integration with back-end ERP. Amazon Application of e-procurement Systems Amazon represents a classic example of B2Ccommerce firm, which directly focuses on individual final consumers. Amazon’s entire procurement is grounded in the e-procurement model. In addition, Amazon is directly tied to Amazon’s internal pay process or that of their PSP’s. In most instances, B2C models such as Amazon, Wal-Mart entirely outsource their procurement. Both Amazon and eBay allows customers to purchase physical or digital items through a website, before the purchased items are shipped or delivered appropriately. E-procurement websites allow qualified and registered users to seek for buyers or sellers of the goods and services. Depending on the approach undertaken, buyers and sellers may highlight costs or invite bids. The e-procurement system that Amazon and eBay utilizes aids in automating the buying and selling process (Gattorna 2003, p.172). Amazon purchasing utilizes a web-based platform that automates aspects such as requisition, approval, RFQs (requests for quotation), and purchase order creation. Amazon’s Computer Cloud (EC2) details a web service that avails computing capacity in the internet. The ERP system avails on-demand B2B shopping platform, which allows buyers to login directly to its online marketplace to view the company pricing (Gattorna 2003, p.173). The principal features of the system include catalog and policy management, cross searching, the punch-out catalog price verification, and social shopping. Additional features include centralized catalog control, easy to use administration and setup interface, buyer self-service stored catalog management, and user generated product ratings for both the stored and online web catalogs (Stanford-Smith and Kidd 2000, p.6). Outsourcing of the e-procurement process complements Amazon’s drive towards cost reduction, as well as scaling down operational executions to a minimum. Today, enterprises are increasingly outsourcing all or part of their procurement functions to an increasing number of third-party organizations (Procurement Service Providers). Organizations mainly outsource their procurement needs when they are efficiently catered to by procurement service Providers (PSP) (Stanford-Smith and Kidd 2000, p.5). As a result, the organizations derive benefits such as minimal infrastructural costs involved in the manufacturing, besides benefits such as minimal operational and logistical overheads. eBay Application of e-procurement Systems eBay utilizes ERP system, which allows the automation of buying and selling process. eBay represents consumer-to-consumer (C2C) module. E-procurement is a critical component of the supply chain management. Enterprise Resource Planning allows an individual or company to sell their goods or services online at certain duration of time. Individuals can bid as much as they desire until a certain time limit has elapsed and the highest bidder wins the item (Li 2007, p. 290). Businesses or individuals can sell their products on the website to the highest bidder. Similarly, e-Bay e-procurement system allows sellers to advertise a “buy it now” price, which allows buyers to accept for purchase devoid of bidding. When the sale is completed, buyers can pay for the purchased products by credit card, Paypal account, or through bank account. eBay utilizes online payment system (e-payment system) like PayPal in handling the financial transactions so as to guarantee that cash settlements are received prior to the item being shipped out. E-procurement system allows eBay to connect sellers and buyers around the world together (Li 2009, p. 292). E-procurement is facilitated by software applications encompassing components for both supplier management and online auctions. The new generation e-procurement systems incorporate on-demand (software-as-a-service (SaaS)) with vendors such as SAP AG and Coupa. E-procurement value chain comprises of Indent management, e-tendering, e-auctioning, vendor management, contract management, and catalogue management (Li, 2007). Elements of e-procurement encompass aspects such as Request for Proposal, Request for Quotation, and Request for Information, and RFx (a combination of the three). Web-based applications for models such as business-to-business (B2B) procurement are directed at reducing the expenses accompanying the purchasing process, besides altering purchasing activities and transforming the purchasing process from an operational activity into a strategic activity. This in turn, avails opportunities for enhancing market coordination by minimizing asset specificity and making additional partners available (Li 2007, p.293). E-procurement has been instrumental in automating the purchase process, thus reducing cost and time. Typically, most e-procurement enabled websites have product comparisons across vendors and various processes such as tendering, auctioning, vendor management, catalogue, and contract management. There are diverse approaches to e-procurement adopted by different vendors in managing supplier relationships. The approaches incorporate aspects such as catalogue and transaction based e-procurement products, in addition, to those that reinforce supplier relationship management strategies that demand strategic relationships and integration with third-party products (Li 2007, p. 296). The success of many organizations, whether public or private, hinges on the organization's capability to administer and regulate the flow of materials, information, and monetary resources into, within, and out of the organization. Problems within the supply chain may lead to scheduling setbacks, failure of products not being where they are expected at the opportune time, customer frustration, lost sales, and increased expenses (Li 2007, p.298). Conclusion Future development of e-procurement systems foresees the enablement of streamlined and seamless supply chains in which networks of suppliers, manufacturers and retailers share information for developing collaborative competitive practices such as collaborative forecasting and replenishment. E-procurement has the capability of transforming the entire purchasing process as it permeates all significant components in the purchasing process such as product design, production scheduling, suppliers’ selection, and contracting transactions. References List Boone, L. & Kurtz, D. (2011). Contemporary business 2010 update, New York, John Wiley & Sons. pp.4-8. Gattorna, J. (2003). Gower handbook of supply chain management, Burlington, Gower. pp.171-248. Harrison, A. & Hoek, V. (2008). Logistics management and strategy: Competing through the supply chain, New Jersey, Prentice Hall Financial Times. pp.10-15. Hutt, M. & Speh, T. (2010). Business marketing management: B2B. Mason, OH: South-Western Cengage Learning. PP.305-322. Li, L. (2007). Supply chain management: Concepts, techniques and practices enhancing value through collaboration, London, World Scientific Publishing CO. pp.287-304. Neef, D. (2001). E-procurement: From strategy to implementation, New Jersey, Prentice Hall. pp.36-46. Parente, D. (2008). Best practices for online procurement auctions, London, IGI Global. Pp.10-12. Sharman, R., Rao, R. & Raghu, T. (2009). Exploring the grand challenges for next generation E-business, New York, Springer. pp.307-310. Sople, V. (2012). Supply chain management: Text and cases, New Delhi, Dorling Kindersley. pp.89-98. Stanford-Smith, B. & Kidd, P. (2000). E-business: Key issues, applications and technologies, Burke, IOS Press, Inc. pp.5-8. Turban, E., David, K., Lee, J., Liang, T. & Turban, D. (2011). Electronic commerce 2012: Managerial and social networks perspectives, New Jersey, Prentice Hall. pp.5-6 Read More