Benefits of E-Procurement - Literature review Example

?Running Head: Literature Review on E-Procurement Literature Review on E-Procurement [Institute’s Literature Review on E-Procurement The internet has brought a rebellion in corporate purchasing practices. It is a major bringer of important productivity enhancements in several businesses (Ageshin, pp.48-53, 2001). The organizations presenting themselves as e-procurement providers, mainly position their companies as producers of cost-saving technologies for the manufacturers consuming economy’s biggest share of material input. The competences in purchasing these inputs often decide the overall output produced by the manufacturers (Neef, pp.31-40 2001). Usual methods of procurement have lots of paper work processing, which requires a huge amount of money and time. E-procurement has reduced this work largely. E-procurement is a chief element of B2B ecommerce and it can be used in markets and industries in wide range. Business organizations buy many products of diverse varieties, ranging from paper clips to computer systems and from steel to equipments. They buy raw material inputs, which directly go in manufacturing process and the raw materials that need some repairing and maintenance before going into manufacturing process. There are thousands of other items purchased by an organization and keeping their receipts in record is very necessary for organizations to maintain professionalism. The main driver of e-procurement is cost-reduction attained from competencies resulting in less staff time spent in looking for and ordering products and integrating deliveries with invoices. Savings also take place with automatic corroboration of pre approved expenditure budgets for individuals or organizations leading to less time necessary for processing each order (Turban, pp.251-252, 2010). Automatic ordering, delivery, confirmations, payment, and inventory information diminish paper work, costs of paper-based ordering forms, storage space for credentials, records, and better information management. Indirect benefits of e-procurement include a shorter cycle time between order and use of supplies, greater suppleness in ordering products from different suppliers, amplified buyer productivity, and lower prices through product standardization and union of buyers (Havaldar, pp.379-382, 2010). Benefits to buyers of e-procurement include gain from improved pricing of goods and services, cost savings in the running of procurement processes, merger of buyer's sub entities into a single buying unit, and minimized costs through purchasing aggregation for some items. Other intangible benefits include enhancement in operations support, employee efficiency, evident purchasing behavior of business partners and supplier performance. Decline in procurement-to-pay cycle time and costs associated with outsourcing procurement and it helps maintaining smooth procurement operations. It also causes huge savings in invoice, finance, goods insurance, and delivery (Gay, Charlesworth & Esen, pp.474-475, 2007). Conversely, suppliers benefit from lower managerial costs, use of standard online catalogues that can be quickly updated with new product information, more effectual targeting, and access to a wider range of buyers (Babin & Weiss, pp.89-91, 2009). Additionally, lower inventory and warehousing costs are also the advantages of suppliers. Other opportunities contain lesser advertising, selling and service costs, extended product and service offerings, enhanced cash flow through better inventory returns and accounts receivables, a more thorough anticipation about a buyer's purchasing needs, and immediate responsiveness to a buyer's needs (N, pp.28-29, 2004). Nevertheless, for each e-marketplace contributor, the benefits will differ according to the contributor’s position. As buyers go for e- procurement, suppliers may not have any other option rather than joining in. The majority of suppliers are also buyers; therefore, net result is an increased involvement in e-procurement. E-procurement offers benefits in many forms such as ERP, e-MRO, e sourcing, and e-informing. ERP is best at automatically generating purchase orders based on the bills of supplies. ERP can also send these purchases to orders to suppliers to mechanize the procurement system fully. These orders help organizations to begin the production of items at perfect time and in required quantity (Hanna, pp.268-269, 2009). Additionally, it can also issue notices to suppliers on rescheduling of any order, diminishing the possibility of misunderstanding (Heywood, Barton & Heywood, pp.60-67 2002). In particular, e-MRO software can also generate purchase orders and alter them. E-MRO orders are of most benefit when it comes to using numerical directed machine tools as they run self-diagnostic programs and inform an operator about failure of a component by sending an SMS to cell phone. Next is e-sourcing, which means to identify new suppliers for purchasing requirements in a particular group with the help of internet. The most productive aspect of e-sourcing is the process by which suppliers bid for the projects. Suppliers put forward their bids along with information about the services they assure to provide, then purchasers choose the proposal that is most favorable for them. The bidding process is very fruitful for both suppliers and purchasers because suppliers get an opportunity to present their offerings with no interruption at the same time purchasers can comprehensively analyze the details of all the submitted proposals and go for the most suitable one. Lastly, e-informing, this is used for exchanging purchasing details between buyers and sellers. Organizations can use many new technologies such as email to inform suppliers about upcoming auctions so that they can submit their bids and organizations can take advantage of it (Abramson & Harris, pp.336-338, 2003). However, organizations using e-procurement concern about the maximum involvement of both purchasers and suppliers because low involvement of any one of them can be de-motivating for the other. The benefits of e-procurement are of two main types that are effective benefits and efficient ones. Effective benefits show augmented control over supply chain, proactive administration of key procurement data and superior quality purchasing decisions by organization’s management. Efficient benefits include decreased procurement costs; rapid purchasing cycles, abridged maverick and brilliantly organized information. E-procurement systems also provide strategic and operational profits. Operational profits occur when efficiency of procurement systems improve resulting in decreased procurement costs (Dave, pp.308-323, 2008). This also helps in reducing the procurement errors and maverick purchases. Another chief benefit is reduction in time needed to process and record procurement transactions. One of the noteworthy problems of an organization is compliance because of lack of knowledge about variety of products. E-procurement cater this problem by providing tools such as catalogs and it also provides dealers with sufficient information regarding products which let them compare different items and finalize one after analyzing all the factors (Eakin, pp.16-18 2003). E-procurement also creates payment benefits because it enables organizations to manage the cash flow in a better way by providing the processes that accurately uphold the payment details (Erridge, Fee & Mcllroy, pp.166-167, 2001). A manager can assure the supplier a timely payment, which was not possible before e-procurement. Additionally it helps reducing the cost spent on work force and stationary. In E-procurement process, one selects products primarily from website catalogues and proposes them for electronic approval. Once ERP i.e. Resource Planning system confirms the approval then it manages entries, invoices, and payments to make the purchase successful. This system saves time and creates efficiency as it promotes automated processes, eliminating needless activities. Moreover, it enables relationships with suppliers, which fastens the speed of procurement cycle and minimizes the possibility of inaccuracy of orders (Shin, pp.126-132, 2005). Many organizations have implemented e-procurement in their operating environment such as General Motors and it has shown great results. It started chasing this idea in 1999 when its business associates i2 Technologies and Commerce One, started creating a B2B trading community called TradeXchange. Moreover, i2 Technologies signed a contract with GM stating that it would endow GM with supply chain management services and business process proficiencies. Furthermore, Commerce One of Walnut Creek would be responsible to work on TradeXchange. After the implementation of this project GM along with its Japanese associates Isuzu and Suzuki was in an arrangement to acquire significant benefits of e-procurement. As the time passed, expectations from e-procurement at GM increased and they were fulfilled to a greater extent. Firstly, GM expected a reduction in the time and cost required implementing and developing the procurement systems, it also wanted to reduce the costs of ordering and cost per item acquired. Secondly, GM expected all the components of its supply chain to have a rapid access to information for better anticipating and planning. Thirdly, it desired to have a smaller product development cycle and healthier customer service. Lastly, it wanted its Research and Development department to flourish and come up with creative ideas regarding product design. To meet these expectations, primarily GM needed to create a web browser, which would not only cut the cost and time of procurement system but will also obliterate the hindrances coming in the way of supply chain. This proved to be helpful for GM because it had thousand of suppliers requiring huge ordering and purchasing cost. Nevertheless, with the creation of a web browser, a great cut down occurred in its costs and it was beneficial for GM’s suppliers too as their costs were also decreased after formulation of B2B marketplace. In GM E-procurement lead to widespread information sharing which greatly helped in planning, its results showed when buffer supplies reduced, and inventory returns increased causing costs to lower further. Moreover, GM’s union with DaimlerChrysler and Ford further increased its benefits associated with e-procurement (Howard, Vidgen & Powell, pp.21-22, 2010). Australian Companies have greatly adopted this technique as an important tool for their businesses. They generated 28 billion dollars in 2000 and 2001 which was around 4.3 percent of their GDP (Singh, Thomson, pp.293-307, 2002). Use is e-procurement is becoming common in Australia. With the expansion of B2B in Australia all the private and public companies are adopting it to achieve bulk purchases, ample variety of buyers and suppliers, minimum costs, excellent quality and decreased administrative costs. Though it is easy to estimate the potential benefits acquired by using e-procurement, it is much more complex to actually determine the benefits (Zappala & Gray, pp.156-160, 2006). Because after the realization of this process benefits are noticed as the total costs saved, which are not only results of e-procurement but other factors are also responsible for these savings. It is very necessary to measure the benefits solely made by this process, because only then an organization will decide about further implementation of this system. So as to record the savings caused by e-procurement, a savings capturing system should be established, which only contains the data that determine the savings of e-procurement and how they used in business activities. A spend analysis can also be helpful in determining the profits of e-procurement. E-procurement system will be stated as a success when project has carried out on time and within the financial plan (Johnston, pp.167-168, 2007). Besides, being beneficial for the whole organization e-procurement proves to be productive and time saving for individuals working for that organization as well. For instance, if an employee needs to buy a laptop for a company project and he has to make some urgent calls too pertinent to that project. Moreover, he has orders by the company that he has to submit the receipts of all purchases made with the company’s account. In this situation rather than going to shops, it would be preferable for him to make an online order for laptop and pay the money online. This will save time and increase efficiency of employee because he would not have to make much efforts which could keep his energy vitalized for the project and receipts of online orders are more easy to check because they are not difficult to take care of unlike paper receipts. E-procurement is very important for common people living a simple life, because it can make their complex works easier such as online shopping, economic control, and savings of time. Using this they can investigate market and find out new products, which make their household chores easier (Nekolar, pp.30-32, 2002) E-procurement can make simpler boring routine work and keep neatness and control of records in the procurement process. E-procurement requires guidance and it will make the buyer more of a skilled Initiatives. E-procurement can be very beneficial for both individuals and industries but only when it is used effectively and efficiently. It can reduce the production costs of organization largely because this technology can estimate future purchases with the help of the data of previous purchases. It can introduce an organization with a wide range of variety regarding various products needed for daily work (Pani & Agrahari, pp.1-3, 2007). For individuals, it can make their work less tiring and more interesting. Many works previously done by manpower are now performed by electronic machines and the day is not very far when e-procurement will be adopted by almost all the organizations and individuals because it surely has the potential to increase productivity and limit losses which is evident from above discussion. References Abramson, M. A., & Harris, R. S. 2003. The Procurement Revolution. Rowman & Littlefield. Ageshin, E. A. 2001. E-Procurement: Child of The Internet Age. Production and Inventory Management Journal , 48-53. Babin, G., & Weiss, M. 2009. E-Technologies: Innovation in an Open World. Springer. Dave, C. 2008. E-Business and E-Commerce Management. Pearson Education India. Eakin, D. 2003. Measuring E- procurement Benefits. Canada’ s Magazine on Public Sector Purchasing, 16-18. Erridge, A., Fee, R., & Mcllroy, J. 2001. Best Practice Procurement: Public and Private Sector Perspectives. Gower Publishing, Ltd. Gay, R., Charlesworth, A., & Esen, R. 2007. Online Marketing: A Customer-led Approach. Oxford University Press. Hanna, N. K. 2009. E-Transformation: Enabling New Development Strategies Innovation, Technology and Management. Springer. Havaldar. 2010. Business Marketing: Text & Cases. Tata McGraw-Hill Education. Heywood, J. B., Barton, M., & Heywood, C. 2002. E-Procurement: Managing Successful E-procurement Implementation. Financial Times Prentice Hall. Howard, M., Vidgen, R., & Powell, P. 2010. Strategies for E-Procurement: Auto Industry Hubs Re-Examined. International Journal of Information Systems and Supply Chain Management, 21-22. Johnston. 2007. Service Operations Management: Improving Service Delivery. Pearson Education India. N, V. 2004. India: Technology and A Vision for the Future. ICFAI Books. Neef, D. 2001. E-procurement: From Strategy to Implementation. FT Press. Nekolar, A. P. 2002. E-Procurement. Springer. Pani, A. K., & Agrahari, A. 2007. E-Procurement in Emerging Economies: Theory and Cases. Idea Group Inc (IGI). Shin, N. Strategies for Generating E-business Returns on Investment. 2005: Idea Group Inc (IGI). Singh, M., & Thomson, D. 2002. E-procurement Model for B2B Exchanges: An Australian Example. 15th Bled Electronic Commerce Conference e-reality: Constructing the Economy, 293-307. Turban. 2010. Electronic Commerce: A Managerial Perspective 2006. Pearson Education India. Zappala, S., & Gray, C. 2006. Impact of E-commerce on Consumers and Small Firms. Ashgate Publishing, Ltd. Read More