E Procurement

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1. E procurement – A bird's eye view

1.1 Introduction

E-procurement is the business-to-business purchase and sale of supplies and services over the Internet. An important part of many B2B sites, e-procurement is also sometimes referred to by other terms, such as supplier exchange. Typically, e-procurement Web sites allow qualified and registered users to look for buyers or sellers of goods and services. Depending on the approach, buyers or sellers may specify prices or invite bids. Transactions can be initiated and completed. Ongoing purchases may qualify customers for volume discounts or special offers. E-procurement software may make it possible to automate some buying and selling. Companies participating expect to be able to control parts inventories more effectively, reduce purchasing agent overhead, and improve manufacturing cycles. E-procurement is expected to be integrated with the trend toward computerized supply chain management.

Companies want to ensure that their processes are:
•Reducing the time employees spend purchasing, whether it's leafing through Catalogues or surfing the Web. •Leveraging their volume with preferred suppliers in order to get better pricing, service, and access to new technology. •Limiting choices to only those suppliers, materials, and services that they are confident can meet pre-approved levels of price and quality.

E-procurement is rapidly becoming an important issue. A recent survey by Deloitte Consulting found that among a cross-section of major corporations, only about 15% are satisfied with their current level of e-procurement activity. However, of those relatively few companies who have extensively adopted e-procurement solutions to date, 88% are satisfied with the results –– and are reporting returns on investment that often approach or exceed 300%.1 Not surprisingly then, Purchasing magazine reports that over 90% of purchasing professionals expect to be buying online within the next 12 months –– with a total of perhaps several trillion dollars of goods and services transacted online over the next several years.

1.2 E procurement and the supply chain

Supply chain planning enables an organization to reduce internal inefficiencies and help chalk out an optimized plan. eProcurement systems that support supply collaboration help in timely communication of the plan. Such systems will also enable organizations to move closer towards a more structured manufacturing environment thereby reducing waste in the entire supply chain and reduce costs.

Also Suppliers stand to gain a lot from eProcurement. They eliminate paper-based catalogs through EDIs and e-mails. Inventory management is made easier through automatic alerts and updates simultaneously enabling buyers to notify suppliers automatically of payment based on the updated match.

1.3 The Process Cycle

A typical e-procurement process has three main process cycles that allow an organization to manage their entire purchase requirement. They are:

•Evaluation Cycle
•Negotiation Cycle
•Fulfillment Cycle

1.3.1 Evaluation cycle

This involves multiple steps beginning with identifying and evaluating vendors, negotiating contracts if not already negotiated. Requirement of purchase is put up by the employee or directly by the purchase dept based on quotations received from vendors. The purchase department gets the Request for Purchase (RFP) from an employee. If it is a regular purchase, they can use their standard RFP templates. In an e-procurement system, the purchase depts have to follow what the marketplace at each step provides:

Identify vendors and evaluate them

The marketplace has buyers and sellers registered with vendor catalogs. Delivery lead times and prices are continuously updated by the vendors. Some marketplaces also have rating mechanisms by suppliers. Based on the supplier credentials and the rating provided by the marketplace, the purchasing department (PD) would then identify...
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