ELECTRONIC PROCUREMENT

March 2012

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Eric Afful-Dadzie

Stephen Nabareseh

Amina OTHMAN

Table of Content
1. Definition.........................................................................................................................................3

2. Types of eProcurement..................................................................................................................3

3. Benefits of an eProcurement system………………………………………………………...4

4. Pitfalls of the eProcurement system………………………………………………………….5

5. Typical adoption strategies…………………………………………………………………...6

5.1. eProcurement Process.....................................................................................................….7

5.2. Components of eProcurement…………………………………………………………7

5.3. Business Models of eProcurement…………………………………………………….7

5.4. Factors for eProcurement Policy………………………………………………………7

5.5. Critical success factors………………………………………………………………...8

5.6 eProcurement: Request for Quote (RFQ)……………………………………………..8

6. eProcurement Software..................................................................................................................9

7. eProcurement solution strategy...................................................................................................10

8. Conclusion................................................................................................................................……12

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DEFINITION OF ePROCUREMENT

Electronic Procurement (also known as eprocurement) is a way of using the Internet to make it easier,
faster, and less expensive for businesses to purchase the goods and services they require. Its overall
goal is to streamline the purchasing process so businesses can focus more management time on
earning revenue and serving customers.

eProcurement is the business-to-business or business-to-consumer or Business-to-government

purchase and sale of supplies, Work and services through the Internet as well as other information
and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning

eProcurement is done with a software application that includes features for supplier management and
complex auctions. The new generation of eProcurement is now on-demand or a software-as-a-service.

The implementation of eProcurement does not change any policies or laws related to contracting and
procurement.

eProcurement is more than just a system for making purchases online. A properly implemented
system can connect companies and their business processes directly with suppliers while managing
all interactions between them. This includes management of correspondence, bids, questions and
answers, previous pricing, and multiple emails sent to multiple participants.

A good eprocurement system helps a firm organize its interactions with its most crucial suppliers. It
provides those who use it with a set of built-in monitoring tools to help control costs and assure
maximum supplier performance. It provides an organized way to keep an open line of communication
with potential suppliers during a business process. The system allows managers to confirm pricing,
and leverage previous agreements to assure each new price quote is more competitive than the last.

TYPES OF ePROCUREMENT

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There are seven main types of e-procurement:

1. Web-based ERP (Enterprise Resource Planning): Creating and approving purchasing

requisitions, placing purchase orders and receiving goods and services by using a software
system based on Internet technology.
2. eMRO (Maintenance, Repair and Overhaul): The same as web-based ERP except that the
goods and services ordered are non-product related MRO supplies.
3. eSourcing: Identifying new suppliers for a specific category of purchasing requirements using
Internet technology.
4. eTendering: Sending requests for information and prices to suppliers and receiving the
responses of suppliers using Internet technology. May or may not involve e-auctions or eRFx
functionality
5. eReverse auctioning: Using Internet technology to buy goods and services from a number of
known or unknown suppliers.
6. eInforming: Gathering and distributing purchasing information both from and to internal and
external parties using Internet technology.
7. eMarketsites: Expands on Web-based ERP to open up value chains. Buying communities can
access preferred suppliers' products and services, add to shopping carts, create requisition,
seek approval, receipt purchase orders and process electronic invoices with integration to
suppliers' supply chains and buyers' financial systems.

BENEFITS OF AN ePROCUREMENT SYSTEM

eProcurement helps with the decision-making process by keeping relevant information neatly
organized and time-stamped. Most are template-driven which makes all transactions standardized and
trackable. Keeping track of all bids means leveraging your knowledge to obtain better pricing.
Companies can focus on their most lucrative trading partners and contracts.

Well-managed eprocurement helps reduce inventory levels. Knowing product numbers, bid prices
and contact points can help businesses close a deal while other suppliers are struggling to gather their
relevant data.

eProcurement systems that allow multiple access levels and permissions help managers organize
administrative users by roles, groups, or tasks. Procurement managers do not need to be as highly
trained or paid because such systems are standardized and easy to learn.

All purchases are easier to track because they are done over the Internet and the company's managers
can easily see who made which purchases without having to wait to receive a monthly revolving
credit statement.

Also, eprocurement saves time. Buyers do not need to leave their desks or make phone calls to
suppliers in order to place orders; they simply go through the Internet. And, because suppliers receive
the order almost immediately, they can also fulfill and ship it much faster than with the traditional
procurement methods.

In summary, the benefits are:

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• Increased access to markets without additional marketing efforts

• Single point of access to government organizations

• Increased order accuracy and reduced cycle times

• Standardization across organizations/agencies

• Electronic solicitations - more efficient and accurate quoting

• Better access to information and purchasing entities

• Improved compliance with contracts and purchasing rules

PITFALLS OF THE ePROCUREMENT SYSTEM

Do not bite off more than you can chew. The parallel system approach should only be used if you
have the time and resources to do this. If not, stick to the incremental approach.

Do not expect an immediate return on investment. A short-tem gain may be noticeable, but it may be
eaten up by the cost of staff training and equipment purchases. A year or two down the road, a larger
ROI should be evident.

One other problem these companies have found is that employees simply refuse to use the system.
Implementing the system slowly and providing the necessary training can help employees feel more
comfortable with eprocurement and more inclined to make sure of the system.

Another common problem is that many companies do not have a plan in place to deal with purchasing
items that are not available through the online suppliers.

Treating all areas of procurement and all products the same is another pitfall. The reality is that what
may work for one good or service may simply not work for all of them, so successful eprocurement
systems use a number of different techniques.

Magazine articles and white papers are filled with optimistic estimates of how much money
organizations will save by migrating to electronic procurement systems for all of their purchasing.
However, many of these estimates fail to take into account the total cost of adapting these systems,
the difficulty of realizing savings during the development and deployment phase of the transition, and
the cost of training employees and getting suppliers to participate in the e-procurement system.

Procurement is a very broad term. There is, in general, a broad push for companies to adapt
eprocurement for all types of purchasing. In most cases, the best place to apply electronic
procurement is in circumstances where a very close business relationship must be established and
ongoing cooperation is needed with suppliers, especially when developing new products or
technologies.

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 Critical items and systems are not the first place to apply a new e-procurement system. Anything that
will immediately impact profits or bottleneck your operations is not a good place to experiment with
a new electronic procurement system. For this reason, some companies first integrate e-procurement
in their maintenance, repair and operations (MRO) systems. Once they have the bumps ironed out of
their system, they move on to their manufacturing operations.

It’s not a good idea to implement e-procurement first on systems that have a high supply risk and low
profit impact, especially if there are a very limited number of suppliers to choose from. The company
doing the purchasing will not see an immediate strategic advantage from this kind of implementation.

TYPICAL ADOPTION STRATEGIES

Some firms have discovered that many of their transactions still take place on paper, and they have
run into problems ranging from content management to supplier participation in their systems. Most
companies who desire to make the switch fall into two camps.

The first are the slow step-by-step adopters. They implement one piece of their system at a time and
slowly bring trading partners on board. The others follow the total replacement model. They build a
totally parallel system, test it, then switch over to it when it works. There is usually some pain
involved and some mistakes are discovered, but by and large these are absorbed and the business
continues.

Another important implementation strategy is to determine beforehand the specifications for all of the
products and services required by the business. Generally, this process involves determining what
type of ink cartridges the printers require, what brand of ink pens are used, what style of desk chairs
are needed, etc. While this step may seem time-consuming, it prevents employees from using the e-
procurement system to make unnecessary purchases for items such as palm pilots, leather chairs, or
expensive writing instruments.

eProcurement: Direct vs Indirect Materials

Direct Materials Indirect Materials

Strategic sourcing – core business Technical sourcing – non-strategic

Systematic sourcing scheduled by production run Spot buy, less frequent purchase of
standardize products

Locus of operation: professional buyer’s desktop Locus of operation: employee desktop

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Driven by design specification Driven by catalog

Actual transaction function not as time consuming as back & Focus on transaction functions which
forth information sharing & communication with suppliers is time consuming

More complex – both technical and non technological Less complex decision when
consideration when choosing a solution provider. Must choosing a solution provider
provide benefits to all members of supply chain

Collaboration, integration & visibility among qualified Many suppliers

suppliers are critical

Quality, security and privacy conscious Price conscious

eProcurement Process

 Requirement – Search – Select – (Negotiation) – Order – Reception – Payment – After service

– Disposal
 Reengineering using B2B Platform
 Tight integration of internal and external systems unavoidable

Components of eProcurement

 Content management
 Requisitioning
 Approval routing
 Order management
 Decision support

Business Models of eProcurement

 Model 1: Cost Saving Through Exchanges

 Model 2: Eliminate Procurement Department
 Model 3: Desk-top Purchasing
 Model 4:Direction Connection of Supply Chain
 Model 5: Procurement of Human Capital

Factors for eProcurement Policy

 Pricing Schemes
 Comparison of the Posted Prices in e-Catalogs
 Auctions, Reverse Auction and Tender
 Negotiations and Configurations

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  Usage Level
 Online auctions: 15% [eBay Professional]
 Online marketplaces: 23%

eProcurement Integration Policy

 Tight Internal Integration
 Tight integration with ERP or legacy
 Internal e-catalog
 Inter-Enterprise Integration
 Direct integration with partner’s ERP system
 Compliant ERP interface standard necessary
 Integration with Exchanges
 ERP-compliant eMarketplaces
 MarketSet: Commerce One and SAP
 Private Exchange
 Application Server
 Communication Platform Standard: XML
Critical Success Factors

 Selection of right strategy, architecture and solutions

 Management commitment
 Content management
 User friendly
 Seamless integration with back-end ERP
 Redesign workflow
 Manage change
 Fast implementation

eProcurement: Request for Quote (RFQ)

During the procurement process, most people are familiar with the acronym RFP, which stands for
Request for Proposal. As anyone in purchasing knows, RFPs are created by businesses and sent to
vendors in order to get a full quote on a project. Generally, the RFP contains the price, as well as any
other important details that the businesses might need to consider during the review process. The
price stated in the RFP is often considered to be the bid price for that project.

Another, perhaps less familiar, acronym used in procurement is RFQ. RFQ stands for Request for
Quote. When a buyer sends out an RFQ, he is generally getting a feel for prices about an upcoming
project. He is not opening the bidding on a project. Responses to RFQs are not considered formal bids
and, therefore, can be changed if the same buyer later sends out a more formal RFP.

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RFQs do play an important role in the procurement process. They are usually the first step taken by
buyers, and the responses offer a wealth of data that can help them later on when they need to begin
taking formal bids. For example, if Buyer A sends out an RFQ to three companies and only two
respond to his inquiry, Buyer A automatically knows that the third person is either not interested in
doing business with him or is not a reliable vendor. Either way, he has narrowed down his pool of
potential suppliers, thus making less work for himself.

The RFQs can also help buyers determine their budgets for a particular project.

ePROCUREMENT SOFTWARE

Trends in eProcurement

As the current economic climate rebounds, more companies are starting to expand their involvement
with electronic purchasing systems. This continues a trend that was seen in the late 1990s and 2000,
but which has slowed considerably over the past three years as IT spending slowed to a trickle.

While producers of eprocurement software were waiting for new business, most did not stand idly by.
Most were improving and integrating their products to make them more responsive to end-user needs.

One of the chief developments in eprocurement systems is the blending of several previously separate
applications. Companies used to separately invest in things like supplier relationship management
(SRM) software, auction software, and inventory tracking applications.

The most advanced eprocurement systems now combine these functions. As companies use an online
auction system to publicize their requests for proposals and monitor their auctions, they need to have
integrated access to their SRM systems to track correspondence with participants. They also need to
quickly track inventory and monitor payments. Thus, eprocurement systems have become integration
points, and control panels for using multiple systems

eProcurement System Architecture

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Current Level of eProcurement Adoption

As of 2003, nine out of ten purchasing managers reportedly used the Internet for at least some of their
corporate buying. This shows a considerably leveling off of the trend since well over 80 percent of
purchasing managers have used the Internet for the past several years.

Barriers to participation include budget limits and spending priorities. Another ongoing issue is
training. Many companies do not budget training as part of their process of switching to
eprocurement. For this reason, some systems have gone unused as employees stick to their known
“older systems” in some cases even paper-based systems.

Those companies who use a Web interface for their e-procurement systems have some advantage
because most employees have used the Web and understand Web-based navigation.

Benefits of Adoption

The main benefit of adopting an eprocurement system is the ability to consolidate multiple
information systems in a single place, while establishing a standardized way to conduct purchases and
interface with suppliers. XML-based Web services have streamlined this process, making adaptation
cheaper than it was a few years ago.

Those who make the switch to eprocurement often find that they smooth out relationship glitches
with preferred suppliers, often establishing a relationship which if better long-term pricing.

eProcurement establishes pricing controls and buying controls, often meeting goals set by Chief
Financial Officers for establishing who can authorize purchases and spend money.

Future of eProcurement Adoption

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The growth trend should resume sometime in 2006. The first area that’s likely to see an increase in
spending is online auction and reverse auction systems followed closely by applications that tie these
auction systems into SRM and inventory systems.

One surprise is that the much-touted public online marketplaces of the late 1990s failed to catch on,
other than a few exceptions such as eBay and comparison systems like [Link]. Most
companies preferred to install their own private systems allowing them to interface with approved
suppliers.

ePROCUREMENT SOLUTION STRATEGIES

Effective Implementation

Start with non-critical items. An initial e-procurement system should slim the amount of paperwork
needed for purchasing and reduce order complexity by standardizing the exchange process between
supplier and buyer. Use your intranet to bring all internal stake-holders on board with your new
procurement process and to establish internal customer behavior. Streamline, map, test, troubleshoot
and improve the process before expanding it to external suppliers. Work with a favored supplier to
test the system.

Leverage your system once it’s running. Exploit your full purchasing power by using reversed
auctions. Invite new suppliers to participate once the system has proven itself.

Aggregate buyers within your organization to increase your purchasing power and gain better pricing.

Use a portfolio approach to expand your system. It is not possible to have uniform relationships with
all suppliers nor are all purchasing requirements the same. Sort purchasing needs into groups that can
use a similar processes and a similar template.

Epiq Technologies Can Effectively Handle eProcurement

Epiq Technologies offers extremely high quality enterprise software that follows common industry-
standards processes for effective eprocurement.

Epiq enjoys one of the lowest hardware and hosting costs because it uses industry-standard Web
servers and needs little customization for most installations. Web browsers are used for all
interactions with the system, so no expensive and separately maintained client software is needed.

Epiq offers simplified and automated procurement processes that produce measurable results.
Specialized tools for e-negotiation and eprocurement allow managers to can control and monitor an
auction process

This streamlines the full RFQ process and enhances supplier management and overall satisfaction as
they do business with your company.

eProcurement Services: Value Added Services

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Every company is looking to lower costs and increase profitability. Each year, company management
devises new initiatives to cut costs and boost productivity. However, one area that is often overlooked
by company management is the purchasing department. The purchasing department is usually in
charge of purchasing direct goods (fall into the cost of goods sold) and indirect goods (other areas
like office supplies, computers, etc). The efficiency and effectiveness of a purchasing department is
often difficult to quantify. However, it is worthwhile for companies to examine purchasing
departments since cost savings in the purchasing department translate directly to the bottom line.

New purchasing software equipped with advanced RFQ, automated bid submission and automated
negotiation have made it possible to realize significant cost savings from the purchasing department.
While eprocurement can offer companies a lot of tangible benefits, it takes specific knowledge of
software and the purchasing process to maximize these benefits for the company. This article will
describe some areas where specific knowledge of the purchasing process can lead to cost savings and
efficiency gains when this knowledge is used in conjunction with software.

Spend Analysis: A knowledgeable partner will help you obtain detailed supply management goals
and objectives and provide detailed vies of current and projected spend. Once current spend has been
analyzed, a knowledgeable partner can help develop actionable strategies to support goals.
Technology can then be used to develop capabilities to manage and analyze spend going forward.

Market Analysis: If a company is going to purchase particular type goods in the open market, the
buyer / partner will need to understand the market dynamics. This means having knowledge of the
average prices, key suppliers, drivers of value. This will also determine which procurement
methodology will be used to purchase the goods. For example, if there is only one or two suppliers of
a particular item in the world, an auction event will not work.

Supplier Sourcing: One of the biggest problems that buyers face in setting up automated
procurement events is supplier participation. For large procurement events, the addition of an
additional supplier will enable the buyer to obtain a much better price. This calls for expertise in
supplier sourcing and requires the ability to locate new, qualified suppliers.

RFQ creation: The way that an RFQ is worded can often have a strong impact on how a
procurement event unfolds. Each RFQ should contain enough information for a supplier to make a
bid. Depending on the type of item, this will include delivery terms, payment terms, and
specifications. An experienced RFQ creator will know what suppliers are looking for and will
understand the key drivers of price.

Supplier Invitation: The decision of which suppliers to invite has a profound impact on the way a
procurement event progresses. Generally, the more suppliers participate, the better that the event will
work.

Event Structuring: To maximize the value of powerful, feature rich purchasing software, knowledge
of how to structure the procurement event will be necessary. This includes knowing what information
to show suppliers during the event, the type of logic to use for the event.

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CONCLUSION

The bottom line is that eprocurement systems can be effective at reducing waste and saving money,
but special steps must be taken to effectively implement the system and to avoid the types of
problems that can hinder the successful adoption of eprocurement systems.

QUIZ

1. In reality e-procurement has the advantage of taking ________ to the next level, providing
real-time business intelligence to the vendor as to the status of a customer's needs.

a. Enterprise resource planning

b. Distribution center

c. Supply chain management

d. Value chain

2. One aim of e-procurement is increasing savings by sourcing items ______.

a. of the right quality

b. from the right source

c. at the right price

d. of the right quantity

e. none of the above

3. Which of the following statements do you think has greatest validity?

a. Procurement is broadly equivalent to purchasing.

b. Purchasing has a broader meaning than procurement

c. Procurement has a broader meaning than purchasing.

d. None of the above

REFERENCES

[Link]
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[Link]

[Link]

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