e-Procurement
thats Intelligent Buying
Dr. Ashis K. Pani
Enterprise Landscape
Electronic Transactions
Transaction conducted electronically
between business over the networks
Internet
Extranets
Intranets
Private networks (e.g., EDI)
Automated trading improves the process
Internet Network Architecture
Network Service Providers (NSPs) run the back bone
Internet Service Provider (ISPs) provide the delivery
subnetworks
ISP
ISP
ISP
ISP
NSP
NSP
ISP
ISP
NSP
NSP
ISP
ISP
ISP
ISP
5
Backbone
The Intranet
Servers
ERP
Clients
Legacy
systems
Public/External
Internet Users
Intranet
E-mail
servers
Web
servers
Firewalls
Databases
The Extranet
Extranet
Suppliers
Intranet
VPN
Distributors
VPN
Firewall
Tunneling Internet
Intranet
VPN
Customers
Firewall
Summary : Internet, Intranet, and Extranet
Network
Type
Typical
Users
Type of
Access
Internet
Any individual
with dial-up
access or LAN
Unlimited,
public; no
restrictions
Intranet
Authorized
employees
ONLY
Private and
restricted
Extranet
Authorized
groups from
collaborating
companies
Private and
outside
authorized
partners
Information
General, public
and advertisement
Specific, corporate
and proprietary
Shared in
authorized
collaborating group
7
What is e-Commerce?
e-Commerce is buying and
selling of information,
products and services over
computer communication
networks, mainly Internet
Buyer Benefits of e-Commerce
Convenience
Easy and private
Greater product access/selection
Access to comparative information
Interactive and immediate
Seller Benefits of e-Commerce
Relationship building
Reduced costs
Increased speed and efficiency
Flexibility
Global access, global reach
e-Commerce Domains
Targeted to
consumers
Targeted to
businesses
Initiated by
businesses
B2C
B2B
Initiated by
consumers
C2C
C2B
Relative Sizes of
e-Commerce Categories
B2B
B2C
U-Commerce:
Anywhere, Anytime, Any Way
What is e-Business?
Integration of IT and Business Process
IT support model
Business Process
IT
Business Process/IT
IT spending
1995
Separate
2000
Integrated
1 10%
10 40%
e-Business
e-Business is the integration of IT and particularly the
Internet into business processes to change organizations and
create new ones.
Business Partners
Suppliers, Distributors
Production Distribution
Enterprise Resource Planing
Knowledge Tone
Applications
Enterprise
Applications
Integration
Customer Relationship Management
Customer
Marketing
Sales
Service
Selling
SellingChain
ChainManagement
Management
Customers,Resellers
Customers,
Resellers
Customers,Resellers
Stakeholders
Stakeholders
Logistics
Finance/Accounting/Auditing
Management Control
Administrative Control
HRMS/ORMS/Purchasing
Employees
Employees
Supply
SupplyChain
ChainManagement
Management
e-Business and ERP
An e-volving Relationship
ERP evolution
1960: Materials Requirement Planning (MRP)
1980: Manufacturing Resource Planning (MRP II)
1990: Enterprise Resource Planning (ERP)
2001: Enterprise Resource Planning (ERP II)
ERP focuses on Internal Enterprise
Data, Information and Knowledge
ERP
Finances
HR
Manufacturing
Knowledge
Management
Sales &
Marketing
Logistics
e-Business Focuses on Communication
with External Stakeholders
Internet
ERP
Customers
Suppliers
Finances
HR
Manufacturing
Knowledge
Management
Shareholders
Sales &
Marketing
Advisors
Researchers
and Developers
Outsourcing
Logistics
Distributors
Business Partners
1990-1998: Implement ERP or you will be
dead.
1999-2000: ERP is irrelevant, ERP is dead.
2001: ERP-II will revive the ERP movement,
Long live ERP-II
Today, ERP is no longer a tool that will provide
competitive advantage. It is must have
-BI+ CRM+SCM+ERPommerce+Cusiness= e-Be
New Thinking Is Required
The e-business Cycle A Proven Approach
Simple Supply Chain Component
Raw Material
Supplier
Supplier
Manufacturer
B2B lace
etp
ark
Manufacturer
B2B lace
etp
ark
Distributor
Distributor
Retailer
B2B lace
etp
ark
Customer
Simple Supply Chain Component
Retailer places
order with Distributor
Distributor
Retailer must
hold safety stock
Amount of safety
stock required
depends on
variability in
replenishment
process
Physical Flow
Information Flow
Retailer
IT Improvements
Electronic Data
Interchange (EDI)
Distributor
Point of Sale
(POS)
Physical Flow
Both result in
reduced safety
stock, improved
customer service
or both
Information Flow
Retailer
IT Improvements
Inventory and demand visibility
has been increased
Distributor
Information
has replaced Physical Flow Information Flow
inventory
Retailer
An e-Supply Chain in Action
Retail Stores
Package are shipped to
CVSs Warehouse
Listerine
WLs Manufacturing
and Distribution facility
in Pennsylvania
Farmers sells
Eucalyptus crop in
Australia
Processing
Company
extracts oil
Sells
Distributor
in New Jersey
Synthetic Alcohol
in Saudi Desert
Union
Carbide ships
Refined to ethanol
in Texas
Farmers grow
corn in Midwest
Supply Chain between Werner - Lambert (WL) and CVS
Auto Industrys Inventory Pipeline
Vendors
Inventories
JIT Mfg. Process
Mfg.
Process
Plt. Transit to
FG Dealers
Dealers
Inventories
e-Procurement Models
e-Procurement:
The Next Wave of Cost Reduction
Sourcing is defined as the process of identifying suppliers that could
provide needed products or services for the acquiring organization.
Purchasing refers to actual buying of materials and those activities
associated with the buying process. Electronic purchasing addresses
only part of the problem and represents only the tip of the iceberg.
Procurement on the other hand has a broader meaning and includes
purchasing, transportation, warehousing and inbound receiving.
Procurement is a closed-loop process that begins with the requisition and
ends with payment
sourcing is a pre purchase activity (identify suppliers) and purchase
and sourcing both are part of procurement
A Traditional Purchasing
Flow
Source: ariba.com, February 2001.
Process
Procurement Process: Why automate?
Multiple Departments
Engineering
Marketing
Sales
Support
Approval Hierarchy
Managers
Approvers
Purchasing Department
Etc.
H/W Purchaser
Facilities Purchaser
Etc.
Suppliers
Contract
Non-Contract
Specialized
Etc.
Logistics
Receiving
Inventory
Payment
Etc.
Deffinition e-Procurement
An e-Procurement application is the software that is required to
access suppliers electronically, enabling an organization to conduct
procurement transactions over the Internet.
Supplier
Supplier
Portal
Supplier
Supplier
Effect of eProcurement
Traditional/Manual
Price of Materials
and Services
Purchase and
Fulfillment
Cycles
Administrative
Costs
Inventory
---
Internet
5% to 10%
reduction
7.3 days
2 days
USD107 per order
requisition
USD30 per
order
requisition
25% to 50%
reduction in
---Source: Aberdeen Group Jun 2004
Benefits of eProcurement
http://www.mysap.com/solutions/e-procurement/businessbenefits.htm
Reduced purchase costs
Enhanced efficiency at every stage
Establish adaptive, efficient, collaborative supplier relations
Monitor and regulate buying behaviors
Improve sourcing by discovering more suppliers
Ensure deliveries on time, every time
Free up skilled employees
Reduce training requirement
Permit flexible access time, anywhere
Manage contracts
Perform content management functions
Reduce maverick purchase
Direct vs Indirect Materials
Direct Materials
Strategic sourcing core business
Indirect Materials
Technical sourcing non-strategic
Systematic sourcing scheduled by production Spot buy, less frequent purchase of
run
standardize products
Locus of operation: professional buyers
desktop
Locus of operation: employee desktop
Driven by design specification
Driven by catalog
Actual transaction function not as time
consuming as back & forth information
sharing & communication with suppliers
Focus on transaction functions which is
time consuming
More complex both technical and non
technological consideration when choosing a
solution provider. Must provide benefits to all
members of supply chain
Less complex decision when choosing a
solution provider
Collaboration, integration & visibility among
qualified suppliers are critical
Many suppliers
Quality, security and privacy conscious
Price conscious
Typical Indirect Procurement
Challenges
Multiple suppliers
ORM and MRO
By commodity type
By geographic area
By department or functional group
Low product standardization
Off-contract, rogue buying
Excess and obsolete inventory
Low degree of automation
Lack of detailed usage and cost information
High process costs relative to product costs
Total Cost of Indirect Procurement
Only 40% of total indirect material costs are true product costs
Cost of Procurement:
Coordinating approvals
Managing quotations
Purchase orders
IT costs
Cost of goods
Cost of
Procurement
Cost of Inventory:
Carrying costs
Storage
Insurance
Shrinkage
Obsolescence
Cost of
Inventory
*Source: Grainger Industrial Supply and industry studies
Operating Resource Procurement at
Microsoft: MS Market
Supplier N
Supplier 2
Buyer
2. Browser Suppliers
Web
Browser
4. Order items
5. Confirm order
Catalog
Order Form
Availability
Order Entry
Catalog Content
Interchange
3. Find Products
Multisupplier
Catalog
1. Catalog
Management
6. Transmit order
get confirmation
MS Market in Action
7. Order Completed
Supplier 1
Approval
Workflow
PO Workflow
Fulfillment
Shipping
Accounting
Etc.
Business Benefits of MS Market
MS Market Solution
User-friendly catalog for employees
Business Benefits
world wide
Control and tracking of orders with
direct vendors
Integration with SAP R/3
Automate $3 billion annual
spending
Components: Windows NT server 4.0
Reduce purchase cycle from 8 to 3
days
Internet Information Server 3.0, SQL
Server 6.5, Site Server Enterprise 2.0,
Microsoft Exchange Server for e-mail
approval
Reduce employee overhead from
14 to 1.5 full-time employees
Average 1,000 orders per day;
e-Procurement Business Issues
(Purchasing Department)
Supplier Performance
How well are my
suppliers performing?
Procurement Efficiency
How can I maximize my
purchasing power?
Buying Behavior
How can I identify and
eliminate rogue buying?
Operational Efficiency
How can I streamline my
procurement process?
Supplier Efficiency
How can I align with my
strategic suppliers?
Cost Savings
How can I drive my
procurement costs
down?
e-Procurement
e-Procurement
Transformation of Corporate Purchasing
Front-End e-Procurement
e-Catalogs
Content Management
RFQs
Approval Routing
Order Management
Data Management
ASP :- Ariba,
Commerce One,
Oracle, Cisco, Clarus,
Back-End ERP systems
A/C receivable and
payable
Inventory Management
Material Management
Order and Sales
Management
Sales Planning
Providers : Oracle, SAP,
e-Procurement Application
Process e-Procurement
MEASURE
AND
IMPROVE
ORGANIZATIONAL
BUYING
Requisition Analysis
(History, Plan, Forecast)
PRODUCT SELECTION
Product Analysis
(Quality, Price, Availability)
APPROVAL WORKFLOW
Approval Analysis
(Avg.approvers, Avg.days)
SUPPLIER SELECTION
LOGISTICS
Supplier Analysis
(Quality, Delivery, Price,
Performance)
Logistics Analysis
(Delivery, Payment, Credit,
Inventory)
e-Procurement Models
Many:Many
Many:Few
Buy Side
Aggregated
Buy Side
One:Many Few:Many
Neutral Markets
Aggregated
Sell Side
Sell Side
B2B e-Markets
Many:One
One to Many (Seller solution)
Seller Centric:- Primary motivation is to increase
revenues and reach a wider market than the seller currently
serves. Likely to be a dominant seller in the market.
B
B
Seller
Solution
B
B
B
Sell-Side Marketplaces:
One-to-Many (cont.)
Company portal attractive, easy to use
Browse online catalogs
Use search engines
Payments
Cash or check upon delivery
Automatic payments
Credit card
Purchasing card
Sell-Side Marketplaces:
One-to-Many (cont.)
Value-added services
Track status of order
Check stock availability
Promotions
Customized prices
Group accounts and central approvalfor
businesses with multiple branches
Standing orders automatically activated
Many to One (buyer solution)
Buyer Centric:- Primary motivation is to reduce
procurement costs and increase efficiency of
procurement process.
S
S
S
S
S
Buyer
Solution
Buy Side: One-from-Many,
e-Procurement (cont.)
Innovative procurement management
Innovative purchasing as strategic approach
to increase profit margins
Aggregating supplier catalogs at buyers site
Reduce administrative processing cost per
order
Find new suppliers and vendors to provide
faster/cheaper goods and services
Many to Many segment of B2B commerce
Trading Community:- Primary motivation is to
generate revenues by providing value to members of a
specific market by introducing new efficiencies and new
ways of buying and selling
S
e-Market
Exchange
Intensity of Organizations
Participation
Information Entry and Receipt : Browser based
applications which are mainly used to enter and
receive information.
Example: BILT using 01Markets.com
Software Development and Maintenance:
Organization have an in-house software
development and maintenance team. Applications
are developed or customized in-house.
Example: Tatasteel.com
Network and Processing Management: Computer
network that connects all suppliers with the
organization is developed and managed in-house.
Example: ITCs e-Chupal
Key to analysis: Reliability and Security V/S Cost
Transaction Cost Perspective
Electronic hierarchy
Allows firms to jointly optimize the dyadic relationship
Increase the value of total supply chain by creating a higher level of integration
that goes beyond exchange of routine information.
Example: Online Stock Information at Tata steel
Buyer
Supplier
Transaction Cost Perspective
Electronic dyad
A firm chooses this option when it does not want to
commit to one single source and neither wants to scan
entire market for every transaction.
Example: tatasteel.co.in
Supplier 1
Buyer 1
Buyer 2
Supplier 2
Supplier 3
Supplier 4
Buyer 3
Supplier 5
Supplier 6
Transaction Cost Perspective
e-Market
Maximizes benefits arises out of reduces search cost,
faster and efficient transmission of information
Example : metaljunction.com
Supplier 1
Buyer 1
Supplier 1
Buyer 2
electronic
Market
Supplier 1
Supplier 1
Buyer 3
Supplier 1
Supplier 1
e-Procurement Roadmap
Risk
Management
Product Characteristic
-Complexity
Adoption and
Implementation
Risks
-Volume uncertainty
-Technology uncertainty
Supplier Market
Characteristic
-Trust
-Age of relationship
e-Procurement
Model
Value
Generated
Ownership
Patterns
Value
Apportion
-Competitive intent
-Market variability
-Bargaining power
Analyze Product and
Supply Market
Decide upon right
e-Procurement Model
Enjoy the
benefits
Product Characteristics
Complexity of description
Extent to which detailed drawings or specifications are
required to describe the product
Higher the complexity, more information flow needed. Hence a tightly
coupled e-Procurement model is better
Volume uncertainty
Assessment of fluctuations in the demand and the
confidence placed in estimates of the demand.
Higher the uncertainty, more flexible your e-Procurement
model should be. Hence e-Markets are preferred
Technological uncertainty
Rate of changes in specifications and the probability of
future technological improvements in the product
If Suppliers are Pro Innovation than a tightly coupled eProcurement solution can be used as a buffer against
uncertainty
Supply Market Characteristics
Trust
Existing when one party has confidence in the exchange partners
reliability and integrity
If trust is higher than a tightly coupled e-Procurement system will further
enhance trust
Age of relationship
Measured as the year of association
e-Markets do not help in creating and sustaining longer age of
relationship
Competitive intent
Extent to which there are potential suppliers to ensure adequate
competition
e-Markets do not help if competitive intend is lower. Suppliers can always
collude to drive prices up.
Market variability
Extent of market fragmentation and rate at which price and player in the
industry changes over time
If market variability is high than e-Markets give better benefits
Adoption and Implementation
Risks
Inherently carries more risk than ordinary information
technology projects
Adoption risk: whether business partners will join the system
or not
Implementation risk: whether business partners will be able
to implement the system optimally
Subsidies such as training, software etc can be used
to overcome these risks
Key Issues:
How to provide subsidy
To Whom it should be provided
eProcurement Deployment Strategies
Evolutionary Deployment of eProcurement
Evolutionary: start small; with single set of
commodities; a particular region
Strategic Sourcing: systematic
e-Procurement process reengineering
Only most advanced organization adopts
2/3 of purchasing communities in experimental
stage
e-Procurement Implementation Profile
Budget
US$2 M to $10 M
Team Size 3 to 13 People
Project Duration 1 to 3 years
No. of Catalogs 3 to 30
No. of Users50 to 1000
(Source : Deloitte Consulting, Realizing the B2B Procurement Vision, 2nd
Annual Study, 2001)
e-Procurement System in Chevron
Corporate Profile
Two-fold Solution
US 3rd largest petroleum co.
e-Procurement Software from
Ariba
Operating in roughly
100 countries
Web-based front end and user
interface for catalog search,
purchase order and requisition
Annual net gain - $3.2 billion
EDI and Catalog services from
Harbinger
Purchase budget - $9.9
billion
Two existing ERP systems
from SAP and J.D. Edwards
Facilitate interaction with suppliers
and manage catalog content
and
customer/supplier base
eProcurement System Architecture for Chevron
Extranet
Intranet
SAP
---
ARIBA
Harbinger
Procurement
Front-end
Multi
Vendor
Electronic
Catalog
Supplier
Supplier
JDE
Supplier
Chemical
--JDE
COPL
EDI/EFT
PO / Invoice / Funds
Supplier
Firewall
Firewall
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 Integration Policy
Tight Internal Integration
Tight integration with ERP or legacy
Internal e-catalog
Inter-Enterprise Integration
Direct integration with partners 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
Conclusion
eProcurement as Procurement Process
Reengineering
Selection and combination of eProcurement
models critical
Conformance of strategy and integration
architecture essential
Small MRO: Exchanges
Key Purchases: Private Supply Chain
Conformance of integration policy and solution
selection crucial for the successful deployment
Thank You
