Slide 7.

Chapter 7
E-Procurement

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.2

Learning Outcomes

• Identify the benefits and risks of

e-procurement

• Analyze procurement methods to evaluate

cost savings

• Assess different options for integration of

organizations’ information systems with
e-procurement suppliers.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.3

Management Issues

• What benefits and risks are associated with

e-procurement?

• Which method(s) of e-procurement should we

adopt?

• What organizational and technical issues are

involved in introducing e-procurement?

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.4

How Important Is Procurement?

‘We estimate that for every dollar a company

earns in revenue, 50 cents to 55 cents is
spent on indirect goods and services – things
like office supplies and computer equipment.

That half dollar represents an opportunity: By

driving costs out of the purchasing process,
companies can increase profits without
having to sell more goods.’ Hildebrand (2002)

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.5

E-Procurement?
‘Procurement’ generally has a broader meaning, it refers to all
activities involved with obtaining items from a supplier;
•Purchasing,
•Inbound logistics
•Goods‑in and ware‑housing before the item is used.

Kalakota and Robinson (2000)

E-procurement: The electronic integration and management of all

procurement activities, including purchase request, authorization,
ordering, delivery and payment, between a purchaser and a supplier
using electronic procurement systems (EPS) which is An electronic
system used to automate all or part of the procurement function.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.6

Figure 7.1 Key procurement activities within an organization

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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The 5 Rights of E-Procurement

• at the right price

• delivered at the right time
• are of the right quality
• of the right quantity
• from the right source.

Baily et al., 1994

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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Table 7.1 Process flow analysis for traditional procurement (typical cycle time, 51⁄2
days)
David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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Table 7.2 Process flow analysis for new procurement (typical cycle time, 11⁄2 days)

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.10

Types of procurement
Production‑related procurement: manufacturing of products
Non-production‑related procurement: Supports the operations of the
whole business and includes office supplies, furniture, information
systems, MRO goods and a range of services from catering to buying
travel, and professional services such as consulting and training.
Businesses tend to buy by one of two methods:
● Systematic sourcing – negotiated contracts with regular suppliers.
● Spot sourcing – fulfillment of an immediate need, typically of a
commoditized item for which it is less important to know the
credibility of the supplier.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.11

Participants of e-procurement
● Traditional manufacturers which produce physical goods that are generally
sold to other corporate customers.
● Direct sales manufacturers, sell direct to end consumers via web or phone
channels.
● Value-added procurement partners act as intermediaries to sell products and
services to ther businesses; examples include travel agents
● Online hubs are industry‑specifc vertical portals such as Elemica
(ww.elemica.com) that enerate revenues via B2B exchanges.
● Knowledge experts who produce information goods
● Online information services provide unique information to end users that is
either original in its development or provides a unique editorial perspective.
● Online retailers include start‑up digital businesses and more traditional
multichannel etailers.
● Portal communities seek to aggregate different online information services
into an inte‑grated customer experience, for example personalised news
stories, online bill present‑ ment and payment, and community discussion
features. David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.12

Participants of e-procurement
A simple classification of different types or applications of e ‑procurement.
These are the main types:
1 E-sourcing. Finding potential new suppliers using the Internet during the
information‑gathering step of the procurement process.
2 E-tendering. The process of screening suppliers and sending suppliers
requests for information (RFI) or requests for price (RFP).
3 E-informing. Qualification of suppliers for suitability. It doesn’t involve
transactions out instead handles information about the supplier’s quality,
financial status or delivery capabilities.
4 E-reverse auctions. Enable the purchasing company to buy goods and
services that have the lowest price or combination of lowest price and other
conditions via Internet technology.
5 E-MRO and web- based ERP. These involve the purchase and supply of
products which are the core of most e‑procurement applications. The software
used manages the process of creating and approving purchasing requisitions,
placing orders and receiving the goods or service ordered.
David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.13

Drivers of e-procurement
Five key drivers or supplier selection criteria for e ‑procurement adoption
related to improving:
● Control – improving compliance, achieving centralization, raising
standards, optimizing sourcing strategy and improved auditing of data.
Enhanced budgetary control is achieved through rules to limit spending and
improved reporting facilities.
● Cost – improved buying leverage through increased supplier competition,
monitoring savings targets and transactional cost reduction.
● Process – rationalisation and standardisation of e‑procurement processes
giving reduced cycle time, improved visibility of processes for management
and efficient invoice settlement.
● Individual performance – knowledge sharing, value‑ added productivity
and productivity improvements.
● Supplier management – reduced supplier numbers, supplier management
and selection and integration

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Slide 7.14

Drivers of e-procurement
The potential benefits of e-procurement adoption are indeed numerous
and can significantly enhance both the efficiency and effectiveness of
various processes within a company. Here's a breakdown of the
benefits mentioned:
Planning: E-procurement systems can improve the quality and
dissemination of management information related to procurement.
This means better insights into spending patterns, supplier
performance, and inventory levels, allowing for more informed
decision-making and strategic planning.
Development: Integrating e-procurement systems into new product
development processes can help identify manufacturing costs early on.
This enables companies to make more accurate cost projections,
optimize product designs for cost efficiency, and streamline the overall
development process.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.15

Drivers of e-procurement
Inbound: By reducing the number of transactions and leveraging cost-
effective sourcing options such as hubs or marketplaces, companies can
achieve savings in procurement costs. Additionally, strategic benefits like
vendor-managed inventory (VMI) allow for tighter integration with
suppliers, leading to improved inventory management and reduced stockouts.
Production: Integration between procurement and manufacturing systems
ensures that production processes are not hindered by parts or materials
shortages. This seamless coordination helps maintain optimal inventory
levels, reduces production delays, and enhances overall operational
efficiency.
Outbound: While e-procurement systems typically focus on procurement
processes, they can indirectly influence outbound processes by providing
valuable data insights. By analyzing demand patterns and customer
preferences through integrated systems, companies can better align their
production and distribution activities to meet customer needs efficiently,
leading to benefits such as Efficient Consumer Response (ECR).
David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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Implementing of e-procurement
The different type of systems for e-procurements are:
● Stock control system – this relates mainly to production‑related
procurement; when the number in stock falls below reorder thresholds.
● CD or web-based catalogue – paper catalogues have been replaced by
electronic forms that make it quicker to find suppliers.
● Email- or database-based workflow systems integrate the entry of the order
by the originator, approval by manager and placement by buyer. The order is
routed from one person to the next and will wait in their inbox for
auctioning. Such systems may be extended to accounting systems.
● Order-entry on website – the buyer often has the opportunity to order
directly on the supplier’s website, but this will involve rekeying and there is
no integration with systems for requisitioning or accounting.
● Accounting systems – networked accounting systems enable staff in the
buying department to enter an order
● Integrated e-procurement or ERP systems – these aim to integrate all the
facilities above and will also include integration with suppliers’ systems.
David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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Figure 7.3 Use of different information systems for different aspects of the fulfilment
cycle
David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.18

Integrating company systems

with supplier systems

There are three

fundamental
models for
location of B2B
e‑commerce:
Sell‑side,
Buy‑side and
Marketplace

Figure 7.4 The three main e-procurement model alternatives for buyers

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.19

Integrating company systems with supplier systems

1.One-to-Many Supplier Relationship:

Example: A retail chain like Walmart sourcing products from
multiple manufacturers and suppliers. Walmart, as the buyer,
has relationships with numerous suppliers across various
product categories. These suppliers produce and deliver their
goods to Walmart's distribution centers or directly to its
stores. Walmart consolidates its purchasing power and
negotiates favorable terms with each supplier based on its
volume of purchases.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
Slide 7.20

Integrating company systems with supplier systems

2. Many-to-One Supplier Relationship:

Example: An automobile manufacturer like Toyota procuring
components from multiple suppliers for its assembly line. Toyota,
as the buyer, relies on various suppliers for components such as
engines, transmissions, seats, and electronics. Each supplier
specializes in manufacturing specific parts or systems according
to Toyota's specifications. Toyota coordinates and integrates the
deliveries of these components from multiple suppliers to ensure
smooth production operations.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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Integrating company systems with supplier systems

3. Many-to-Many Supplier Relationship:

Example: A global electronics company like Apple sourcing
components from numerous suppliers worldwide. Apple, as
the buyer, works with a vast network of suppliers for
components like processors, displays, batteries, and casings.
Simultaneously, these suppliers may serve multiple
electronics companies besides Apple. The relationship is
complex, with suppliers interacting with multiple buyers and
buyers relying on multiple suppliers to meet their diverse
sourcing needs.

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012
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SUMMARY

David Chaffey, E-Business & E-Commerce Management, 5th Edition, © Marketing Insights Limited 2012