Cover page: E-Procurement: Products, Services and Solutions
Cover History E-Procurement
E-business applications have always focused more on commercial transactions, with the aim of helping not only those who sell but also those who acquire. All companies cannot fail to take advantage of the same advantages of e-procurement instruments.
After the great waves of Business-to-Consumer (B2C) e-commerce and online commerce, the Internet application that has been talked about the most for some months is e-procurement, that is, the integrated management of a company's supplies through the Internet, with three main objectives:
- make the purchasing process with suppliers more efficient, reducing intermediate bureaucratic steps and partially or totally automating payments.
- find the most convenient offers and select suppliers by consulting electronic catalogs present on the websites of the suppliers themselves or in the so-called e-marketplace.
- organize electronic tenders and auctions for supplies of important value.
In most organizations, purchasing activities are typically managed via telephone, fax, letter, email or EDI, with a mix of manual and automated activities, depending on the technological capabilities of the customer and supplier. E-procurement applications aim to support, automate and rationalize activities connected to purchasing processes. In a broad sense, e-procurement is any activity connected with purchases, carried out with the help of the Internet, both for private consumers and companies: from the use of email to request and send offers, to the use of search engines specialized in searching for products and comparing prices, reaching electronic auctions between consumers. Strictly speaking, we speak of Business-to-business e-procurement when an organization integrates the purchasing process over the Internet with computer systems, with the aim of completely automating the “passive cycle”. In other words, companies' interest in e-procurement depends on the fact that companies first automated the “active cycle” (sales, production, billing) with traditional IT systems and ERP, then tried e-commerce, and finally turned their attention to the “support cycle” with CRM applications, and finally concentrated on the “passive cycle”, which includes:
- Search for useful information to choose the product or service to purchase (Market Intelligence).
- Support in the preparation of requests for offer and specifications.
- Support in the process of comparing offers and selecting the supplier and product.
- Creation of the order.
- Approval of the order and related internal controls (company powers, budget, standards and limitations established by the quality system).
- Sending the order to the supplier.
- Invoice receipt, payment, posting and closing of the transaction.
Currently, only a few companies worldwide have completely automated the passive cycle, while many purchasing offices widely use the Internet in the Market Intelligence phase (information search and consultation of electronic catalogs).
Better management of supplies, reduction in the number of errors that occur in the order management phase, savings in the cost of purchased goods, the possibility of optimally planning the management of one's own supply chain, tracking orders in real time, reduction of management times, are the main advantages of e-procurement, to which are added other collateral advantages, such as the reduction of the so-called "maverick effect" (depending on what, to evade rigid bureaucratic procedures, it is preferred to make some purchases directly requesting reimbursement of expenses, so that on average 30% of "indirect" items are acquired in this way) and the fact of automatically having a large amount of statistical data (delivery times, price reductions, savings with respect to offers from other suppliers).
Also the possibility of configuring a product with the help of a configurator program or expert system and sending orders online constitutes, for both the supplier and the customer, a great advantage in terms of time and costs.
With timely adaptations to the computer system and business procedures, a medium-sized company can achieve savings between 3 and 10% of turnover.
For multinationals, the savings can be in the order of hundreds of billions. Savings mainly refer to indirect goods, such as laptops and networks, telephones, software, stationery, services that do not directly affect production cycles, rather than direct purchases (raw materials and semi-finished products).
Research by large companies such as Price Waterhouse Coopers and Gartner Group shows that 75% of invoices paid by companies correspond to items that cost less than $1,000; The internal cost (overhead) to acquire a $5 product is equal to that of $5,000 items; An average purchase with traditional processes involves 22 operations on average, lasts 15 days and has an internal cost between 35 and 80 dollars (sometimes exceeding 300 dollars). An e-procurement solution involves only 12 operations, requires few hours and costs between 5 and 10 dollars.
In addition to the economic and productive advantages, purchasing processes become more controllable and the possibilities of error decrease.
Many American and German companies that have implemented e-procurement systems claim to have recovered their investments in less than twelve months.
In the US, e-procurement is adopted by 25% of companies, and it is estimated that in 2001 this percentage will reach 40%.
Smaller companies that wish to automate the passive cycle can refer to external structures that operate several companies, acting as purchasing cooperatives and service companies.
In this case, the external operator manages the catalog and is structured as an e-procurement outsourcer, with an intermediate business model between an e-procurement system and an e-marketplace.
A significant European example is the German Unitec Gmbh, also present in Italy, which constitutes one of the first experiments in complete outsourcing of the purchasing, logistics and warehouse management function for companies of a largely industrial nature.
