Cover Story E-Procurement
E-business applications are 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 huge waves of Business-to-Consumer (B2C) e-commerce and online commerce, the Internet application that has been talked about most for a few months is e-procurement, that is, the integrated management of a company's supplies via the Internet, with three main objectives:
- make the purchasing process with suppliers more efficient, reducing intermediate bureaucratic passages and automating payments partially or completely.
- find the most convenient offers and select suppliers by consulting electronic catalogs on the same suppliers' websites or in so-called e-marketplaces.
- organize electronic contests and auctions for valuable supplies.
In most organizations, purchasing activities are normally managed via telephone, fax, letters, email or EDI, with a set of manual and automated activities, largely dependent on the technological possibilities of the customer and the supplier. E-procurement applications aim to support, automate and rationalize activities connected with purchasing processes. In general terms, e-procurement is any activity connected with purchases, carried out with the help of the Internet, whether by private consumers or companies: from the use of e-mail to request and send offers to the use of search engines specialized in locating products and comparing prices, reaching electronic auctions between consumers. In a strict sense, we talk about Business-to-business e-procurement when an organization integrates the purchasing process via 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 previously automated the “active cycle” (sales, production, invoicing) with traditional computerized systems and ERP and first attempts at e-commerce, then turned their attention to the “support cycle” with CRM applications, and finally focused on the “passive cycle”, which comprises:
- Location of useful information to choose the product or service to purchase (Market Intelligence).
- Support for the preparation of bid requests and reports.
- Support the process of comparing offers and selecting suppliers and products.
- Order creation.
- Approval of the order and relative internal controls (company powers, budget, standards and possible restrictions established by the quality system).
- Sending the order to the supplier.
- Receipt of invoice, payment, accounting and closing of the transaction.
Currently, only a few companies worldwide have completely automated the passive cycle, while many purchasing departments make extensive use of the Internet in the Market Intelligence phase (researching information and consulting electronic catalogs).
Better management of supplies, the reduction in the number of errors that occur in the order management phase, savings in the cost of acquired assets, the possibility of optimally planning the management of the supply chain itself, tracking orders in real time, reducing 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” (dependent, to avoid rigid bureaucratic procedures, prefers to directly carry out some purchases requesting reimbursement for various expenses, so much so that on average 30% of “indirect” items are purchased in this way) and the fact that a large amount of statistical data is automatically available (delivery times, price reductions, savings in relation 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 a great advantage for the supplier and the customer in terms of time and costs.
With appropriate adaptations to the IT system and business procedures, a medium-sized company can achieve savings of between 3 and 10% of revenue.
For multinationals, savings can be in the hundreds of billions. The economy concerns indirect assets above all, such as portable computers and networks, telephones, software, various office supplies, services that do not directly affect production cycles, but rather direct purchases (raw materials and semi-finities).
Research conducted in some large companies by Price Waterhouse Coopers and Gartner Group shows that 75% of invoices paid by companies refer to items costing less than 1000 dollars; the internal cost (overhead) to acquire a 5 dollar product is the same as that of 5000 dollar items; an average purchase with traditional processes involves 22 operations on average, takes 15 days and has an internal cost of between 35 and 80 dollars (sometimes exceeding 300 dollars). An e-procurement solution involves just 12 operations, requires a few hours and costs 5 to 10 dollars.
In addition to the economic and productive advantages, purchasing processes become more controllable and the possibility of error decreases.
Many American and German companies that have introduced e-procurement systems claim to have amortized their investments in less than twelve months.
In the USA, 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 several companies operate with this objective, functioning as purchasing cooperatives and service companies.
In this case, the external operator manages the catalog and configures itself 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 predominantly industrial companies.
