A framework for the implementation of e-procurement

Abstract

The introduction of the Internet has challenged numerous value chain propositions and processes. Its low cost, low barrier of entry and timely distribution of information provides a seamless extension of processes across company borders. Especially in the business-to-business (828) realm, its introduction has however sparked criticism and controversy and many companies are still weary of trading on-line. e-Procurement is a sound solution for companies to initiate the e-wave as it promises high cost savings. Savings promised include a reduction in processing cost, reduction in the supply base (which leads to cost savings) as well as negotiating better prices through the availability of sufficient post-purchase information. Maverick spending (off contract purchasing) is also reduced through better-controlled purchases. A framework is developed in this research to assist in the evaluation of the suitability and scope of a proposed e-procurement implementation. Due to the numerous aspects involved in procurement and therefore also e-procurement, the following five dimensions are addressed in the framework: 1. Procurement and Processes. Although e-procurement does not address all procurement related aspects, such as strategic sourcing of supply, it has an operational focus and reduces processing time and costs. 2. Products. Products can be categorised by means of many different aspects, but the following main characteristics influence the categorisation decision: i) Its function within the organisation, ii) Product characteristics (homogenous or heterogeneous), iii) Product value and iv) Number of suppliers. Indirect goods with a low unit value, supplied by a large number of homogenous suppliers are regarded as susceptible for e-procurement. 3. Purchasing role players. Many different role players function within the purchasing arena, each influencing the purchasing function. The main aspects to be considered when considering e-procurement are: i) Buyer characteristics (demography and background), ii) Supplier characteristics and channel strategy (the supplier's position in the value chain as well, as if the relationship is cohesive or conflicting), iii) Market forces (supply and demand laws as well as market competitiveness) and iv) Industry related purchasing (the product purchased and its significance). 4. Purchasing and Supply Chain Management. The introduction of the Internet has opened up the possibility for planning across the supply chain planning, using techniques such as CPFR. This will result in a pull rather than a push model. For products to be ordered electronically, the following information should be available: i) Stock levels and ii) Current or forecasted demand. Absence of accurate information of any or both of the above would result in a preference for manual ordering. 5. Trading and Information Exchange. Each buying situation may require a different e-procurement solution It is important that users firstly establish the commerce arena requirements (the product characteristics, sophistication of the buyers as well as inefficiencies of current transactions) which will influence the choice in e-procurement business model, trading platform, data format, etc. Thereafter the aspects necessary for consideration are: i) The data format (XML vs. EDIFACT, etc.), ii) Information platform (Internet vs. Intranet, etc.), iii) Integration needs (integrating with back end systems such as an ERP system) and iv) Different e-procurement solutions. Using a qualitative model considering dimensions 1 to 3 above, the susceptibility of different products or commodity groups (products with similar characteristics grouped together) should be examined. For each of these products or commodity groups the preferred e-procurement solution should be crafted by applying dimensions 4 and 5 above. Combining the qualitative ratings with the preferred solution should provide the most feasible e-procurement solution, while simultaneously rating which of the products should be purchased through the solution.