Chapter 4

Information Systems and Technology

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Adoption Rate of Internet-Based Procurement

• To identify new suppliers: 80.7%

• Purchasing indirect materials: 70.9%

• As part of RFP 48.8%

• On-line collaboration with suppliers: 42.8%

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Examples of the Potential Contribution of a Computerized Purchasing System

Source: Adapted from Lisa Ellram and Laura Birou, Purchasing for Bottom-Line Impact: Improving the Organization through Strategic Procurement (Burr Ridge, IL: Irwin Professional Publishing, 1995), p. 135.

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Simplified Flowchart of an Automated Purchasing System

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EDI Benefits

EDIBenefits

EFT paperlesspurchasing

purchasingprofessionalism

increasedproductivity

inventory andlead time reductionbuilding enhanced

communicationwith suppliers

internalsystemsimpact

increaseddata accuracy

support forbar coding

fosters JITrelationship

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EDI Versus XML

EDI XMLOptimized for: Compressed messages Easy display and

programmingRequires: Dedicated EDI server Web serverServer costs: $10,000-$100,000 $5,000Uses: Value-added network Existing Internet connectionMessage format: Months to master Learned in hoursRequires: C++ programmers JavaScript, Visual Basic,

Pythonor Perl script writers

Readable by: Machine Human and machine

Source: Gartner Group, found in Anne Chen, “Getting to XML,” eWeek, August 6, 2000

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Problems Related to Implementinge-Procurement

• The requirement for explicit approval prior to making an on-line purchase

- e.g., manual sign-off

• Reliance and comfort with fax and email lead to clumsy links between buyers and suppliers

• Transaction-by-transaction review prior to payment rather than paying on proof of shipment

• Haphazard review of buying and supplying behavior that leaves people unsure of the degree of success of e-procurement

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E-Procurement Applications

• The buying organization can purchase and install on its servers a package from a solutions provider

• The buying organization can use a third-party to host the e-procurement application for the organization

• An e-marketplace serving multiple buyers and multiple sellers can purchase and operate the e-procurement application

• “Content Vendors” may supplement the e-procurement package by creating catalogs or providing access to existing ones

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Steps for Setting up an e-Procurement System for Indirect Materials

1. Selecting a solutions-provider and determining the type of relationship

2. The buyer(s) determines how many suppliers and which suppliers to keep in its supply base for indirect purchases

3. The buyer(s) negotiates terms and conditions with the chosen suppliers, including deeply discounted prices in return for volume

4. Digitized versions of the suppliers’ catalogs are loaded alongside the e-procurement application

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Steps for Setting up an e-Procurement System for Indirect Materials

5. Employees use computer browsers to search the catalogs of designated suppliers, selected items for purchase, and create requisitions and a P.O. is generated

6. The P.O. is streamed directly into the supplier’s inventory application and the order is processes, and the goods shipped

7. Invoicing and/or payment is made; sometimes through and electronic bill presentment and payment process

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When to Use Online Auctions

• The good or service has the characteristics of a commodity- e.g., there is a clear and unambiguous specification

• There are multiple suppliers available and willing to compete for business

• The organization has access to the technology necessary to run the auction

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Three Types of e-Auctions

• Open offer negotiations- Suppliers select items for bidding and enter as many offers as

they want until closing- Names not disclosed to other bidders

• Private offer negotiations- Suppliers review offers from the buying organization that

includes target price and quantity- Suppliers select item(s) and offer prices- Status levels: accepted; closed; BAFO; open

• Posted price- Buyer posts price and first supplier that meets price is accepted

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e-Commerce Implications for Purchasing

• Should we be a leader or a follower?

• What should be acquired through e-commerce?

• What tools should we use to acquire those items?

• Who should we use as service providers?