e-Procurement

e-procurement is nothing but electronic data transfer to support operational, tactical and strategic procurement. E-procurement has been existence for long time in one form or the other earlier it was done through electronic data interchange. In today’s environment, most of the e-procurement is done through the Internet.

E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to-consumer or business-to-government purchase and sale of supplies, work, and services through the Internet as well as other information and networking systems, such as electronic data interchange and enterprise resource planning.

The e-procurement value chain consists of indent management, e-Informing, e-Tendering, e-Auctioning, vendor management, catalogue management, Purchase Order Integration, Order Status, Ship Notice, e-invoicing, e-payment, and contract management. Indent management is the workflow involved in the preparation of tenders. This part of the value chain is optional, with individual procuring departments defining their indenting process. In works procurement, administrative approval and technical sanction are obtained in electronic format. In goods procurement, indent generation activity is done online. The end result of the stage is taken as inputs for issuing the NIT.

Traditionally, procurement of supplies and material was done through paper, which slowly migrated to usage of an electronic medium for order printing and storing. With the advent of the Internet e-commerce flourished, and procurement was done through email and websites. As the Internet technology evolved e-catalogue came in the forefront thus traditional procurement was getting done through the Internet. In the current market with data security and advanced tools whole process of e-procurement is done through the Internet.

Procurement as a Function

Procurement departments are found in most of the organization. There are responsible for purchase of raw material, office supplies, office equipment, facility maintenance, etc. It is important for them to know and understand the e-procurement concept so that they can add efficiency and effectiveness to the whole process.

Procurement managers must have complete understanding of various e-procurement applications. He must be able to identify processes, which can make procurement effective. He should have understanding of e-procurement benefit. He should understand risk associated with e-procurement implementation.

E-procurement Tools and Application

There are several tools and application which fall under e-procurement some of them are as follows:

In electronic data interchange system, procurement messages are exchange between computers of two separate organizations. Message is exchange in batch and can be easily transmitted and stored. EDI is mostly used for order transmission, order confirmation, logistic information and order invoicing.

Enterprise resource planning system have separate module to handle the procurement function.

Internet based tools and resources help in the process of procurement. Some of the common applications are email, internet based EDI, XML based data exchange via the internet etc. Internet provides tools for e-sourcing, e-tendering, e-auctioning, e-ordering and e-catalogue.

E-sourcing tool is used to identify potential suppliers during the selection phase. E-tendering tool is used to send out tenders with procurement requirements, supply schedule, contracting terms, etc. E-auctioning tools bring together potential supplier identified during selection phase under one umbrella to undertake auctioning process. E-auctioning tools operate under two separate mechanism, upward price mechanism for selling organization and downward price mechanism for the buying organization. E-ordering tool is used procurement of office supplies and services; it is accessible by all employees within the organization and is mainly used for ad-hoc purchases. A web-based ERP tool is used for product-related purchases, is exclusively used by the procurement department, and falls under a planned process.

A traditional procurement process starts with phase requirement definition, sourcing, solicitation, evaluation, contracting and contract management. In the internet based this steps are replaced by e-sourcing, e-tendering, e-reverse auction, e-ordering and web based ERP.

E-procurement Benefits

Implementing an e-procurement system benefits all levels of an organization. E-procurement systems offer improved spend visibility and control and help finance officers match purchases with purchase orders, receipts and job tickets.[23] An e-procurement system also manages tenders through a web site.

• The cost incurred on goods and services associated with production.
• The cost incurred on procurement process such as ordering, administrative support etc.
• The cost incurred on specification formulation, supplier selection etc.
• The cost benefit in establishing relationship with suppliers.
• It promotes transparency in the process and therefore improves accountability.

Disadvantages

Because the vendor is obtaining more information about the customer than in case of normal supply chain management structure, major disadvantage of e-procurement might be incentive of the vendor to take advantage of the customer.

Several Components

e-Informing

E-Informing does not directly take part in the purchasing process, this process rather precedes the purchasing. It is the process of gathering and distributing purchasing information both from and to internal and external parties, using the internet technology.  Information sharing refers to the extent to which critical and proprietary information is communicated to one’s supply chain partner thus more efficiency and high performance of the supply chain. In information sharing, also information quality is considered. That includes accuracy, timeliness, adequacy, and credibility of information exchanged. This process occurs especially in Enterprise Resource Planning (ERP).

e-Tendering

The purpose of e-tendering is to enhance the process of tendering for the procurement of specialized works, goods or consulting services of low volume but have high value.

e-Auctioning

E-auction is the process of conducting an auction to sell assets, natural resources or other goods through online competitive bidding. Compared to physical auction, electronic auction provides complete transparency and enables more parties to take part.

Vendor management

It occurs when contracting authority aims to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the procurement process. Contract management departments are often established in order to ensure the most effective deal.

Catalogue management

Catalogue management is strategic process that starts when suppliers publish their product portfolio electronically and products are made available to buyers in order to procure goods and services electronically, and appears while managing the product catalog to ensure the quality of the product data across the sales channels. The product content can be hosted either by the supplier or buyer.

e-Purchasing

As opposed to e-Tendering, e-Purchasing is used in procurement of goods and services that are of low value and high volume. It electronically simplifies the purchasing process of such goods and services. For this type of procurement, catalogues are one of the key components that often occurs. Key components of this system are often complex and thus system development is often needed. The process starts from publication of items online by the suppliers, and continues to the electronic selection, order, reception, and finishes with payment by the purchasing side.

e-Ordering

Process of creating and approving purchasing requisition, both placing purchase orders and receiving goods and services ordered, while using a software system based on internet technology which greatly improves the supply chain performance. When talking about e-ordering, ordered goods and services are generally non-product related, in other words – indirect. In case of Enterprise Resources Planning (ERP) the goods and services ordered are product related. Both the supporting software system as well as ordering catalogue system are designed to be used by all employees of an organization.

e-Invoicing

E-Invoicing is any method by which an invoice is electronically presented to a customer for payment. In larger companies, accounts payable departments are responsible for the invoices to be approved, processed, and paid.

e-Contract Management

This type of management consists of management of receivables, payments, contract settlements, contract variations, performance securities, and auditing and control activities, and as opposed to its classical form, e-Contract Management is its electronic improvement.