- 5 - Understanding the benefits of e-Procurement Andy Gueritz, Jan 2001 © 2001 Sixhills Consulting Ltd & Author Formulating an e-Procurement strategy In what product and service categories can e-Procurement successfully be implemented? e-Procurement is only possible when the goods and services required are available for purchase over the Internet (ignoring legacy EDI-type facilities which have only really been open to rather exclusive buyer/vendor groups). Clearly, any e-Procurement strategy will only be successful if it aims to manage the procurement of goods which are available or are likely to become so in the near future. Accepting that within a short period of years, all e-Commerce will become Commerce, two key factors determine the speed that categories of products and services will become available online: The complexity of the buyer approval process: Buyer approval combines elements of Sourcing (through compliance to cost effective corporate contracts, and the day-to-day authorisation of individual order requests. Complex approval processes, especially those with a very high relationship, or subjective ‘comfort’ are very difficult to codify in software. In essence, then, the simpler the required process to approve a purchase for a particular category of purchase, the easier it is to put the process on-line. In practice, this means that the types of goods which can be easily approved include:  Commodity items with well recognised and stable specifications  Strongly branded goods with stable specifications  Items of low perceived corporate importance  Items which are ordered frequently The inefficiency in the current purchasing process: E-Procurement will only realise cost savings if the existing purchasing process is inefficient and automation can remove that inefficiency. The more inefficient the process, the greater the benefits of e-Procurement can be. Low value items, where the transaction and other procurement costs are high relative to the actual invoice value, are often the most inefficiently purchased items in an organisation. Other sources of inefficiencies include:  Unclear or "bundled" pricing IllustrativeIllustrativePropensity to Move On-lineBuyer Approval Process Complexity Can Go On-line if . . . Ÿ Product Specification Ÿ Clear standards exist or can be defined Ÿ Vendor Quality/ Service Ÿ Vendor service level criteria are definable Ÿ Purchasing Frequency Ÿ Orders frequency is high Ÿ Perceived Corporate Value Ÿ Relatively unimportant Ÿ Authorisation Process in Place Ÿ Systems are bypassed regularly Transaction Inefficiency Can Go On-line if . . . Ÿ Information Flow/ Price Transparency Ÿ Pricing is bundled and info unclear Ÿ Number of Supply Points Ÿ Competitors are numerous Ÿ Number of Purchasers Ÿ (In)direct buyers are numerous Ÿ Distribution Channel Ÿ Supply chain fragmented with numerous middlemen Ÿ Contract Ÿ Terms are clear/standard IllustrativeIllustrativePropensity to Move On-lineBuyer Approval Process Complexity Can Go On-line if . . . Ÿ Product Specification Ÿ Clear standards exist or can be defined Ÿ Vendor Quality/ Service Ÿ Vendor service level criteria are definable Ÿ Purchasing Frequency Ÿ Orders frequency is high Ÿ Perceived Corporate Value Ÿ Relatively unimportant Ÿ Authorisation Process in Place Ÿ Systems are bypassed regularly Transaction Inefficiency Can Go On-line if . . . Ÿ Information Flow/ Price Transparency Ÿ Pricing is bundled and info unclear Ÿ Number of Supply Points Ÿ Competitors are numerous Ÿ Number of Purchasers Ÿ (In)direct buyers are numerous Ÿ Distribution Channel Ÿ Supply chain fragmented with numerous middlemen Ÿ Contract Ÿ Terms are clear/standard
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