Procurement Management

Procurement Management
Chapter 7: E-procurement
Session 6
• Describe the evolution of electronic sourcing

• Explain the pricing and business strategies for an E-procurement platform

• Discuss the concept of E-marketplaces and online catalogues

• Describe the meaning and process of online auctions

What is e procurement?

• E-procurement is a modern approach to sourcing and acquiring goods using

technology to connect buyers and suppliers across industries and geographical
markets.
• Trading partners connect and communicate electronically via digital platforms and
messaging systems.
• Every stage of e-procurement is digital and automated for faster searching and
requisition, more secure document management and storage, and clearer oversight
and control of transactions.
• Procurement, or the search for goods and services according to pre-determined terms
and agreements, is a crucial part of everyday business.
• A well-defined procurement plan helps business owners fulfil their goals and targets
according to the overall company strategy.
 Evolution of Electronic Sourcing
– The first technological innovation for facilitating procurement happened with the
introduction of the Electronic Data Interchange (EDI) technology in the 1970s.
– The EDI allowed buyers and sellers to transmit purchase documents, like purchase
orders, invoices, etc., online in a secure and standardised format.
– The next major technology that transformed the entire business operations including the
procurement function was the advent of Enterprise Resource Planning (ERP) systems.
– ERP systems helped re-engineer and automate business processes across the organisation.
It also allowed the deployment of a single data source, consolidating many independent
applications that were used earlier by different departments of the organisation.
– In 1990s, the new e-commerce technologies focussed on Business-to-Business (B2B) and
Business-to-Customer (B2C) transactions.
– Decentralised purchase of low-value items with centralised control.
– Usage of electronic-based bidding tools like eRFX and E-auctions.
– Connectivity to external sources of information like databases, catalogues, portals and E-
marketplaces.
– Connectivity to online payment systems.
– Connectivity to internal ERP and supply chain management systems.
– Project management tracking; i.e. capturing critical activities in procurement cycle from
one end to the other.
Challenges in e procurement

Many companies do not have a fully thought-out procurement process. It’s often left up
to individual departments or employees to decide which goods to purchase and from
where. Without a companywide buying strategy based on pre-negotiated agreements,
maverick spending becomes a costly problem for the company.

Companies that do have procurement departments also face the challenge of being seen
as a roadblock to decision making. They can appear to make everyday tasks
bureaucratic and cumbersome with a single goal: negotiating the best deal with
suppliers. This is not always the best way to bring value to the company as a whole.

So what’s the best way to align procurement with your overall business tactics? An e-
procurement strategy is something all businesses, regardless of size or industry, can
implement for companywide savings, efficiency and collaboration.
How to perfect an e procurement strategy that benefits your
business
Building the case for an e-procurement strategy
Become the spokesperson for e-procurement inside your company. Here are several
ways to do that:
1. Ensure all business owners and departments know your digital agenda and how it
helps them reach their targets. Getting everyone on board from the top down is
crucial for successful execution.
2. Make sure they understand the value you are providing for them to make their
business more profitable. Present a plan that shows the short and long-term benefits
e-procurement will have on the business.
3. Let the business know that you have new digital tools to streamline communication
with your suppliers. Demonstrate the positive impact streamlined processes have on
building trusting, longer-lasting partnerships.
4. Clarify that this is a symbiosis for internal and external parties alike. E-procurement
gives your company real-time visibility and oversight; suppliers can automate sales
and establish quicker payment methods.
E procurement at public sector in India- A
walk through……

https://www.india.gov.in/spotlight/government-e-marketplace-procurement-made-
smart#tab=tab-1
Pricing and Business Strategies for an E-procurement
Platform

• E-procurement platforms provide online markets for buyers and suppliers to interact for
achieving their respective business objectives. These platforms are similar to B2C platforms
like Amazon and Flipkart.

• In these B2C platforms, buyers and suppliers meet through the Internet platforms provided by
a neutral vendor.

• The vendor gets its revenue from transactions happening through the platform.

• E-marketplaces applicable for B2B exchanges may also involve a revenue model.
• The revenue for the company hosting an E-procurement platform would depend on actual
purchase transactions and the type of revenue model adopted by it.

• The pricing and business strategy of the host of the E-procurement platform will
depend on the dual nature of customers of the platform.
4 procurement and pricing strategies to mitigate the impact of
increasing tariffs

Lever1 Lever 2 Lever 4

Lever 3
Procurement Supply
Customers Competitors
costs chains
 E-marketplace and Online Catalogues

• An E-marketplace refers to an electronic platform where buyers and sellers can meet to make
business transactions online.

• It can be classified into public and private E-marketplaces. A public E- marketplace is run by
an electronic intermediary company, who is neither a buyer nor a seller, for conducting
electronic buying and selling between members of the exchange. On the other hand, a private
E-marketplace is designed and run by private investors and it invites buyers and sellers to do
online business on its platform.

• An important difference between an E-marketplace and other models of E- procurement is

that it allows one-to-many and many-to-many transactions between buyers and sellers.
Types of e market place

Independent e marketplace

Buyer oriented e marketplace

Supplier oriented e marketplace

Vertical e marketplace

Horizontal e marketplace
Benefits of e marketplace

General business benefits

Benefits for the buyer

Benefits for the seller

How do e market places differ from each other?

Product Online
Online Hybrid
online service Hyperlocal
rental model in
market market marketplace
marketplace ecommerce
place place
 E-marketplace and Online Catalogues

• A private E-marketplace allows one-to-many (one buyer, many sellers – a buy- side system) or
many-to-one (many buyers, one seller – a sell-side system). In contrast, a public E-
marketplace allows many-to-many transactions.

• The main functions of E-marketplace are to:

– provide a virtual marketplace for buyers and sellers.

– Facilitate interaction between potential buyers with potential suppliers.

– facilitate online procurement transactions.

– Provide E-procurement tools that can be used by buyers, such as online catalogues,
supplier collaboration tools, electronic online auction tools, etc.
 E-marketplace and buyers

• Buyers can also use E-marketplaces for e-sourcing. They can locate prospective suppliers,
send RFPs and may even decide to conduct online auctions. They can also use these
exchanges for evaluating, negotiating and selecting suppliers for their procurement needs.

• Advantages of an E-marketplace for buyers: allowing procurement at low transaction costs,

facilitating price discovery and offering better prices, etc.

• Disadvantages of an E-marketplace for buyers: Suppliers in an E-marketplace are mostly new

and unknown, too much emphasis on price can potentially lower the quality level, etc.
 E-marketplace and Online Catalogues

• Online catalogues allow online purchase of materials and other resources. These catalogues
contain products for online purchasing from predetermined suppliers. Online catalogues also
provide pricing details and applicable discounts for volume buying.

• These catalogues may be available for purchasing goods within the procurement intranet of
the buying organisation provided by approved suppliers. These catalogues may be developed,
maintained and updated for E-procurement processing by the buying organisation based on
supplier catalogues and internal inventory system.

• Alternatively, the E-procurement platform can point to an external link to the supplier-
maintained catalogues.
 5. E-marketplace and Online Catalogues

• Three types of catalogues are as follows:

Simple • These catalogues provide a list of basic items, such as

stationeries with individual descriptions and prices. (60% of
catalogues
all E-marketplace transactions).

Goods and • These catalogues include items like desktop computers

services requiring detailed and complex descriptions. (30% of all E-
catalogues marketplace transactions).

• These catalogues include items which are based on

Contract-driven supplier contracts already established through sourcing
catalogues processes. (30% of all E-marketplace transactions).
 Online Auctions

• Online auctions are an important component of the E-procurement ecosystem. In online

auctions, the buying organisation creates a Request For Quote (RFQ) and invites potential
suppliers to submit bids. Next, the auction is conducted to select the lowest-price bidder.

• The auction continues till a pre-established bidding period ends or until no seller is willing to
bid any lower.

• In a regular online auction, prices are revealed to all sellers but the identity of
competitors remains anonymous.
• In another type of online auction, termed as ‘rank online auction’, sellers are only told their
relative rank and will be unaware of their competitor’s prices.
 Online Auctions

• The steps involved in online auction are given below:

1. The buying organisation decides the procurement of items through an online auction.

2. Suppliers are evaluated and approved for participation in the auction process. Only the
technically approved vendors should be made a part of online auctions. Market research
may be conducted by website hosting for identifying the potential sellers.

3. Suppliers are invited to participate in the bidding process.

4. The buying organisation prepares an e-RFX, i.e. an Electronic Request for

Quotation, and sends it to all the qualified suppliers.
 Online Auctions

5. The suppliers are informed about the details regarding the bidding place and date and
the rules of the auction.

6. The bidding process begins at the appointed time and usually lasts for about 30 minutes
to an hour. Competitors may be allowed to see other bids or it may be a closed auction.
However, suppliers’ identities remain confidential during the bidding.

7. The company analyses auction bids and awards the business to the chosen supplier
(preferably) who need not necessarily be the lowest bidder. The choice of supplier
depends on technical ranking and some other terms and conditions also.
Types of Auctions

Forward auctions-lots are

sold to the highest
bidder

Reverse auctions-
suppliers compete on
price and lowest bid for
the tender wins
Best practice in auctions

• accreditation - some auctions have qualifying criteria

• fee structures - there may be a registration fee
• how payment is managed - sometimes this is between the parties, sometimes
through the auction site itself
• supplier reputation - monitor feedback from previous bidders
• the bidding system - how to place or withdraw bids
• what's on offer - if the description is vague, contact the seller for more information
• costs - factor in all the costs including taxes, packing and shipping charges
 Let’s Sum Up

• The first technological innovation in procurement happened in the 1970s when Electronic
Data Interchange (EDI) was introduced for the electronic exchange of procurement documents
in a secure and standardised format between buyers and sellers.

• The application of technology proceeded along with the advancement in

procurement management function, when supply chain planning and

management became a source of competitive advantage.

• Several technological tools integrated the procurement function with the supply chain
management activities.

• E-procurement tools were expected to make the entire procurement function Web-based with a
close interaction between buyers and sellers.
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