E-procurement and Supply Chain Management

Introduction

The supply chain technology that has been selected for this report is e-procurement. Some of the main aspects of the technology that will be covered in the paper include the advantages and risks that are associated with the technology and the overall impacts of the technology.

Defining the technology

E-procurement is also known as electronic procurement. One other alternative name that has been given to e-procurement is supplier exchange. There are many ways with the help of which e-procurement can be defined. One of the main definitions of the electronic procurement is that it is a well known business to business, business to government or business to consumer work, services and purchases that are made over the internet and certain networking systems which include enterprise resource planning and electronic data interchange (Devaraj, Vaidyanathan & Mishra, 2012, p. 510).

Components of E-Procurement

Some of the main components of the e-procurement system includes indent management, vendor management, e- tendering, e-auctioning, purchase order integration, catalogue management, ship notice e-invoicing, e-payment, order status, as well as contract management. Among the many parts of supply chain management, an important and often an optional part is the vendor management. It is also defined as the method of preparation of the tenders (Bellantuono, Kersten & Pontrandolfo, 2012, p. 20).

One of the main facts that can be added here is that the e-procurement can also be defined as an important electronic partner in various business activities. This is the process with the help of which the relationships with the suppliers and the buyers can be explained. Around the year 2000, it was seen that more focus was being given to the online market places, and the electronic systems with the help of which the supply chain could be managed properly. Even in the academic world, increased research was being done to focus on the advantages that could be gained by the implementation of e-procurement (Rotchanakitumnuai, 2013, p. 45).

Current status and future directions of e-procurement

This section will highlight the current stratus of the selected supply chain technology, e-procurement. There are two main kinds of the electronic procurement process.

The first one is known as the Material Requirement Planning and the second one is known as Maintenance, Repair and Operations. When the definitions of these processes are taken into account, it can be seen that the first process is the procurement of the goods and needs that are needed by the business as well as the production process it owns. The process is characterized by certain well-known standardized procedures and has been known to be supported by certain traditional procedures of enterprise resource planning (Erridge, Fee and McIlroy, 2001). Since there has been advancement in the internet and the technologies related to the internet, there has been a greater advancement in the second kind of procurement process, the Maintenance, Repair and Operations. It has been defined as the procurement of certain indirect materials that include office supplies as well as services. Thereby from here it can be seen that there are two main kinds of procurement, the indirect procurement and the direct procurement (Stephens & Valverde, 2013).

E-procurement Issues

But there are certain issues with e-procurement. External business based risks. The e-procurement systems do not only require interacting with the internal information systems of the organizations but there is a need that the system must also integrate with the external business based constituencies (Aboelmaged, 2010, p. 398).

Another important category of risks includes the authority risk, which can also be mentioned as the limit rises. In this case the authority fails to define and set limits to the amount of spending that needs to be done by the end users (Heywood, Barton and Heywood, 2002). These are the spending levels that were managed by the purchasing department before the installation and implementation of the e-procurement in the business processes. One of the other main risks that have been defined in the category of the empowerment based risks includes the change readiness risk. This is the risk which arises when the organizations after the implementation of e-procurement fails to assimilate the new change on the large scale (Rotchanakitumnuai, 2013, p. 49).

The implementation of e-procurement in the business processes comes with few information technology based risks as well. The first risk is defined as the relevance risk that arises when integration of e-procurement fails to deliver the right and required data and information to the right required authority at the required time. The second risk in this category is the integrity risk that normally arises in the areas of the user interface, error processing, and interfaces. Another risk associated with the implementation of e-procurement in this category is access risk. it has been seen that based on a greater and a sudden increase in the number of users using the systems, the right amount an kind of information may not be accessed (Tai, Ho & Wu, 2010, p. 5398). In addition, the availability risk is important in this case mainly because of the fact that it defines the increased dependence on the systems of e-procurement, such risk is based on an increased dependence of the suppliers and the organizational logistic managers on the internet for keeping connection with the suppliers. On the other hand, there are risks associated with the application system deployment, database management, logistics security, as well as business datacenter recovery, these are collectively mentioned as the infrastructure risks (Vaidyanathan, Devaraj & D’Arcy, 2012, p. 437).

Integrity risks include employee fraud risk, management fraud risk and unauthorized use risk. These are the three risks that are associated with the inappropriate usage of the technology. Management fraud risk arises when the management with the smaller set of suppliers builds exclusive relationships. On the other hand, there are chances that the employees tend to hide the oversight purchasing in order to hide or show the minimum transaction based costs. In addition, when the internal as well as internal controls that have been implemented on the use of the technology are insufficient, this may lead to unauthorized use risk (Vaidyanathan, Devaraj & D’Arcy, 2012, p. 445).

In the case of direct procurement, it has been seen that it is more characterized by long-term supplier relationships. On the other hand, the purchasing processes that continue under the direct procurement processes are very well planned. Some of the other main characteristics of the direct procurement processes include unchanged master data of the material, well planned quantities and call off orders (Devaraj, Vaidyanathan & Mishra, 2012, p. 514). On the other hand, in the case of indirect procurement, the processes are more based on ad-hoc activities. These are the activities that are sometimes difficult to be put on the electronic feed workflow. One of the main reasons for this is that the products that are bought with indirect procurement are used less frequently and are of less value; thereby there is a hesitance in the companies in maintaining the master data for the purchase of such kind of materials. But some academic studies have shown that of the data of the indirect purchases is maintained electronically, it can benefit the organizations (Vaidyanathan, Devaraj & D’Arcy, 2012, p. 443).

It has been seen that based on the level of success that has been gained by e-procurement; there are various smaller organizations that are in the process of adopting the systems of e-procurement. Thereby there are various future directions that need to be adopted by the larger organizations that are highly dependent on the systems of e-procurement for carrying out businesses with their suppliers (Ordóñez de Pablos, 2013). One of the main facts that need to be mentioned here is that as the adoption of the e-procurement systems increases, there will be more advancements in the systems, based on which there is a need that the smaller as well as the larger organizations start to welcomes the changes. In the case of smaller organizational, it has been seen that the systems of e-procurement have been ignored since many years based on which the relationships with the suppliers and the vendors have also remained temporary (Aboelmaged, 2010, p. 400). This has been recognized as one of the main problems by the senior executives in these organizations as this is one of the main reasons based on which the success of the relationships with the vendors and suppliers cannot be predicted. One of the main facts that need to be mentioned here is that the e-procurement system is one of the best examples of the systems that can help in advancement in the supplier and vendor relationships in the business. In the modern days based on the success gained by the systems of e-procurement, the smaller organizations are now giving more attention to e-procurement. The bad practices that were once being used in the smaller organizations will transform into good and more beneficial practices with the help of e-procurement (Rotchanakitumnuai, 2013, p. 40).

One of the main advantages that have made the organizations use more of the e-procurement systems is its increased efficiency and transparency in the financial dealings that the organizations carry out. Thereby the future of the organizations and that of the e-procurement systems lies in an increased adoption of more advanced versions of e-procurement systems (Concha, Astudillo, Porrúa & Pimenta, 2012, p. S44).

Benefits and challenges of e-procurement

There are various reasons based on which the adoption and rates of implementation of e-procurement systems have increased. Some of the main reasons include process integration as well as process efficiency. Few of the benefits that are offered by the implementation of e-procurement include an increase in the overall level of competitiveness of the firm with the help of introducing the element of cost reduction. It has been seen that the increased level of cost reduction is made possible by an increase in the systems of inbound logistics (Aboelmaged, 2010, p. 395). In these cases, it has been seen that these are some of the main benefits that can add into a higher level of reduction in the purchasing transaction costs, cycle time and order fulfillment. With a boost in the efficiency in inbound logistics, it has been seen that there is a reduction in the overall number of suppliers and the overall number of staff needed for carrying out the purchase transactions (Devaraj, Vaidyanathan & Mishra, 2012, p. 517).

Still in order to make sure that fill benedicts can be gained from the systems of e-procurement, there is a need that there is a deeper analysis of all the business processes that are being controlled by the e-procurement systems. Any need of improvement in the related business prices should also be ensured before there is a need of implementation of e-procurement solution. One of the main example include those companies in which certain business processes have been not been matched with the e-procurement systems including ordering and receiving processes. In these cases, these organizations need to spend a great deal of time in manual matching as well as resolution. On the other hand, in the case of some organizations, it has been seen that the information systems are manual and information is unorganized and often spread on separate computers (Bellantuono, Kersten & Pontrandolfo, 2012, p. 22).

One of the main business processes that have gained the maximum benefits from the implementation of e-procurement includes the P2P process. It needs to be mentioned here that it is the P2P that surrounds the need based activities of the organizations, generation of contract and purchasing orders, material receiving and receipts, sourcing decisions, and most importantly, payments as well as settlements (Chang & Wong, 2010, p. 266).

It has been seen that with the implementation of the e-procurement systems, there is an elimination of the maverick purchasing. It has been seen that more than 30% of the savings are possible on the premiums charged on maverick purchasing. On the other hand there is an increase in the overall purchasing power when there is an aggregation of indirect buys. In this case it has been seen that more than 10% savings can be generated. On the other hand, the studies have highlighted that there is a great reduction in the overall administrative costs. The typical cost of processing an indirect order can be more than $170. But it has been estimated that with the implementation of the e-procurement process, this figure can be reduced it $15 (Stephens & Valverde, 2013).

One of the main facts that need to be mentioned here is that the companies are giving more focus to the e-procurement systems considering it as one of the best strategic level options in order to increase the overall level of competitiveness. It has been argued that in order to manage and control the level of advantages that can be gained from the implementation of the e-procurement processes and the investments that have been made by the organizations on these processes, there is a need that the organizations take into account the benefits and risks associated with these systems. Thereby in order to analyze the kinds of risks and benefits associated with the use of e-procurement, there is a need to analyze its importance (Stephens & Valverde, 2013).

One of the main facts that need to be mentioned here is that there are various kinds of costs that are to be paid by the organizations. Other than the manufacturing or the transaction costs, these costs include communication costs; follow up costs, negotiation costs as well as reconciliation costs. These are the costs that can be effectively controlled by the organizations after the implementation of e-procurement. Many studies have been carried out on the topic and it has been found out that there can be more than 45% reduction in the overall costs after the implementation of e-procurement (Tai, Ho & Wu, 2010, p. 5400). One other advantage that has been seen in the case of implementation of e-procurement is the reduction in source cycling time. It has been reported that e-procurement can reduce the source cycling time by more than 30% and there can be more than 15% reduction in market time. Thereby from here it can be seen that larger savings are possible when e-procurement is implemented in the business processes. When the mentioned savings figures are taken into account, it can be seen that the savings total to overall 50% of procurement based investment (Chang & Wong, 2010, p. 264).

Another important category of the advantage that can be gained by implementation of e-procurement includes greater changes in the overall structure of the organizations, internal power structures as well as the level of responsibilities that are held by the managers. These are changes in the overall organizational structure that induce further changes in organizational culture as well as organizational processes. The main example in this case is that there is an automatization of the process of approval that is required by the managers of the buying departments as the operating personnel are preauthorized. Thereby there are various advantages that can be gained. But in these cases there are certain levels of risks that are to be faced by the organizations as there are various levels of frauds that can be committed by the employees (Stephens & Valverde, 2013).

It needs to be mentioned here is that there is greater level of hesitance in various organization for the adoption of e-procurement. The reason is not the level of risks that are associated with e-procurement but the reason is unawareness towards the main benefits that are offered by the technology (Bellantuono, Kersten & Pontrandolfo, 2012, p. 23).

Along with the benefits, there are various challenges that are faced after the implementation of e-procurement. The following are some of the main challenges that are to be dealt with by the procurement managers.

Higher costs, fewer suppliers and lesser master data

This can be regard as one of the biggest and greatest challenge for the procurement as well as IT managers to invest in the implementation of e-procurement. There is no doubt about the fact that greater financial resources are required for introduction of e-procurement systems in the business. There are various reasons based on which the managers resist the application as well as introduction of new technologies in the business and one of the main reasons include the inability of the managers to justify and acknowledge the benefits that are gained from e-procurement. In these cases, there is a need that the installers of e-procurement systems should highlight the benefits of e-procurement for the business along with the advantage of increased transparent communication. There are various studies that have highlighted that there are very few companies and organizations that have installed systems for advanced communication with the suppliers, which includes Electronic data interchange. This also indicates that there is slower level of penetration of the suppliers to the e-procurement systems.

Transparency optimization and reporting

One of the main facts that need to be added here is that the organizations focus more on the reporting and analysis based functions. These are considered as some of the main strategic processes. More focus is given to the part of analysis of the expenditures (Chang, Tsai & Hsu, 2013, p. 35).

Overview of implementing e-procurement and associated risks

The organizations have realized that there are advantages associated with the implementation of P2P technologies for improving processes linked with e-procurement (Aboelmaged, 2010, p. 409). There are three important factors that need to be seen with the implementation of e-procurement in the business processes. Firstly, it has been seen that when the e-procurement is implemented in the business processes with the help of cloud solutions, the cost and the overall time and speed are greatly reduced. Also, in the future, the costs of any required software based up gradation are also greatly reduced (Wisner 2011). E-procurement systems have also helped in the maintenance of supplier items catalogs maintenance. This is possible with the help of supplier driven and a more centralized approach. This includes management of indirect send catalogs, material management systems, and plant maintenance; these catalogs are integrated with e-procurement solutions for real time synchronization. Secondly, tangible benefits have been gained by the suppliers, based on e-procurement which lets the suppliers have business dealings electronically. The e-procurement has been known to create better-linked checkpoints in the transaction process which leads to less manual errors and lesser disputes. The employees or the users using e-procurement should be aware of the systems and interfaces which are provided with procurement.

Conclusion

The implementation of e-procurement is an important source of changes in the organizations at various levels. Some of these levels include financial, organizational and department of information systems. One of the main advantage that has been gained by the buying and purchasing centers of the organization is that the level of responsibilities of these departments are greatly reduced and much lesser time is required on making purchases. Thereby from here it can be seen that long term advantages can be gained by e-procurement by inducing greater changes in the overall changes in transaction practices and coordination mechanics.

References

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