Chp10 E Procurement
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Chp10 E Procurement

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e-business, E-Procurement

e-business, E-Procurement

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  • The E-Business material shall at all times remain the property of E-Business Strategies, Inc. No license under any trade secrets, copyrights, or other rights is granted by this Agreement or any disclosure of Confidential Information hereunder. Any such permitted copies will be considered Confidential Information. Confidential Information of E-Business Strategies, Inc. may not be copied or reproduced by the Recipient without E-Business Strategies, Inc. prior written consent.
  • The E-Business material shall at all times remain the property of E-Business Strategies, Inc. No license under any trade secrets, copyrights, or other rights is granted by this Agreement or any disclosure of Confidential Information hereunder. Any such permitted copies will be considered Confidential Information. Confidential Information of E-Business Strategies, Inc. may not be copied or reproduced by the Recipient without E-Business Strategies, Inc. prior written consent. The E-Business material may not be re-sold. It is intended to be used solely for the purpose of accompaniment of the E-Business 2.0 Roadmap for Success book in an instructional manner.

Transcript

  • 1. Chapter TenDemystifyinge-Procurement: Buy-Side, Sell-Side, NetMarkets, and TradingExchanges
  • 2. IntroductionMore than 5-10% revenues spent on non-production goods annually – Office equipment, supplies, software, computers – Top 2000 U.S. corporations = $500 billion annuallyPurchase detail for negotiating better suppliercontracts not available – Most POs worth less than $500 – Large percentage of that is off contract, outside preferred channels© e-Business Strategies,
  • 3. IntroductionB2B transactions comprise significant market – Several trillion dollars – Big Three automakers do $500 billion/yr worth transactions related to buying and selling car components – Non-discretionary spending, required for business – Both buyers and seller see importance of an efficient marketplace, to streamline processes and reduce costs© e-Business Strategies,
  • 4. IntroductionProcurement not just support function; a valuable weapon – Lower procurement costs, reduce order-cycle times and ensure smooth delivery of materialsB2B strategies now a top mgmt focus – Not so much a technological revolution as a business revolution enabled by technology – Driven by CEO or CFO, reflecting management’s awareness of key challenges facing corporate procurement functions • Reducing order-processing cost and cycle times • Providing enterprise-wide access to corporate procurement capabilities • Empowering desktop requisitioning through employee self- service • Achieving procurement s/w integration with back office systems • Elevating procurement function to strategic importance within organization – Dollar-for-dollar bottomline impact of e-procurement is startling© e-Business Strategies,
  • 5. IntroductionB2B strategies now a top mgmt focus – Driven by CEO or CFO, reflecting management’s awareness of key challenges facing corporate procurement functions • Reducing order-processing cost and cycle times • Providing enterprise-wide access to corporate procurement capabilities • Empowering desktop requisitioning through employee self-service • Achieving procurement s/w integration with back office systems • Elevating procurement function to strategic importance within organization – Dollar-for-dollar bottomline impact of e-procurement is startling© e-Business Strategies,
  • 6. Evolution of e-Procurement Models Industry Consortiums Third-Gen Trading Xchanges Second-Gen Trading Xchanges First-Gen Trading Xchanges Corporate Procurement Portals B2E Requisition Apps EDI© e-Business Strategies,
  • 7. Pre-Internet Era: EDI NetworksPrivate and limited to large businesses – Linked with major suppliers – Require large capital outlaysAutomate procurement process; supportautomatic inventory replenishment; and tightenthe relationship between buyers and primarysuppliersPerform best in strategic partnerships,specialized relationships, and rigid performancecontracts – Don’t do well in open sourcing and flexible supply chain world© e-Business Strategies,
  • 8. B2E: Purchasing and Requisitioning AppsNext gen procurement apps taking hold in corporations – Purchase of goods and services the single largest cost item – For $1 earned on sale of product, $0.50-$0.60 spent on goods and services – Inefficient procurement practices wasting billions of dollarsDesktop requisitioning enables employees to purchaseproducts and services online – Hook up corporate intranet to suppliers’ Web-based commerce sites to eliminate paper-intense and costly purchasing process of traditional businessConsolidating purchasing process with few keysuppliers capable of providing volume discounts cangenerate tremendous cost savings – Ford© e-Business Strategies,
  • 9. Corporate Procurement PortalsFor buying both prodn and non-prodn related goodsProcurement portals do morethan basic purchasing – Purchasing: the buying of materials and all activities related to the buying process – Procurement: includes requisitioning, purchasing, transportation, warehousing and in-bound receiving processesEarly strategies reengineered,even dismantled hierarchicalstructuresRecent strategies restructureentire order-to-delivery process© e-Business Strategies,
  • 10. Trading Exchanges – First GenCommunities, Store Fronts, & RFP/RFQ FacilitatorsInformation and content hubs – Content communities attracting purchasing professionals – Revenue: Advertisement, Subscription – VerticalNetRFP and RFQ facilitator exchanges – Centralized online marketplace with preapproved group of suppliers – Fixed-price, sealed bids – Revenue: subscription fees, fees for bids to be read, transaction fees for bids submitted and/or successfully chosen – WellBid in the energy sector© e-Business Strategies,
  • 11. Trading Exchanges – Second GenVirtual Distributors and Auction HubsFirst gen trading hubs: “an inch deep and a mile wide”Transaction necessary for successRevenue: from every transaction within the exchangeVirtual Distributors – One-stop shopping for buyers and sellers – Product information from multiple catalogs, multiple suppliers and manufacturers into a megacatalog – Do not carry inventory or distribute products; assist buyers in arranging for 3rd party carriers to transport other goods – Streamline sourcing of direct goods by issuing a single PO and then parsing the order to each relevant supplier – SciQuest in life-sciences industry© e-Business Strategies,
  • 12. Trading Exchanges – Second GenAuction Hubs – Sales channel for spot buying unique items; used equipment, surplus inventory, perishable goods – Similar to stock market – Buyers and sellers meet anonymously to agree on prices on commodities – Driven by either sellers (AdAuction.com) or buyers (FreeMarkets.com) – Forward auctions allow several buyers to bid for products/services from an individual seller – Reverse auctions allow several prequalified sellers to bid for fulfilling an individual buyer’s need© e-Business Strategies,
  • 13. Trading Exchanges – Third GenCollaboration hubsProvide more than transaction functionality,help with end-to-end mgmt of supply chainsCreate common platform for all participants inan industry supply chain – Share information; conduct business transactions; collaborate on strategic and operational planning© e-Business Strategies,
  • 14. Trading Exchanges – Third GenProvide value-added services – Increase site “stickiness”; generate multiple revenue streams; increase competitive barriers to entry – Bidcom is a single online workplace for large contractors to collaborate with architects, store blueprints, expedite permit process and purchase building materials – Integrated commerce technology • Automate transaction processing, incorporate static pricing and/or dynamic pricing – Brokering services • Logistic and financial services – Service and support • Customer service support, returns processing, and warranty coverage© e-Business Strategies,
  • 15. Industry Consortiums: Joint-VentureProcurement HubsLarger firms responding to competitive threatposed by new startups – Forming either buyers or suppliers consortium – Traditional industry leaders have two advantages over startups: instant commercial activity and liquidityBuyer consortium – Groups of large companies combining buying power to drive down prices – Covisint© e-Business Strategies,
  • 16. Industry Consortiums: Joint-VentureProcurement HubsSupplier consortium – Forming in industries with few high concentration market players – Difference compared to buyer consortium: sponsors get to promote and differentiate suppliers’ products – Not new: SabreMajor issues: governance, technology andantitrust© e-Business Strategies,
  • 17. Evolution of Procurement ProcessesReengineering procurement process key todeployment of e-procurement solutionE-procurement models all attempting to solvesimilar business process problems – Fragmentation of channels – Managing by exception rather than by transaction – Controlling maverick buying by automating requisitioning process – Integration of end-to-end process© e-Business Strategies,
  • 18. Reducing Channel FragmentationSymptoms of channelfragmentation – Maverick buying, inefficient processes, and non-strategic sourcingMost procurementprocesses are paper-intensive – Overhead: $70-300 per purchase© e-Business Strategies,
  • 19. Hands-Free Procurement: Managed byException© e-Business Strategies,
  • 20. E-Procurement: Integrating Ordering,Fulfillment and Payment Order Flow Search & Approval & Select Requisition Purchase Backward Integration Fulfillment Flow Customer Receiving Tracking Pick, Pack & Ship Service Payment Flow Invoicing Payment Reporting© e-Business Strategies,
  • 21. Ordering: Self-Service RequisitioningTraditional purchasing Self-service order work flowprocess – Fill requisition form – Submit – Wait for approval & PO – Send PO to supplierMany procurementguidelines and rules tofollow – Archaic given technological options todayLittle help available frompurchasing dept and POscan take weeks to fulfill© e-Business Strategies,
  • 22. Fulfillment: Order Mgmt and SupplierIntegrationProcurement system provides seamlesstransition from requisition to PO, with norekeying of ordersFulfillment workflow steps – Order dispatch – Accounting back-office systems connectivity – Supplier connectivity – Order tracking – Receiving© e-Business Strategies,
  • 23. Payment: Invoice MgmtCompanies must monitor payments and openinvoicesE-procurement should support paymentfunctionality – Invoicing and billing – Payment – Reporting© e-Business Strategies,
  • 24. E-procurement Analysis and Admn AppsBuy-side functionality alone notenough – Increasing effectiveness and extending responsibilities of purchasing professionals also necessaryApplication of spending analysisand planning across thespectrum of procurementactivities a core competency of asuccessful procurement strategy – Data collection – Market analysis – Supplier management decisions – Configuration of spending controls – Continuous feedback© e-Business Strategies,
  • 25. Marketplace EnablersAriba: Marketplace Enabler – First vendor of ORMS – Realized opportunity for automating nonprodn procurements processes • 30% spending towards nonprodn purchase, managed via a maze of paper-based process – Gathered customer feedback before building first product – Transformed into a technology platform provider • For building and powering Internet trading exchanges© e-Business Strategies,
  • 26. Marketplace EnablersFreemarkets: Auction Enabler – Runs buyer-centric auction exchange – Focused on procurement for industrial parts, raw materials, and commodities • $4-5 trillion market – Major opportunity • Direct materials often custom-made with no std price • Current procurement process inefficient • Current asset-disposal methods plagued by imperfect product and pricing info – Offers service to create customer market for direct matls its client purchases • Industrial auctions • Surplus asset auctions© e-Business Strategies,
  • 27. Roadmap for e-Procurement ManagersChief procurement officers looking to delivermaximum business impact at lowest possiblecostProcurement objectives – Leverage enterprise wide buying power – Quick results at low risk – Supplier rationalization – Cost reduction by automating best practices in strategic procurementCPOs realizing that e-procurement applicationscan be powerful when applied to large numberof products and services that companies buy© e-Business Strategies,
  • 28. Step 1: Clarify Your Goals• What is your company’s specific e- procurement goal?• Is the goal a comprehensive and consolidated business solution? – Integrated e-procurement mgmt necessary• What are you trying to improve?© e-Business Strategies,
  • 29. Step 1: Clarify Your Goals Complete Select Order Order Deliver Approval & Receipt &Procurement & Placement Schedule & { Lifecycle Search Invoice Multi-Supplier Approval Workflow Order Shipping & Catalog Search Engine Management Distribution Partial Functional Solutions Pricing & Supplier-side Receipt & Availability Order Entry Invoicing Complete Integrated Integrated e-Procurement Solutions Management Applications© e-Business Strategies,
  • 30. Step 2: Construct a Process AuditUnderstand current procurement process and factorsaffecting, impeding and interacting with itFirst phase: Model workflows in current procurement – Identify bottlenecks – Create shortcutsSecond phase: What kind of buying do you want tosupport? – Strategic buying • Long-term relationships – Transactional buying • Paper pushing – Spot buying • One-time deals© e-Business Strategies,
  • 31. Step 2: Construct a Process AuditSecond phase: What kind of buying are youtrying to automate? – Collect data to model current procurement chain – Study key areas to ensure processes are consistent with strategic goals, meet customers’ needs and promote efficiency – Identify critical success factors and performance indicators – Also assess problem areas and areas of vulnerability – Determine proper direction for the design phase© e-Business Strategies,
  • 32. Step 3: Create a Business Case for e-ProcurementReturn on assets business case forces you tosystematically analyze your businessAnalysis forces to understand context – Without understanding environment cannot fix it – Can articulate hidden assumptionsWidely used technique in creating business case – ROA = (Revenues-Expenses)/Assets – Increase revenues, decrease expenses, keep asset base as small as possibleIncreasing profitability by generating revenue requiressubstantial investment but through e-procurementrequires only a limited addl investment© e-Business Strategies,
  • 33. Step 3: Create a Business Case for e-ProcurementDecreasing expenses can be accomplished byidentifying inefficiencies in the procurement chain – Inventory carrying costs – Reducing captive capital makes quick profits – Cost improvements not just cutbacks; enhancements through better coordination and communication; “premium freight” can be avoided for instanceImproving asset utilization can be accomplished byreducing working capital – Eliminating warehouses to maximize stock availability and to minimize inventory holdings – Eliminating excess inventory to reduce leakage or hidden inventory© e-Business Strategies,
  • 34. Step 4: Developing Supplier IntegrationMatrixWithout supplier commitment, e-procurement difficult – But with ever-increasing velocity of change, few organizations want to commit to long term relationshipsNeeded: Supplier Integration Matrix (SIM) – Helps determine the best type of relationships to have with individual vendors – An organization applying only one relationship structure to all vendors shortchanging itselfSIM classifies suppliers into – Strategic collaborative, long term, ex. MRO suppliers – Strategic cooperative, ex. computer suppliers – Nonstrategic limited, short term, ex. temp agency services – Nonstrategic commodity, short term, ex. office and book suppliersSIM should be reviewed periodically© e-Business Strategies,
  • 35. Step 5: Select an e-Procurement AppWade through vendor hype – Will it support my procurement process? – Does it leverage my other application investments? – Will it work seamlessly with other apps? – Is it extendable?© e-Business Strategies,
  • 36. Step 6: Remember Integration is EverythingDoomed to fail strategy – Gathering requirements, then disappearing for 6 months, then launching the portal Professional Buyers • Control • Efficiency & Cost ReductionIdeal goal • Supplier Management – Continuously iterate towards the target – the integration sweet spot Integration – Focus on all areas of ORM Sweet-spot Employees Suppliers • ConvenienceIterate development and • Ease of Use • Cost Reduction • Clean Ordersdeployment • Consistency – Do not take exclusive buy- side or sell-side viewpointIntegration with back officesystems a significant issue© e-Business Strategies,
  • 37. Step 7: Educate, Educate, EducateHow much of a change does your marketrequire on the part of suppliers and buyers? – The lesser the betterOpposition to e-procurement can cause majorproblems – Schedule slippage, higher costs, poor moraleSenior management must listen, communicate,sell and even fire to deal with this problem – “Soft” implementation roadblocks most reason why projects don’t succeed – Do not underestimate the effort and costs of deployment© e-Business Strategies,
  • 38. E-BusinessStrategies, Inc.www.ebstrategy.comcontact@ebstrategy.com678-339-1236 x201Fax - 678-339-9793