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1. White Paper E-Procurement - The Future of Supply Chain, March ’09 e - Procurement The Future of Supply Chain Raju Sheth Head -Technology & Research Group © Quinnox 1
E-Procurement - The Future of Supply Chain, March ’09 What is e-Procurement? With the advent of the Internet in India in the late 1990s, individuals and organizations started identifying ways and means of automating their key processes. E-Procurement (Electronic procurement) is one such area, where the Internet was instrumental in automating the purchase process, thereby significantly reducing cost and time. The broad spectrum of e-Procurement is much more than just a plain vanilla system for making purchases online. It is a comprehensive platform - using the Internet to make it easier, faster and cost effective for businesses to source their requirements on a timely basis, and in a way that is aligned with organizational goals and objectives. In the current scenario, characterized by focus on key strategic initiatives, lesser time-to-market and increased global competition, e- Procurement aids organizations in streamlining their entire purchasing process, so that they can focus on core business activities and increase profitability. Simply stated, e-Procurement is the electronic B2B (or B2C or B2G) sale and purchase of goods and services. The medium used might be the Internet or any other media like EDI (Electronic Data Interchange) and Enterprise Integrations (formerly known as EAI). The scope E-Procurement makes it possible to automate buying and selling over the internet. Typically an e- Procurement-enabled website will have product comparisons across vendors and various processes like tendering, auctioning, vendor management, catalogue and contract management. High-end e-procurement solutions allow organizations to define their own processes in the form of workflows - thus utilizing concepts of business process modeling. Who needs this solution? Many businesses turn to e-Procurement systems to control, simplify and automate the purchase of goods and services from multiple suppliers. Companies deploying e-procurement are able to control inventories more effectively, reduce purchasing overheads, reduce or remove brokerage costs as well as improve manufacturing cycles. The key is to find the right products from the right supplier, at the right time and at the most competitive price, as well as to ensure the appropriate responsiveness and service levels for your business purchasing needs. Often a company might find itself a niche with a proven set of customers and encourage others in a similar field to join them on-line as the business case is proven. Concurrently they may find their client base grows with more customers keen to capitalize on the benefits as savings and efficiencies become obvious. Medium to large sized organizations and government departments that regularly purchase the same products from a limited number of companies are ideal candidates for e-Procurement. © Quinnox 2
E-Procurement - The Future of Supply Chain, March ’09 Types of products and services There are several approaches to e-Procurement taken by different vendors to manage supplier relationships. Some of these are catalogue and transaction-based e-Procurement products and those that support supplier-relationship management strategies, which require strategic partnerships and integration with third-party products. The service can also be approached from an asset-management angle geared for maintenance and repair operations. This establishes proper schedules and creates in-house availability of products and assets that can be tracked. Over a period of time, this helps the enterprise’s e- Procurement capabilities to evolve. In an environment where e-Procurement becomes an integral part of the supply chain a lot more commitment from the involved partners is required. This is due to the more complex nature of B2B relationships that need to be managed along with additional technology and capabilities. Best of breed e-Procurement systems should have the ability to locate suppliers, evaluate their offerings, and make comparisons. They also need to ensure that the proper contractual terms are applied to each order. Quinnox’s Services Procurement Solution Using the e-Procurement platform, we have developed an award-winning software product for a leading Services Procurement Solutions Company headquartered in the US. This software is the first ever technology platform that allows hiring managers, human resources personnel and staffing companies to use a single integrated resource for the entire acquisition of all human capital including contingent workers, service providers and direct hires. This innovative product has helped several companies across the globe reduce their procurement cycle time by up to 70% along with a 20% reduction in service spends. It has also been recognized by industry experts as having attained the broadest international footprint and is highly rated for its functionality along with the following key in-built features: Workflow and authorization Superior reporting capabilities Automated invoicing and payment Seamless data-sharing integration with back-end ERP, financial and other e-procurement systems © Quinnox 3
E-Procurement - The Future of Supply Chain, March ’09 e-Procurement in the Indian context The purpose of e-Procurement is to reduce costs as well as improve operational efficiency in the procurement process. While this has happened to a large extent in the US and in European markets, e-Procurement still has a long way to go in developing nations like India. Some of the challenges faced here are: The lack of IT infrastructure Sourcing goods through online (internet/website) channels is relatively unheard of Despite relatively high levels of computerization, many organizations find it easier to do business over the telephone Limited Internet and broadband penetration especially in rural areas, where companies need to ensure an uninterrupted connection. These are some of the areas of opportunities for e-Procurement facilitator companies to offer their solutions over channels other than the Internet – perhaps using telecom or as technology evolve, over television networks. Several companies in India have stepped in to make e-Procurement easier, an example being NIIT Technologies. Their product Procure Easy™ is, in their words - “a unique end-to-end web- based solution that enables enterprises to streamline their procurement processes through the entire value chain of the sourcing process.” Procure Easy™ can be availed on a subscription basis as opposed to the traditional license- based model. Supported by C-DAC (Centre for Development on Advanced Computing, India), this PKI-enabled application is hosted in a secure, multi-tenancy environment and supports several modes of procurement transactions. e-Procurement for the Indian Government Over the last few years, several State Governments and Public Sector Undertakings in India have begun to aggressively campaign for e-Procurement. Some state governments like those of Andhra Pradesh and Gujarat have already initiated e-Procurement under a larger umbrella program of e-Governance. Using e-Procurement these governments have been able to save on procurement of goods and services. There is also a goodwill factor involved and a definite improvement in the governments’ image and transparency. Included in these benefits are cost reduction, improved decision making, process efficiency, price and supplier-behavior forecasting, and supplier-performance monitoring which ultimately leads to vendor rationalization and standardization. Certain Public Sector Undertakings (PSUs) like the Oil and Natural Gas Commission (ONGC), Indian Oil Corporation (IOC), Bharat Heavy Electricals Limited (BHEL) have all taken up e- Procurement initiatives to rationalize the $30 - $40 billion purchases they make every year. © Quinnox 4
E-Procurement - The Future of Supply Chain, March ’09 Caselet: State Governments, India The entire procurement process for the Andhra Pradesh Government is being automated and streamlined. The focus is to avoid cartel formation, besides reducing inventory costs, and creating a level playing field for suppliers and buyers. For the AP Government, the value of procurement is more than $2 billion across more than 150 departments, which will be covered by a single e- platform. Similarly in Gujarat, a fuel exchange has been set up for GSFMC (a consortium of various PSUs in Gujarat) wherein the participating members buy and sell fuel online. Outsourcing and e-Procurement Outsourcing the e-Procurement process not only complements an organization’s drive towards cost reduction but also scales down operational executions to a minimum. Enterprises are increasingly outsourcing all or part of their procurement functions to a growing number of 3rd party organizations known as Procurement Service Providers or PSPs. Given the current market condition, the procurement outsourcing industry will continue to grow across geographies, industries and organization sizes. When do organizations outsource? Organizations typically resort to outsourcing their procurement needs, e-Procurement or otherwise, when they are efficiently catered to by external organizations or Procurement Service Providers. This involves zero infrastructural costs involved in manufacturing and no operational and logistical overheads while availing the benefits of consolidated purchases, pricing discounts and reduced purchasing errors. An IT-enabled organization would initiate outsourcing of their procurement process when organizational needs rise to such levels that their current infrastructure is stretched beyond available bandwidth. This would be true in a scenario where the organization increases the variety of goods and services being offered based on market demands. An inefficient procurement process, which results in delays or throws up huge errors, could also fuel an organization’s need to outsource its procurement. During e-Procurement outsourcing, the key factors considered by an organization while finalizing their PSP are: Availability of products inventory Logistical efficiency Discount policies Order consolidation options - based on an organization’s inclination to depend more on their own IT systems and their system’s interactions with that of the PSP's. © Quinnox 5
E-Procurement - The Future of Supply Chain, March ’09 For IT-enabled organizations, the terms and conditions touched upon while engaging with a potential PSP would include key service levels such as: The provider’s ability to fulfill the demand forecasts Willingness to follow standard e-Business processes Agreeing to the organization’s terms and conditions for procurement, which would further include: o Time taken to accept orders o Ability to absorb changes to orders o The rejection process o Invoicing and payment options o Delivery time-line adherence o Tracking abilities How does Outsourcing in e-Procurement work? With respect to outsourcing, an e-Procurement system essentially translates into an order or part of it received into a Purchase Order for the Procurement Service Provider (PSP), associated with the line of products and services included in the order as well as all the order information. The end-user is either made aware of the delivery time frame (e.g. 2-3 weeks) or given an open time range until the order is confirmed and payment transactions are initiated, if not completed. The PSP, based on the terms and conditions decided earlier, might buy some time to consolidate similar orders based on various factors like items in the order, delivery locations, fulfillment dates or might immediately start managing it’s inventory to build and deliver the order items with the required delivery date range. The packing slip on the items prior to delivery reflects the organization’s details and not that of the PSP's. Once the order items are ready for delivery to the customer, the PSP collaborates with its Logistics Provider to initiate and complete delivery to the end-user. With B2C models like Amazon, Wal-Mart, rediff.com, etc., the entire procurement is outsourced. Amazon.com represents the classic B2C commerce firm, which is directly focused on individual final consumers. In the absence of a brick-and-mortar structure, Amazon’s entire procurement is based on the e-Procurement model. Secondly, the pay process of Amazon is also directly linked to Amazon’s internal pay process or that of their PSP's. © Quinnox 6
E-Procurement - The Future of Supply Chain, March ’09 Challenges of Outsourcing e-Procurement While the operational and logistical challenges faced by enterprises exercising their outsourcing option are many, there are some crucial process-related challenges also worth mentioning. Workflow - Typically a PSP provides services based on the workflow that suits its own business. However, an enterprise seeking outsourcing may require a different workflow to suit its own processes. Hence it is imperative that an enterprise be involved with a PSP that provides the facility to customize the workflow as per individual organizational needs. Pricing - Enterprises also look towards PSPs for reduced pricing i.e. prices lower than those prevailing in the market. While some PSPs do not differentiate between the consumer market and a corporate, some provide a feature of premier customers and catalogs created specifically for such premier customers based on certain conditions such as minimum purchases in a year. An enterprise looking towards outsourcing of its e-Procurement would need to evaluate PSPs based on their catalog pricing mechanisms and premier customer options. Maverick buying - Another important challenge that enterprises need to be aware of and address, is an internal problem of its employees consistently procuring goods and services from a local vendor instead of a PSP with whom the enterprise has already negotiated special prices on overall volume of purchases. This phenomenon termed as Maverick Buying nullifies the advantage an enterprise could gain from it’s agreement with the PSP since the volume of purchases do not reach the sufficient levels required to avail special rates. Add to that, purchases from a local vendor could be at higher prices thus increasing the enterprise’s expenditure. Developed versus Developing Nations Developed nations being the early adopters of technology have already adopted the models best suited to their requirements. On the other hand, developing nations have had the added advantage of being able to analyze existing e-Procurement solutions and their outcomes. As a result, they have innovatively adopted the most hybrid solutions in the space. Emerging markets Latin America and Africa have opened up new growth avenues for e-Procurement solutions. Mexico’s push into the e-Procurement domain has been largely driven by its highly integrated assembly industry that works in conjunction with the US and Asian suppliers, many of whom do business online. With the big assemblers already adopting the electronic route, their Mexican suppliers have jumped on to the bandwagon. China on the other hand, is helping in the development of African nations like the Republic of Congo, in exchange for the continents natural resources. With an ever-increasing investment by Chinese companies, Africa will soon be on the Information Highway thereby leading to the growth of web-enabled solutions in the region. © Quinnox 7
E-Procurement - The Future of Supply Chain, March ’09 The Future of e-Procurement e-Procurement has been in existence for a substantial period. To achieve cost and time efficiency, several enterprises and governments now consider it a crucial cog in the wheel of their procurement processes. With recessionary winds blowing across the globe and a growing need to rationalize spends while sustaining optimum levels of productivity, enterprises big and small will further leverage the e- Procurement model to achieve greater savings and deliver enhanced value. Advances in Internet and media technologies, now require a revisit of the traditional methods of e-Procurement. As the current market conditions tighten, e-Procurement facilitator companies need to reinvent themselves and devise newer methods, so as to achieve far greater reach with greater process simplicity and usability. © Quinnox 8
E-Procurement - The Future of Supply Chain, March ’09 About Quinnox Quinnox is an IT services and solutions provider headquartered in the US, with offices in UK, Japan, Germany and India. We also have four state-of-the-art development centers in India that leverage a cost-effective delivery mechanism and a wide talent pool catering to a client base consisting of Fortune 500 companies. Quinnox offers the full spectrum of IT lifecycle solutions, right from development to support services, including packaged implementations and product development services. We are a technology- focused company, with a wide experience in select industries – Banking and Financial Services, Retail and Manufacturing. Headquartered in Naperville, Illinois in US QUINNOX Over 1000+ employees globally FACTFILE ISO 9001:2000 certified Preferred IT solutions partner for several Fortune 500 companies USA UK India Japan 2056 Westlings Avenue, Suite, Boundary House, Boston Road, Unit 170, SDF 6, 6F, Nakamura Building, 190, Naperville IL-60563 Hanwell, W7 2QE SEEPZ, Andheri East, 2-7-14 Shibuya, Tel :+1 630 548 4800 Tel :+44 020 8434 3505 Mumbai-400096 Shibuiya-ku, Tokyo 150-0002 Fax :+1 630 548 4500 Fax :+44 020 8434 3739 Tel: +91 22 30812300 Tel: +81 35464 5808 Fax: +91 22 2829 1131 Fax: +81 35464 5818 Email: email@example.com www.quinnox.com © Quinnox 9
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