What is e-Procurement?

Using the Internet to purchase goods and services for personal use is a business to consumer (B2C) transaction.

e-Procurement systems perform the same operation for businesses on a larger scale - business to business, or B2B transactions.

More specifically, e-procurement systems use the Internet to:

Make strategic decisions regarding how and where goods or services are obtained - “e-sourcing”.
Purchase items at the user level - “e-purchasing”.
Receive and approve invoices for payment electronically or via a Procurement Charge Card.

The first two elements, with or without the third, constitute e-Procurement.

Business Case

The business case for e-Procurement is based upon:

Achieving savings from lower process costs
Controlling spend by directing user level purchases to centrally negotiated contracts
Facilitating the benefits of electronic payment of invoices.

e-Procurement is the least risky introduction to e-enablement of a business – introducing benefits into “non-customer facing” areas, where any consequent problems are less likely to have a detrimental impact on the business as a whole.

Reverse Auctions

e-Sourcing applications offer two main options – online requests for information (RFIs) and quotations (RFQs) and reverse auctions.

Savings of more than 20% can generally be achieved from the first run of a reverse auction, with further savings often possible on a second run.

Catalogue Management

Successful e-procurement depends upon high take up at user level, buying what is needed from approved suppliers at agreed prices. e-enabled suppliers must invest to develop, distribute and manage their catalogue information on-line.

Benefits and Barriers

A successful e-Procurement project can:

Improve compliance to professionally negotiated contracts - lower prices and enhanced rebates
Reduce maverick spend
Automate the purchase to pay process
Reduce discrepant invoice costs
Facilitate further e-enablement of the corporation
Initiate a cultural change in attitude towards spend control

Success will hinge upon:

Level of executive sponsorship
Overcoming cultural differences
Overcoming self-interest issues
Successful engagement of suppliers
Achievement of a “critical mass” of contracts from which to purchase
Realistic expectations of technology
Calibre of project personnel

Summary

e-Procurement, along with other procurement initiatives such as supplier rationalisation and strategic purchasing, can bring considerable benefits including reductions in purchase prices and process costs.

Intangible benefits, such as cultural change and the further e-enablement of the business will also be delivered.