E-procurement Technology
Dubai Municipality
Nader Haffar
Maged Wassim
2
Agenda









What is procurement?
Why is procurement important
The evolution of procurement
What is e-procurement?
Procurement Vs e-procurement
Demonstration of e-procurement in action
The benefits of an efficient procurement process
Lessons learned in procurement project
Questions and Answers
Procurement is the process of sourcing products and
services from point of supply to the point of demand
3
Why is procurement important?
 It received a lot of attention
 Open up countless opportunities
 Multidimensional relationships
4
Procurement Evolution
PAST
PRESENT
FUTURE
5
Reduction in Process cost

PAST


Shorter cycle times
Lower personnel costs
Greater accuracy
$79
PRESENT
FUTURE
$6
$79
$33
$6
Source: RB Weber (data derived from sources
including CAPS, NAPM and Stanford
University)
6
Savings go direct to the bottom line
Profit
A 5% reduction in
purchase cost can
result in a 50%
increase in profit
margin.
Other
Costs
Purchases
In order to obtain
an equivalent
impact, a firm
would have to...
100
5
100
45
45
50
47.5
7.5

Increase revenue by 50%

Reduce overheads by up to 20%

Significantly reduce staff numbers
-5%
7
E-Business and E-Commerce … What do they mean?
E-Business is using
E-Commerce is the
electronic buying,
marketing, and selling
of products and services
electronic information to
improve performance, create
value and enable new
relationships between
businesses, their suppliers and
customers
8
E-Business impacts three broad areas of Municipality activity
B2B
B2E
B2C
Buy-Side
Sell-Side
Plan Categories
& Assortments
Supplier network
Develop Products
Source & Buy
Products
Replenish &
Allocate Products
Distribute
Products
Customer network
Sell to & Serve
Customers
E-business is the use of the internet application across the B2C, B2B and
B2E to increase the effectiveness of the Municipality.
9
Traditional Vs Internet Procurement
Traditional Purchasing
Need
Get
Approval
Get
Approval
Inform purchasing Department
Request for
quotation
Create Purchase
Order
Receive in one week
Internet purchasing
Need
Search
approved
electronic catalog
Approve
online
order
Receive in 2 days
10
What is E-procurement
 Automate
the ENTIRE supply chain from product
selection through receipt.
select
requisition
 E-Procurement
approve
status
receive
Pay
offers real-time interactivity with
trading partners locally and worldwide
11
Connectivity Models
Many to Many
Suppliers
Buyer
EDI
Many to One &
One to Many
Website
Website
One to One to Many
Shared Solution
12
Business Models - Auctions

Used to sell or buy
 Forward
Auctions - The forward auction allows originators
to post items or services they want to sell and buyers to compete for the
best prices the originator will accept for the items or services.
 Reverse
Auctions - The reverse auction allows buyers to
post items or services they want to buy and originators to compete for the
best price at which they are willing to offer the items or services. This
auction format is ideal for procurement.

Prior to rewarding the business, service history of the supplier should be
taken into consideration.
13
Connectivity Approach
Japan
Marketplace
Construction
Marketplace
US
Marketplace
UAE
Marketplace
Government
Marketplace
A Single,
Secured
Connection!
Healthcare
Marketplace
UK
Marketplace
SE Asia
Marketplace
14
The Total Solution
Suppliers
Business
Services
Other
Portals

Automates entire buying and selling process

Provides access to new services, portals & communities
15
How the e-procurement process works...
e-procurement enables distributed but controlled purchasing. It automates the process
from requisition to payment - to streamline operations, shorten cycle times and reduce
costs
Suppliers
End User
•
•
•
•
Select approved goods
Check prices
Check availability
Submit requisitions
• Manage content
• Maintain accuracy
Catalogues
• Negotiated relationships
• Buyer specific content
Purchasing Dept.
•
•
•
•
Approve requisitions
Place orders
Manage consolidation
Analyse purchasing data
16
Demonstration
17
Auction Example ..
Closed item
Overtime item
Open item
18
e-procurement - The principal Benefits
 Processes
Efficiency
 Compliance
 Leverage
of Purchasing Power
19
e-procurement savings: the principal benefits
1: Increase in Process Efficiency
E-Procurement reduces the administrative cost
for each transaction shifted from paper to the
electronic channel:
• reduced error rates
• reduced processing time
• reduced fax / phone usage
• reduced on-site inventory
Los Angeles County
have reduced the cost of
procurement from an
average of $130 per order
to $40 per order.
Their target is to achieve a
cost of $25 per order.
(Costs are inclusive of all
business & IT personnel
and systems involved in the
procurement process)
20
e-procurement: the principal benefits
2: Increase in Contract Compliance
Electronic procurement enables organisations to
ensure procurement compliance:
On-contract Off-contract
spend
spend
• increased use of preferred suppliers
• reduced off-contract spending
• reduced processing errors
so that:
• more goods are purchased at lower prices
Typically this is the largest element of the
e-Procurement value proposition
A PwC client plans to
generate savings of $50m per
annum through increasing
compliance from 40% to
75%.
21
e-procurement: the principal benefits
3: Increased Leverage of
Purchasing Power
Electronic procurement provides greater oversight
of purchasing spend:
• consolidated details of actual spend with each
supplier
• consolidated detail of actual spend in each
product category
so that:
• full purchasing power is leveraged to negotiate
increased discounts
• appropriate product categories can be targeted
for preferred supplier contracts
On-contract Off-contract
spend
spend
The same client is currently
not certain where indirect
spend goes and cannot fully
exploit its buying power estimates another $29m per
annum through leverage.
22
Key points in Introducing e-Procurement

e-procurement is a “flexible solution” technology could be
a point solution and is better connected to an ERP.

Does not need to be part of a strategic enterprise-wide
architecture.

e-procurement is mostly about changing buyer behavior.

Supplier adoption, system Integration & Content
Management are the challenges.

Must go hand-in-hand with a Strategic Sourcing Strategy.
23
Questions
and
Answers
24
25
26
e-procurement
Electronic Procurement:
The act of placing an order using the
Internet Technology.
Source: “IDC -International Data Corporation”
27
Procurement Issues

Analysis indicates that Procurement is one of the operational
areas that can yield significant efficiency and savings
opportunities.

Opportunities can be a result of lack of control in the following
areas:

Identification of spend by commodity type and visibility to
supplier relationships;

Lack of control & compliance to procurement policies &
procedures
28
Procurement Issues
Procurement has traditionally been under-utilized as a lever for
improved performance for a number of reasons:
• Procurement viewed as a collection of
administrative and logistical tasks focused on
transaction processing
• Performance measures not linked to business
objectives and focused primarily on unit price
• Significant portions of the spend base do not pass
through procurement
29
How e-procurement delivers the savings
2: Reduction in Process Costs
E-Procurement:
• eliminates re-entry of orders
• accuracy of stock item and price eliminates
need for supplier to re-work orders
• eliminates order-chasing by providing on
line status information
• reduces cycle-times so can deliver reduced
inventory stock levels across supply chain
By removing the administrative
overhead from indirect purchasing,
your procurement staff can focus
on:
• strategic procurement:
improving existing contracts
and building new supplier
relationships
• supporting priority or timecritical purchases
30
How e-procurement delivers the savings
3: Increase in Contract Compliance
Off-contract purchasing is typically because of the implicit
delay or difficulty in locating preferred supplier product
range.
E-Procurement:
• Reduces time taken for employee to source product by
provision of single composite catalogue of preferred
suppliers
• Simplifies requisitioning process by point-and-click
ordering
• Reduce time to place order by providing immediate
placement of requisitions within approval limits
• Reduce fulfilment time by avoiding need for supplier
rework of orders.
Internet
purchasing
Traditional
purchasing
Need
Need
Search
Call purchaapproved
sing manager
Internet
catalog
find item
get
in catalog
approval
Orderin
Phone
order
Receive
Receiveinin2
days
one
week
31
How to Start: implementation Decisions
Level of Automation
Spend
Segmentation

End to end process

Req to order
Content (catalogue)
Deployment

Cat managed externally

Desktop

Cat managed internally

Limited access

Supplier managed

Purchasing dept only
Organisational
Distribution of

Global
Functionality

Regional

Divisional



ERP based
Free standing
integrated best of breed
Distributed functionality
… Getting the benefits at lowest risk
32
Factors influencing implementation strategy
Reaching
critical
mass in
contract
coverage
Change
BU / Site
constraints
Management
Approach
User adoption
Cultural adoption
Strategy
Supplier
Adoption
Country
Technical
Integration
33
e-Business Integration
The integration points of the e-business solution should maintain the
integrity and workflow of the transactional system.
1. HR Organization
Synchronize HR data and structure for sign-on existence and approval hierarchy
2. Accounting Information
Synchronize company codes, cost centers, accounts, etc.
3. Pass Requisition to transactional system
Export requisition (approved or unapproved) back to transactional system for PO creation
4. Create PO and output to e-Business Transaction Manager
Generate output at PO creation (EDI-style) and pass to EDI, Fax, or e-Business Transaction
Manager for web-based processing
5. Pass status changes back to e-Business requisition
Backflush changes to update req. status
6. Synchronize item masters if appropriate
Keep catalog records in sync with internal purchase item masters
34
Key Implementation issues
 Clear procurement strategy
 Up-Front strategy is critical to set program direction
 Defines implementation detail
 Content management
 Who/How much?
 Standard formats
 Supplier adoption
 Numerous vendors to integrate - which suppliers to use?
 Multiple small vendors often used to form end solution
 Trade off between transaction and content
 ERP Integration

Complex application requires diverse skill sets
 Short development cycle is typical
 Level and detail
 Coverage of process
35
Key Implementation issues
ROI case
 As-is/to-be
 Metrics
 Procurement policy
 Change management
 Competing with phone/direct supply sites
Internet technology is in its adolescence
Rapid change is the norm
Strong program manager is a must
36
Indirect Goods

Companies spend 50% to 65% of gross revenue on material purchases to
fuel their business. Millions of dollars are expended for two different
purchasing processes:

Direct goods: raw materials and components of the end product. 70% to 80%
of purchasing falls into the direct category.

Indirect Goods (MRO): valves for machinery and pencils for the paperwork.
These high-volume/low-dollar purchases account for 20% to 30% of most
companies' procurement dollars and a greater percentage of paper volume.
Direct
Indirect
37
Indirect Goods - the Cinderella of purchasing
Business opportunities:
Division of the Corporate Dollar
Taxes
13%
Profit
6%
Direct
28%
HR
17%
Indirect
36%
Source: AMR; CAPS (Center for Advanced Purchasing Studies)
• Reduce cost of procurement
• Gain management oversight of
spending on non-production
goods
• Provide basis for improved
supplier contracting
Example PwC clients (Spend on
Indirect Goods):
Technology Co.~ $1.3bn
Consumer Electronics~ $8bn
Energy Company ~ $20bn
38
Indirect Goods
On average 36% of gross revenue is spent on indirect purchases.
These goods and services:

are purchased by dedicated non-production related purchasers armed with paper
catalogs, fax machines, and the telephone.

are high-volume/low-dollar purchases.
Tens of thousands of purchases are required each year to keep a company
running, leaving lots of room for inefficiencies:

the time to purchase items drives employees to purchase outside of the system as
on expense items.

procurement staff are focussing on administrative tasks rather than negotiating
improved relationships with suppliers.

lack of oversight of purchasing volumes prevents negotiation of best deals.
39
Business Focus

Focus has shifted within the airline industry to include emphasis on the
costs associated with procurement of indirect materials. When you
compare the volume of purchases and the processing costs that may be
associated, it adds up!
Traditional High Value
Focus
$$$’s
per Unit
Raw Material,
Direct Materials,
CAPX
Expenditures
Often Ignored Focus
All costs get magnified
for these purchases
Production
Consumables
Indirect
No. of Units / unique items purchased
40
E-Procurement Business Opportunities
Automating the Entire Goods & Services Supply Chain can
Deliver:

Reduced Cost of Goods…
3 - 5% or More

Reduced Administration..
$ 80 to $ 7 per PO

Shorter Cycle Times……..
From Weeks to Days

Inventory ………….….……
Reduced or Zero-Stock