Chapter 7 E-procurement Self-assessment questions 1. Outline the two main methods by which companies purchase supplies and the two broad divisions of supplies needed. There are two broad categories of procurement: those that relate to manufacturing of products (productionrelated procurement) and operating or non-production related procurement that supports the operations of the whole business and includes office supplies, furniture, information systems, MRO goods and a range of services from catering to buying travel or professional services such as consulting and training. Raw materials for the production of goods and MRO goods are particularly important since they are critical to the operation of a business. 2. Taking your answer from one industry, give examples of B2B exchanges that have been created to meet these purchasing needs. Production-related procurement examples include Vertical Net (www.vertical.net) sites such as www.oilandgas.com and also Industry-to-Industry (www.itoi.com) which trades petrochemicals and in pharmaceutical (www.chemdex.com). MRO type sites include the Staples example from Schlumberger. 3. Draw a sketch that shows the main stages and people involved in traditional and e-procurement. This is Figure 7.1 on p. 257. 4. Outline the main reasons for e-procurement. Cost reduction Reduced lead time Better quality. See also the five rights of procurement on p. 257. 5. What is maverick purchasing? What safeguards need to be introduced into e-procurement to avoid this? This is where purchasing is poorly controlled and users within departments may order products that are not from a favoured supplier, do not meet company standards (e.g. of software) or are uneccessary. Eprocurement ensures checks such as limits on purchasing or from preferred sources. 6. Explain the differences between the buy-side, sell-side and marketplace options for e-procurement. Buy-side – buyer invites bids via tendering place on its own site. Sell-side – buyer goes to supplier web site to purchase. Marketplace – buyer goes to a neutral marketplace to purchase. 7. Outline the benefits and disadvantages of each of the options in 6. Buy-side – only really suits large buyers, but displaces work to suppliers. Key suppliers may be missed if unaware of tender. Can specify integration with IT systems. Sell-side – effort placed on buyer to find sources. Integration with IT systems potentially more difficult. Marketplace – theoretically gives widest range of supplier and if integrates with a standard exchange such as Commerce One (www.commerceone.com) gives a standard method of data exchange and flexibility to move suppliers. Difficulty in choosing exchange with critical mass. 8. What are the organizational implications of introducing e-procurement? Less staff time involved with procurement requires making staff redundant or reskilling. Education and training needed to sell-system to the staff using it. Better control of purchasing (reduce maverick purchasing).