CHAPTER 3 Flashcards
E-PROCUREMENT
Is a web- based technology system that streamlines business transactions between organizations and their suppliers
ADVANTAGES OF E-PROCUREMENT
Faster- allows the processing of many more procurement transactions much faster and at much lower costs
Cheaper
Efficient at work- the buyers are liberated from a massive administrative burden which enables them to spend much more time on commercial duties
Maverick buying- the percentage of maverick is drastically reduced which also results in considerable savings
E-procurement systems represent an important productivity tool for both the procurement manager and other departments
DIGITAL SOLUTIONS AND TECHNOLOGIES FOR PROCUREMENT CAN BE DIVIDED INTO:
source-to-contract
purchase-to-pay (P2P)
E-srm
E-PROCUREMENT SYSTEMS
E-procurement systems result in a significant reduction in the traditional order-to-pay cycle
E-procurement and related IT solutions
SPEND ANALYTICS
The analysis of procurement data- identifying spending patterns, cost-saving opportunities and supplier performance
E-SOURCING
Using digital platforms to find, select and negotiate with suppliers
E-sourcing is the use of digital platforms to manage the entire supplier selection process, from identifying suppliers to negotiating and awarding contracts. It helps companies streamline procurement, reduce costs, and save time by automating tasks that were traditionally manual.
Key Steps in E-Sourcing
Tender Creation – The company defines what they need and creates a formal request.
Sending Out RFP/RFQ – The system sends requests to potential suppliers.
RFP (Request for Proposal) – Used when the company needs a solution but is open to different approaches from vendors.
RFQ (Request for Quotation) – Used when the company knows exactly what they need and just wants the best price.
Supplier Response Analysis – The platform collects and compares supplier bids based on predefined criteria (price, quality, lead time, etc.).
Automated Selection – The system helps choose the best supplier based on the evaluation criteria.
can drastically reduce the overall sourcing cycle time
E-AUCTION
online, competitive bidding process, where suppliers bid in real time to win contracts- often driving prices down
an important characteristic of e-auctions that the price is made by bringing suppply and demand together in a transparent way:
-OPEN RFI/RFP
-REVERSE AUCTION- multiple sellers compete for a buyers business, prices decrease- lowest bidder wins, minimize buyer’s costs
FORWARD AUCTIONS - multiple buyers compete for sellers product, prices increase- highest bidder wins, goal is to maximize sellers revenue
E-MARKETPLACE
Platform where buyers and suppliers interact enabling the purchase of goods and services from multiple vendors
P2P
Integrated digital systems that manage the entire procurement process and support all electronic data exchange that is needed for efficient transaction processing
Offers buyers greater opportunities for more efficient handling, improved logistics, full tracing and tracking of deliveries and improved and better controlled payments
introducing this type of e-procurement solution requires considerable sophistication and expertise
E- SUPPLIER RELATIONSHIP MANAGEMENT (E-SRM)
The use of digital tools to manage and optimize relationships with suppliers- focus on collaboration, performance tracking and communication
makes sure that everybody has the same information and can speak with one voice to the suppliers
e-contract management tools enable the procurement manager to easily manage their entire contract database from one place
arm e-tools create a single platform for buyers to communicate with their suppliers, while having easy access to all relevant supplier information
key difference between e-sourcing and traditional sourcing in a B2B environment regarding the use of RFI and RFP
E-Sourcing:
E-sourcing uses digital platforms to conduct RFI (Request for Information) and RFP (Request for Proposal) processes. It automates tasks like collecting and evaluating supplier information, making the process faster, more accurate, and easier to manage.
Benefits:
Speed: Faster processing through automation.
Accuracy: Reduces errors by digitizing data.
Efficiency: Easier to compare supplier responses in real time.
Traditional Sourcing:
Traditional sourcing involves manual, paper-based methods for gathering and assessing supplier information. This process can be slow, prone to errors, and requires more human effort to organize and compare data.
Challenges:
Time-consuming: Takes longer to gather information and assess suppliers.
Prone to errors: Manual data entry increases the chance of mistakes.
Inefficiency: Harder to compare supplier responses quickly.
RFI- request for information
is a document used to gather general information from vendors before issuing an RFP or RFQ.
RFI → Gather information (exploring options).
RFP → Request solutions (seeking proposals).
RFQ → Request prices (choosing a vendor).
B2B marketplaces
B2B marketplaces create digital platforms or ecosystems where multiple suppliers can offer their products or services to multiple business customers
They are found in different supply markers such as:
- commodities
-transport
-logistics
-services
DRIVERS FOR ADAPTING NEW DIGITAL PROCUREMENT TECHNOLOGY (SVARBU)
-Better performance through better contract comploance and reduced maverick buying
-Better control of supply chain relationships through early identification of supply risks
-With a support of digital technology they can benefit much nore from supplier innnovation
Higher employee productivity and motivation as much routing work will disappear
BARRIERS
Investments in digital technologies
the transaction process necessary for adppting these technologies is long and troublesome
PROCUREMENT PERFORMANCE MEASUREMENT
How management looks upon the role and important of the procurement functiont
The process of tracking the efficiency of an organization’s procurement team by e valuating costs, time, and quality based on predefined key performance indicators (KPIs)
- OPERATIONAL AND ADMINISTRATIVE ACTIVITY- Management evaluates procurement operations primarly on parameters such as order backlog, administrative lead-time, number of orders issues, number of requests for quatations issued, adherence to existing procedures
- COMMERCIAL ACTIVITY: Management is aware of saving potential which procurement may represent. The paraementers being used here are the total savings reported by procurement, number of quatations issued, variance reports, inflation reports
- PART OF INTEGRATED LOGISRUCS- Management becomes aware that price hunting has its drawbacks and may lead to sub-optimization. Evaluation is aimed at quality improvement, lead time reduction and improving supplier delivery reliability
- STRATEGIC BUSINESS AREA: Procurement is actively involved in deciding the company’s core business. For example, management may evaluate procurement on the number of changes in its supply base and its contribution to the bottom line in terms of saving realized
HOW MANAGEMENT MAY LOOK AT PROCUREMENT?
- OPERATIONAL AND ADMINISTRATIVE FUNCTION = position of procurement: low in organization; performance measures: number of orders, order backlog, procurement administration lead-time, authorization, procedures
- PROCUREMENT AS A COMMERCIAL FUNCTION = position of procurement: reporting to management; performance measures: savings, price reduction, ROI measures, inflation reports, variance reports
3.PROCUREMENT AS PAR OF SUPPLY CHAIN MANAGEMENT =position of procurement: procurement (partly) integrarted with other supply chain functions; Performance measures: savings, cost reduction, supplier delivery reliability, quality, reject rates, lead-time reduction - PROCUREMENT AS STRATEGIC BUSINESS FUNCTION= position of procurement: procurement represented in top management Performance measures: should cost analysis, early supplier involvement, make- or-buy, value chain optimization, business development
Operational & Administrative – Low importance, seen as a support function to handle orders efficiently. Focus is on rules and processes.
Commercial – Moderate importance, as cost savings and financial impact become key. Procurement starts influencing profitability.
Part of Supply Chain – High importance, since procurement affects overall efficiency, supplier relationships, and product quality.
Strategic Business Function – Very high importance, as procurement shapes company strategy, innovation, and competitive advantage. It directly impacts business growth and market position.
WHY MEASURE PROCUREMENT PERFORMANCE (SVARBU)
Reasons to measure:
- procurement performance evaluation will lead to better decision-making
-It may lead to better communitcation with other departments
-increase transparency
-may contribute to better motivation
Problems:
-lack of definition concepts
-lack of formal objectives and performance standards
-problens of accurate measurement
-difference in scope of procurement
HOW TO ASSES PROCUREMENT PERFORMANCE?
Purchasing perfromance is considered to be the result of two elements:
- effectiveness: results actual/ results planned
-efficieny: costs actual/ costs planned
Purchasing performance can be defined as:
- the extent to which the procurement function is able to realize its predertemined goals at the sacrifice of a minimum of the company’s resources
MEASURING PROCUREMENT PERFORMANCE: KEY AREAS
- price/ cost dimension
- product/ quality dimension
- sustainability dimension (ECI (NL:MKI)
- Logistics/ delivery (supply chain) dimension
- supplier relationships dimension
6.organizational dimensions
PROCUREMENT AUDIT
Is a systematic evaluation of an organization’s procurement processes, aimed at ensuring compliance, efficiency and effectiveness
IMPORTANCE OF AUDITS (SVARBU)
ENHANCING SUPPLY CHAIN VISIVILITY- Look at activities and identify problems
REDUCING COSTS: uncover areas of overspending or non-comliance- helps with cost savings
ENSURING COMPLIANCE WITH REGULATIONS- Verify adherence to legal standards and internal policies, mitigating risks associated with non-compliance and potential legal repercussions
STEPS OF PROCUREMENT
- preparation- scope and objectives of audit, gathering all relavant information
2.On-site evalution- conducting interviews with personnel, observing procurement process in action to assess compliance with established procedures - Data analysis: analyze procurement data, use statistical methods to support findings
4.Reporting: prepare a detailed report
5.Follow-up- Implement the recommendations from the audit report
