E Procurement

E-Procurement
Procurement
• The term procurement is used in Business to
Business (B2B) and stands for the buying
process of companies of services and goods.
• There are two forms of procurement:

▫ Strategic and
▫ Operative procurement.
Strategic Procurement
• Strategic procurement includes an
▫ assessment of demand,
▫ a tendering phase,
▫ the selection of the supplier and
▫ finally the placing of the order.
Operative Procurement
• The operative procurement starts when the
strategic one ends with
• the supervision of orders,
• stock receipt,
• accounting control and
• the payment
E-Procurement
• EDI Enabled Procurement / e-Procurement is the term
used to describe the automation through web-enabled
tools of many elements of the procurement process
• E-procurement (electronic procurement,
sometimes also known as supplier exchange)
▫ is the business-to-business or business-to-
consumer or business-to-government
▫ purchase and sale of supplies, work, and services
▫ through the Internet as well as other information and
networking systems, such as electronic data
interchange and enterprise resource planning.[1]
E-Procurement
• EDI Enabled Procurement/Purchasing is
“paperless purchasing”,
▫ which contemplates elimination of paperwork for
all the important documents used in
procurement/purchasing,
▫ including the specification/statement of work,
requisition, solicitation, purchase order/contract,
delivery/task order, invoice, and payment.
• The term e-Procurement is sometimes used interchangeably
with
• ‘Business marketplaces' (B2B),
• ‘Electronic supply chains',
• ‘Trading hubs', or
• ‘Trading communities'.
Forms of E-Procurement
• Electronic data interchange
• Online marketplaces
• Mixtures of above mentioned
Electronic data interchange
▫ (EDI) means the buyer and sellers have a defined,
standardized way of exchanging business information-
such as quote, order, order confirmation, invoices,
inventory data and furthermore on a electronically basis.
▫ EDI is only used in business 2 business.
▫ The information transaction by definition needs to be
done via computers or data bases.
▫ Placing an order via e-mail is therefore not part of EDI.
▫ Companies can communicate via a point-to-point
private network, via the Internet, or via value-added
networks (VANs).
Online marketplaces
• Online marketplaces function as intermediaries for buyers
and sellers and bring them together.
• The costs for this kind of service varied.
• Sometimes, all users (suppliers and purchasers) have to buy
certain software from a third party provider in order to be
able to access the online marketplace.
• Charges for that software, transactions within this
marketplace and entry fees varied from different online
marketplace providers enormously.
• Those add additionally services such as inventory
management, process improvement, tracking shipments or
financing services.
EDI + Online MarketPlaces
• Software applications allow purchasers to create a
system in which they can manage invoices, purchase
orders, receipts and requests for quotations (RFQs).
• This function is only used by the purchaser.
• Mainly companies, which are not capable, too establish
such a system, delegate the hosting of the software to a
third party.
• Another mixed form is online auctions.
• Success factors for this kind of e-procurement are kind
and number of bidders and the length of the bidding
session.
Information flows in a paper-based purchasing process
Paper-Based Purchasing Process
Once the production manager in the operating unit decides that a machine
needs to be replaced, the following process begins:
• The production manager completes a purchase requisition form and
sends it to Purchasing Deptt.
• This requisition describes the machine that is needed
• Purchasing Deptt contacts vendors to negotiate price and terms of
delivery.
• When Purchasing Deptt has selected a vendor, it prepares a purchase
order and forwards it to the mail room.
• Purchasing Deptt also sends one copy of the purchase order to the
Receiving Department so that Receiving can plan to accept delivery when
scheduled;
• Purchasing sends another copy to Accounting to advise it of the financial
implications of the order.
• The mail room sends the purchase order it received
from Purchasing to the selected vendor by mail or
courier.
• The vendor’s mail room receives the purchase order
and forwards it to its Sales Department.
• The vendor’s Sales Department prepares a sales order
that it sends to its Accounting Department and a work
order that it sends to Manufacturing.
• The work order describes the machine’s specifications
and authorizes Manufacturing to begin work on it.
• When the machine is completed, Manufacturing notifies Accounting and
sends the machine to shipping.
• The Accounting Department sends the original invoice to the mail room and
a copy of the invoice to the Shipping Department.
• The mail room sends the invoice to the buyer by mail or courier.
• The vendor’s Shipping Department uses its copy of the invoice to create a bill
of lading and sends it with the machine to the buyer.
• The buyer’s mail room receives the invoice at about the same time as its
Receiving Department receives the machine with its bill of lading.
• The buyer’s mail room sends one copy of the invoice to Purchasing so the
Purchasing Department knows that the machine was received, and sends the
original invoice to Accounting.
• The buyer’s Receiving Department checks the machine against the bill of
lading and its copy of the purchase order. If the machine is in good condition
and matches the specifications on the bill of lading and the purchase order,
Receiving completes a receiving report and delivers the machine to the
operating unit. Receiving sends a completed receiving report to Accounting.
• Accounting makes sure that all details on its copy of the
purchase order, the receiving report, and the original invoice
match. If they do, Accounting issues a check and forwards it
to the mail room.
• The buyer’s mail room sends the cheque by mail or courier to
the vendor.
• The vendor’s mail room receives the cheque and sends it to
Accounting.
• Accounting compares the cheque to its copies of the invoice,
bill of lading, and sales order.
• If all details match, Accounting deposits the cheque in the
vendor’s bank and records the payment received.
EDI Enables Procurement Process
• The mail service has been replaced with the data
communications of an EDI network,
• and the flows of paper within the buyer’s and
vendor’s organizations have been replaced with
computers running EDI translation software.
• The operating unit manager sends an electronic message to its Purchasing Department. This
message describes the machine that is needed
• Purchasing contacts vendors by telephone, e-mail, or through their Web sites to negotiate price
and terms of delivery. After selecting a vendor, Purchasing sends a message to the Sales
Department announcing the selection.
• The buyer’s EDI translator computer converts this message to a standard format purchase order
transaction set, and then forwards the message through an EDI network to the vendor.
• Purchasing also sends one electronic message to the buyer’s Receiving Department so it can plan
to accept delivery when it is scheduled;
• Purchasing sends another electronic message to the buyer’s Accounting Department that
includes details such as the agreed purchase price.
• The vendor’s EDI translator computer receives the purchase order transaction set message and
converts it to the file format used by the vendor’s information systems.
EDI enabled purchasing
• The converted purchase order details appear in the Sales Department’s
sales
• order system and are automatically forwarded to the production
management system in Manufacturing and to the accounting system.
• The information that was automatically forwarded to Manufacturing
describes the machine’s specifications and authorizes Manufacturing to
begin work on it.
• When the machine is completed, Manufacturing notifies Accounting and
sends the machine to the vendor’s Shipping Department.
• The vendor’s Shipping Department sends an electronic message to its
Accounting Department indicating that the machine is ready to ship.
• The vendor’s Accounting Department sends a message to its EDI translator
computer, which converts the message to the standard invoice transaction
set and forwards it through the EDI network to the buyer.
• The buyer’s EDI translator computer receives the invoice transaction set
before its Receiving Department receives the machine. The computer then
converts the invoice data to a format that the buyer’s information systems
can use. The invoice data becomes immediately available to both the buyer’s
Accounting and Receiving Departments.
EDI enabled purchasing
• When the machine arrives, the buyer’s Receiving Department
checks the machine against the invoice information on its
computer system.
• If the machine is in good condition and matches the
specifications shown in the buyer’s system, Receiving sends a
message to Accounting confirming that the machine has been
received in good order.
• It then delivers the machine to the operating unit.
• The buyer’s Accounting Department system compares all
details in the purchase order data, receiving data, and decoded
invoice transaction set from the vendor. If all the details
match, the accounting system notifies its bank to reduce the
buyer’s account and increase the vendor’s account by the
amount of the invoice.
• The EDI network may provide services that perform this task.
Advantages of e-procurement
• Price savings
• PROCUREMENT EFFICIENCY AND PROCESS
STREAMLINING
▫ EDI Enabled Procurement will streamline processes, will
improve information processing and result in greater
procurement efficiency and effectiveness
• PROCUREMENT AUTOMATION IMPROVEMENTS
▫ EDI Enables Procurement ensured electronically receiving and
validating purchase requirements and coordinate the
procurement action through near paperless electronic interfaces
with (for example) legal, financial, small business, and technical
specialists, thereby improving the automation process
Advantages of e-procurement
• Process cost reduction (head count)
• Reductions in cycle times (days/weeks)
• Consequent reductions in inventory holdings
(value/stock turnover)
• Next to that are soft benefits which are hard to
measure but never the less important, e.g. more
time that enables staff to spend more time on
value-added aspects of procurement due to more
efficient processes.
Disadvantages of e-procurement
• Bandwidth problems
• Security issues
• Accessibility
• Acceptance
Government Initiatives
• eProcurement System of India enables the
Tenderers to download the Tender Schedule free
of cost and then submit the bids online through
this portal.
• State Govt Initiatives:
▫ Government of Haryana : Single E-procurement
Portal
▫ The eProcurement System of Rajasthan
▫ Andhra Pradesh E-Procurement Platform
Etc

E Procurement

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E-Procurement

• There are two forms of procurement:

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