E-procurement and E-markets. E-business lecture 7

Transcription

1 E-procurement and E-markets E-business lecture 7

2 Outline Intro Purchasing Procurement (E-)markets (E-)Auctions

3 Procurement What is procurement? All activities involved with obtaining items from suppliers: Inbound logistics Transportation Goods-in Warehousing Searching Specification Purchasing Payment Receipt

4 How important is procurement? United States average industrial company: 56% of sales income spent on purchases from outside sources Varies from 35% for instrument manufacturers 90% in petroleum and coal industry

5 E-procurement Application of Internet technology in buying and selling of goods and services Topics: Shift from in-house manufacturing to increasing dependence on suppliers and subcontractors Impact of Internet on total purchasing process

6 Outline Intro Purchasing Procurement E-markets E-Auctions

7 Purchasing External acquisition at optimum conditions of goods, services and materials that are needed for production, sales and maintenance. Five rights of purchasing (Baily et al., 1994): at the right price delivered at the right time of the right quality of the right quantity from the right source

8 Pareto Analysis of purchases A small number of important articles represent major share of value purchased Large number of articles represent only small part of value Articles classification: Class A: small number of articles (20%) represent major share (80%) of purchasing budget Class B: next 50% articles, representing 15% value Class C: last 30% articles, representing 5% budget

9 What is bought and from who? What? Manufacturing inputs Operating inputs Office supplies Information systems MRO (Maintenance, Repair, Operations) goods Services From who? Systematic sourcing: negotiated contracts with regular suppliers Spot sourcing: Short-term fulfillment (typ. commodities)

10 Purchasing process 3-stage model (Zenz, 1994): 1. Information: Prospective buyers identify needs Evaluate potential sources Gather information: conditions, products, sellers 2. Negotiation: Interaction: determine price, availability, conditions Finalize with contract 3. Settlement: Terms of contract carried out Transfer of goods, services, money

11 Purchasing process 2 Buying situations: New buy: First time Solution seeking Straight rebuy: Same parameters, except Quantity and delivery schedule Modified rebuy: All parameters re-evaluated Consider alternative suppliers

12 Buy-grid framework (Webster 1972) Anticipation of need Determination of characteristics Description of characteristics Search for sources Acquisition of proposals Selection of supplier Order routine Feedback New Buy Modified rebuy Straight rebuy Orange: Most complex Green: almost automatic

13 Purchasing portfolio model Profit impact of purchase: Strategic vulnerability Added value Percentage of product price Supply risk of purchase: Complexity of supply market Scarcity

14 Purchasing portfolio model matrix Kraljic, 1983 Supply risk Bottleneck items Non-critical items Strategic items Leverage items Profit impact

15 Outline Intro Purchasing Procurement E-markets E-Auctions

16 Developments in purchasing Pre 1973: strictly operational 1973 (oil crisis): increasing interest in Consistency of suppliers performance Strategic importance of purchasing Post 1973: recognition of tool for profitability: Past decade: Great cost savings potential Major impact on quality of products and services Improvement of product and process designs. Current: purchasing evolved into supply management

17 Procurement vs. e-procurement Procurement Task Time Search for goods 1 hr Fill in paper requisition 10 min Send to buyer 1 day Buyer in-tray ½ day Buyer enters order no. 10 min Buyer authorizes order 10 min Buyer prints order 10 min Order copies to supplier 1 day Delivery 1 day Order copy to accounts 1 day Three-way invoice match 1 day Cheque payment 10 min

18 Procurement vs. e-procurement Procurement Task Time Search for goods 1 hr Fill in paper requisition 10 min Send to buyer 1 day Buyer in-tray ½ day Buyer enters order no. 10 min Buyer authorizes order 10 min Buyer prints order 10 min Order copies to supplier 1 day Delivery 1 day Order copy to accounts 1 day Three-way invoice match 1 day Cheque payment 10 min E-procurement Task Time Search for goods 20 min Order on web 10 min Delivery 1 day Generate invoice 10 min Cheque payment 10 min

19 Drivers and barriers of e-procurement QUESTION: What do you consider to be drivers of e- procurement? What about barriers?

20 Drivers and barriers of e-procurement Drivers: Cost reduction: Process efficiency Reduced cycle times More competition More choice More control Barriers: Competition issues Procurement benefits shared with competitors Organization culture

21 Risks and impacts of e-procurement Organizational risks: Maverick or off-contract purchasing Redundancy/redeployment Return on Investment (ROI) risk Technology risks: Integration with existing financial/erp systems Choice of procurement model

22 IS in the procurement cycle

23 E-procurement system components Content management: Supplier and product information Availability Integrated contract terms/company regulations Requisition management: Transactions workflow Transaction management: Order transfer Connectivity management: Interfacing

24 E-procurement OBI architecture view purchasing catalogue Open Buying on the Internet Requisitioner authorize requisition Buying organization: Requisitioner profile Search for suppliers Management approval Catalogue browsing Query status purchase order request official purchase order Invoice / payment Supplier: - Catalogue mgt - Price info - Order entry - Inventory mgt check payment Payment authority confirm payment

25 Outline Intro Purchasing Procurement E-markets E-Auctions

26 Traditional market functions 1. Matching buyers and resellers: Determining product offerings Searching Discovering prices 2. Facilitating exchange: Settlement Logistics Trust Physical infrastructure 3. Institutional infrastructure: Laws, rules and regulations

27 E-market: virtual online market 1. Exchange for business transaction Purchasing Checking prices and availability Invoicing 2. Manage content: Convert product info into common format 3. Provide additional services: Shipping Tendering, auctions Risk management Conflict resolutions Financial trust

28 Functional characteristics Four core enterprise applications: ERP: Financial Accounting CRM Interaction with clients Sales, support, marketing E-procurement Buying and selling SCM Balance constraints in supply chain

29 Dimensions of e-markets Type of product Type of contract Market-making mechanism Bias

30 Classification of e-markets 1 Inputs: Manufacturing / Operating Sourcing Systematic / Spot (Kaplan & Sawhney, 2000) Input Operating Manufacturing Source Systematic Spot MRO hub Yield manager Catalogue hub Exchange

31 Classification of e-markets 1 MRO hub (Systematic sourcing of Operating inputs) Usually low-cost/low-value input with relatively high transaction costs. Horizontal dis/re-intermediation. Improved efficiency in purchasing process. Brings together many suppliers. Yield manager (Spot market for operating inputs) Usually in market with high degree of price/demand volatility, or with huge fixed-costs

32 Classification of e-markets 1 Catalog hub (Systematic sourcing of manufacturing inputs) Create value by reducing transaction costs Specialized products Industry specific Exchange (Spot sourcing of manufacturing inputs) Closely related to traditional commodity exchanges More emphasis on maintaining relationships Less emphasis on negotiation and terms of relations

33 Classification of e-markets 2 Vertical: Industry focus /specific Specialized products and services Mainly addresses supply chain process of business Examples: Horizontal: Non-industry specific Supply market across industries Examples:

34 Market-making mechanisms Aggregation: Typical for systematic sourcing Large numbers of buyers and sellers under one roof Reduces transaction costs Pre-negociated prices Matching: Typical for spot sourcing Negotiate price on dynamic and real-time basis May become auction

35 E-market bias

36 E-market transaction mechanisms 1. Standard price offering: Fixed price Contracts 2. Auctions 3. Requests for Quote (RFQ)

37 Outline Intro Purchasing Procurement E-markets E-Auctions

38 E-auctions Functions of auctions: 1. Dynamic price discovery 2. Efficient allocation mechanism 3. Distribution mechanism 4. Coordination mechanism Terminology: Offer: Commitment to sell under certain conditions Bid: Commitment to purchase under certain conditions

39 Benefits of online auctions 1. Liquidity 2. Price discovery 3. Price transparency 4. Market efficiency 5. Lower transaction costs 6. Consumer aggregation 7. Network effects

40 Risks and costs of online auctions For buyers 1. Delayed consumption costs 2. Monitoring costs 3. Trust risks 4. Fulfillment costs For sellers 1. Non-payment, fraude 2. Administration costs

41 Internet Auction basics Auction = Dynamically Priced Market Price Allocation Rules: Uniform Pricing Discriminatory pricing Information in Dynamically Priced Markets Public Private

42 Types of auctions Auc'on type English Yankee Dutch Reverse (seller- bid) Reverse Dutch First- price sealed- bid Second- price sealed- bid Double auc7on Name your own price Group buying auc7on Key characteris'cs Start at low price, bidding increases un7l no- one higher English auc7on for mul7ple units, uniform price Start at high price, price decreases un7l a buyer accepts Buyer puts request for bids, sellers place bids, price decreases un7l no seller goes lower One buyer bids, many sellers, price increases un7l one seller accepts Secret bidding, highest bidder wins for highest bid Secret bidding, highest bidder wins for 2 nd highest bid Buyers and sellers declare combined price- quan7ty bids Buyer specifies what he is willing to pay Demand aggregator facilitates group buys

43 Recap Intro Purchasing Procurement E-markets E-Auctions