E-procurement Technology

Dubai Municipality
Nader Haffar
Maged Wassim

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

Why is procurement important?

It received a lot of attention
Open up countless opportunities
Multidimensional relationships

Procurement Evolution

PAST

in
r
e
n
t
r
a
P g

PRESENT

ic
g
e
t
a
r
St
g
n
i
c
r
u
So

FUTURE

eProcurement

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)

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

-5%

Increase revenue by 50%

Reduce overheads by up to 20%

Significantly reduce staff numbers

E-Business and E-Commerce What do

they mean?

E-Business is
E-Commerce
E-Commerce isis the
the
electronic
electronic buying,
buying,
marketing,
marketing, and
and selling
selling
of
of products
products and
and services
services

using electronic
information to improve
performance, create
value and enable new
relationships between
businesses, their
suppliers and customers

E-Business impacts three broad areas of

Municipality activity
B2B

B2E

B2C

Buy-Side

Sell-Side
Plan Categories
& Assortments

Supplier networkDevelop 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.

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

Reverse

Auctions

items or services.

- 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

US
Construction Marketplace
Marketplace

UAE
Marketplace
Government
Marketplace

A Single,
Secured
Connection!

Healthcare
Marketplace

UK
Marketplace
SE Asia
Marketplace

14

The Total Solution

iicc nntt
n
n
ee
rroo m
t
m
t
eeccuurree
l
l
EE cc
oo
PPrr

B
--B
o
o
t
-t
B
B-

aall
t
t
rr
PPoo

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

Manage content
Select approved goods
Maintain accuracy
Check prices
Check availability
Catalogues
Submit requisitions 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:
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

On-contractOff-contract
spend
spend

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-contractOff-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 rework 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 Traditional
Internet
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-andclick 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.

purchasing
Need
Need

Search
Call purchaapproved
sing
Internet
manager
catalog
find item
get
in catalog
approval Order
Phone in
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

User adoption
Cultural adoption

Approach
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%

Indirect
36%

HR
17%

Reduce cost of procurement

Gain management oversight
of spending on nonproduction goods
Provide basis for improved
supplier contracting

Example PwC clients

(Spend on Indirect Goods):
Technology Co.~ $1.3bn
Consumer Electronics~
$8bn
Energy Company ~ $20bn

Source: AMR; CAPS (Center for Advanced Purchasing Studies)

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

Production
Consumables

for these purchases

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