JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
LSCM PROGRAM

CHAPTER EIGHT:-
e-PROCUREMENT
GROUP 5
ID-NO
1.SIUD NEGA WMO 119/12
2.MILLION SHASHURA WMO
3.FIREHUN ALEMU WMO108/12
Submitted to

• Instructor : Dr Mekonen
 Chapter 8 Outline:

• Conceptual Definition
• Basics of e-Procurement
• Types of e-Procurement

• Common e-business models

• Sub areas of e-procurement
• Advantages of e-procurement

• Disadvantages of e-procurement
 Conceptual Definition
• Electronic-Business (e-Business) is generally
understood as the use of digital information
technology for the initiation, arrangement, and
processing of business processes between
economic partners via innovative
communication networks.
• The service providers and service consumers
can be companies, public institutions, or
private consumers.
• e-Procurement is a subarea of e-Business and
• Generally stands for the electronic purchasing
of products and services by companies via
digital networks.
 Cont’d…
• e-Procurement thus electronically supports
both strategic and operational procurement
to such an extent that the procurement
process, in terms of process costs and
process result, is optimized.
 Basics of e-Procurement
The digitalization of business processes
has become an increasingly important
method of driving modern business
organization.
Electronic procurement provides
businesses with the opportunity to design
faster and more cost-efficient processes with
greater transparency. Many companies have
recognized this potential and are
increasingly turning to electronic aids in
order to optimize their procurement
processes.
 TYPES OF e-PROCUREMENT
• Catalogue systems,
• tendering tools, and
• electronic supplier evaluations
• are just a few of the applications making
day-to-day work easier
 Common e-Business models
• Common e-business models includes;
 Content Models for the processing and
provision of new information
 Commerce Models for the management of
business transactions
 Context Models for the aggregation and
evaluation of existing information
 – Connection Models for the provision of
channels for exchanging information
e-Procurement can be divided into two basic
subareas: e-Ordering and e-Sourcing. These
terms accordingly represent the electronic
support of strategic or operational purchasing.
 e-Ordering& e-Sourcing
• e-Ordering is aimed at operational and
administrative tasks and is used to
reduce process costs, for example
through the use of electronic catalogue
systems or online shops for corporate
customers, for the handling of low-value
requirements.
• e-Sourcing, on the other hand, describes
the strategic approaches taken, the sole
aim of which is to reduce cost prices and
where the reduction of the internal
process costs is regarded as more of a
side effect.
 e-Tender
• Tenders are used as part of the strategic
procurement process to find suitable
suppliers and to prepare for the
negotiations that follow.
• Several suppliers on the market are
selected, requirements formulated in a
tender, and this is then communicated to
those taking part.
• Once the participating suppliers have
submitted their offers, these are assessed
and compared.
Cont….

• With an electronic tender (e- Tender or

Electronic ), suppliers are requested to
submit their offers for a tender to an
Internet platform. Access to this tender
can be open or closed. With an open
tender, the relevant documents will be
freely accessible on the platform and
anyone interested can submit a
corresponding offer.
This type of tender is often used as a
means of identifying new suppliers
Cont…

• With a closed tender, only selected

suppliers receive access to the tender
documents. The advantage s here include
better protection of company know-know
and less effort required in evaluating the
submissions made.

Open tenders generally receive a greater

response as they have a far wider appeal,
while the quality of the submissions is
better for closed tenders as the participants
have already been pre-selected by the
company issuing the invitation to bid.
 Cont…
• The aim of tenders is, once a particular
requirement has been determined, to
establish the current market situation,
identify new suppliers, make the
suppliers comparable with each other,
and build up price pressure for
subsequent negotiations. The advantage
to electronic tenders is that the
technology can accelerate, standardize,
and simplify the process.
 e-Auction
• If, unlike the e-Tender, pricing needs to
be more dynamic, auction procedures
can be used.
• Auction principles are applied here
when determining the price. The
auction thus takes the place of
conventional price negotiations,
whereby far greater pricing pressure
can be built up during an auction as the
participants are forced to react
immediately to competing offers
Cont…
• There are various auction models to choose
from, with different result profiles.
Four popular models are described below:

The English Auction is the oldest and most

well-known form of auction. Suppliers submit
offers for a predetermined order, each offer
better than the previous one. The supplier who
submits the last and thus best offer wins the
auction.
Cont…
• The Japanese Auction is based on rounds. In
each round, the supplier with the worst offer
must underbid the best offer or leave the
auction. The pace is generally determined by the
buyer. The rounds continue until there is only
one supplier left.

With the Dutch Auction, the prices go up and

not down. The Buyer puts forward an
unrealistically low starting price and this then
gradually increases until a supplier is ready to
accept the price quoted.
Cont…
• The Brazilian Auction also involves
increasing bids. The Buyer discloses what he
is willing to pay before the auction starts. The
suppliers then compete for the order by
gradually increasing the services they are
prepared to offer for this price. The supplier
who offers the most for the price specified is
awarded the contract.
Cont…
• The use of e-Auctions creates two decisive
effects: cheaper cost prices and increased
buyer productivity. Because with reduced
negotiation phases, Buyers can process more
procurement transactions or the time saved
can be used for other activities.
 e-Collaboration
• e-Collaboration focusing on a
particularly intensive collaboration
with the suppliers. e-Collaboration is
thus not product oriented but supplier
oriented.
• This type of e-Collaboration involves
systems for the exchange of design
data, documents, or project plans
Subareas of e-Procurement
 Basic Types of e-Ordering Models
• e-Ordering solutions are generally based on
electronic product catalogues, from which the
consumer selects the required goods and places an
order.
• The order is automatically sent to the supplier,
registered, and paid for. These solutions cover the
entire operational ordering process, including
availability check, approval, receipt of goods, and
invoice verification.
• Three approaches can be taken to implement an e-
Ordering concept, depending on catalogue
responsibility: an external purchasing solution
(Sell-Side), creation of own solution (Buy-Side),
or purchasing via a catalogue-based marketplace
(Intermediary).
 Sell-Side Models

• Sell-Side e-Ordering solutions are widespread,

primarily among sellers looking to use the Internet
as a channel for transaction and distribution thanks
to the development of online trade.
The main advantages to Sell-Side solutions
-Configuration of complex products is possible
– No investment costs for an order system
– No operating costs for maintaining current
product lists and prices for the buying
company
– Shorter delivery times thanks to direct
placement of order in supplier’s system
– Real-time request of current availabilities
and prices.
 Cont…
• The disadvantages to this solution include :
-No option of automatic product
comparison
– Only restricted support of procurement
process from Buyer
– Consumer must use different information
system for ever y supplier
– Restricted integration of procurement
process in operational information system s
of customer
 Buy-Side Models

Buy-Side Models:
• The counterpart to systems on the
supplier side are solutions on the buyer
side, also known as Buy-Side Models.
The purchasing software and a large part
of the online catalogue are run by the
buying company. Here, the Buyer
combines various items from several
suppliers in an individually defined
Multi-Supplier Catalogue and makes
this accessible to his consumers
 The main advantages to Buy-Side solutions

• Products from all suppliers may be

represented in one system
– Procurement process may be designed
according to specific company requirements
– Internal authorization and approval
procedures are supported
– Process lead times can be reduced
– Central administration of products already
negotiated
– Consumer can operate system independently
 Disadvantages to Buy-Side solution:

• Investment costs for information systems rest

with procuring company
– Operating costs for Content Management
incurred
– Not all suppliers have an electronic product
catalogue
– Suppliers sometimes deliver poor-quality
product data
– Purchaser and supplier must coordinate
exchange format
 e-Marketplace Models

• e-Marketplace solutions are, in principle, just like Sell-

Side solutions; only here not every supplier separately
offers catalogue data.
• Instead, this data is collected, prepared, and published
online by an independent marketplace operator
(Intermediary). Access to this platform may be either
open or closed, just like a Sell-Side solution.
• According to a study from the German
Association for Supply Chain Management,
Procurement and Logistics (BME) regarding the
use of electronic solutions, more than 70% of
companies asked were using at least one e-
Procurement application, the intensity of use has
stagnated for several years, however, at a rather
low level.
Cont…
• Advantages of e-Market place solutions:
-Standard user interface
– Display of current and detailed market
offers
– Efficient transactions
– Comparability of various offers
– Anonymous procurement option
– Bundling of supply and demand
Cont…
• The disadvantages include :

-Poor integration into ERP systems.

– Intermediaries generally only cover a
narrow product range.
– Only large companies can negotiate
better prices.
– Classified directories are often not up to
date.
 Aims of e-Procurement

• The main aim of e-Procurement is to optimize

results in the procurement process. The
following target areas all lead back to this
primary objective.
• Financial Objectives
• Process Objectives
• Market Objectives
• Information goals
 Financial Objectives

It is the “leverage effect of materials

management ” that makes e-Procurement
so attractive, as all savings generated in
Purchasing can be directly added to the
commercial profit.
Product costs offer the most obvious opportunity
to achieve savings. Procurement goods with
high product values are particularly suitable as
this is where the greatest savings can be made.
 Process Objectives

• In addition to the financial objectives ,

the simplification, support, and
automation of business processes is a
central objective of e-Procurement
solutions. On the one hand, to achieve
savings through the reduction o f
process costs and, on the other, to
increase process quality and reduce
susceptibility to errors.
 Information Goals
• The use of e-Procurement solutions
considerably improves the scope of
information provided. More information is
available to the buyers at a faster rate as the
information acquired and evaluated from the
existing material is simplified considerably.
 Market Objectives

• The use of e-Procurement solutions can consider

ably improve a company’s purchasing position.
On the one hand, the transparency achieved can
be used to bundle requirements and thus secure a
more attractive position on the mark et.

The bargaining power gained from this can then

be used to reduce cost prices or improve
conditions. On the other hand, the transparency of
electronic tenders or act ions intensifies com
petition among suppliers, thus increasing the
price pressure on
suppliers
Practical Application of e-Auctions

• The electronic auction is one of the core

elements of e-Sourcing. One option for
systematically introducing an auction tool is the
problem-solving process “PDCA”, familiar from
the management concept Kaizen.

• The PDCA cycle comprises the following

phases:
 ADVANTAGES OF e-PROCUREMENT

• reducing process, product, and inventory

costs in conjunction with greater speed
and higher quality.
• the opportunity to design faster and more
cost-efficient processes.
• greater transparency.
• optimize their procurement processes.
• facilitates cost-efficient information, and
• exchange processes at local, regional or
global level.
DISADVANTAGE OF e-PROCUREMENT
• Routine work: More time spent on
recurring tasks
• Purchasing regulations: Non-compliance
with existing purchasing regulations
• Procurement time: Major time resources
of procurement process
• Procurement costs: High process costs,
particularly when compared to low-
value materials
THANK YOU