The ABCs of enterprise procurement

If you've ever purchased items for your company, you know how frustrating, time-consuming, and costly that process can be.

Suppose, for example, that your company sells equipment that's made of various custom-manufactured parts - each of which you must purchase from a different vendor. To gather all those parts together, you must first identify companies that can build those items. Once you've found candidates, you must exchange and discuss technical documents - such as drawings and product specifications - with your new partners. After that, you have to process purchase orders within your own company, which usually means getting approval from administrative and perhaps technical staff. Finally, you must post orders and subsequent payment transactions into your back-office system.

To pull the whole thing off, your staff must comb through contact lists and catalogues to find suppliers, spend hours working the phones and fax machines, and ricochet between internal departments to get approval. All the while, the threat of human error looms large: the wrong products may be ordered, shipment dates may be entered incorrectly, and receiving locations may be recorded inaccurately.

Enter e-procurement, a Web-based means of creating specialised networks of suppliers on the Internet. With e-procurement, you can submit requests, exchange specifications, and receive and approve quotes. In this analysis, we'll explain how e-procurement can rectify the limitations of current procurement methods.

Technological translator

E-procurement portals are most effective when it comes to buying simple commodities, because those items don't require as much human judgment and communication as do custom-made products. Similar to consumer-oriented Web sites (think of Amazon.com), e-procurement portals let suppliers create and maintain online product catalogues from which other companies can search for items, place orders, and determine payment and shipping options on the spot.

Things get more complicated when you're trying to buy products that must be custom-made. In those cases, human judgment and interpersonal negotiation is often required. But that's not to say e-procurement tools can't help.

The first step is to put together an information package, known as an RFP (request for proposal), which contains the technical specifications and supply requirements for a given item. Next, you must find a supplier that can satisfy your request. To save time and money, you want to contact only qualified suppliers and with a minimum of effort.

One way to automate the process is to use an EDI (electronic data interchange) network, which lets suppliers and buyers exchange procurement information.

The problem with EDI networks is that, despite the various means of support for middleware technologies such as Corba and COM+ (Component Object Model) for Windows platforms, ad hoc links often lead to integration problems between incompatible applications.

The new medium

In contrast, the new generation of e-procurement systems uses the Internet as a communications medium, thereby simplifying information exchange.

(You can still use EDI networks with e-procurement software as most procurement packages integrate with current EDI applications, so you can submit requests for quotes via both the Internet and the EDI network.)Most e-procurement packages offer sophisticated features that wouldn't be available using conventional methods. For example, a standard e-procurement package lets you define workflows - and this is where traditional procurement methods often bog down. Suppose your company policy demands that, when an item is purchased, a production manager must approve compliance with technical requirements and confirm that the proposed delivery schedule meets manufacturing cycles, while a procurement manager is responsible for approving payment terms. An e-procurement solution can enable you to establish guidelines to tag along with your company's approval process so that the right person gets the right information at the right time.

In addition to those kinds of features, e-procurement software also helps by automating tasks that would otherwise be a drain on your staff. For example, if your company always needs a constant supply of certain parts, you can use an e-procurement package to monitor inventory levels and automatically purchase new parts whenever you're running low.

The software also has the capability of automating certain clerical tasks, such as completing purchase requisitions and order forms.

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