Definition: E-Procurement is the business to business (B2B) purchasing of goods and services through the Internet.
EProcurement can be implemented through either a manual process or using automated software
Enterprise Resource Planning (ERP) tools.
Benefits of e-Procurement
A vital part of
supply chain management, the procurement of materials and services can become a
major stumbling block for enterprises involved in the manufacture of deliverable goods. Without a
regular and reliable supply of raw materials the manufacturing process will come grinding to a
halt, leading inevitably to missed delivery dates and a backlog of orders. It is vital, then, to
ensure that the process of procurement is as efficient and reliable as possible.
Eprocurement can be an invaluable tool for enterprises experiencing difficulties in their
supply chain. If purchase orders are not being processed in a timely fashion and delivery
dates are not being met through manual purchasing methods, e-Procurement can be extremely
useful in streamlining the procurement process.
Types of E-Procurement
There are several varieties of e-Procurement, each of which can offers benefits to
manufacturing enterprises in ensuring both that materials are delivered in time to
meet production schedules and that they are at the best price to maximise profit margins.
* Web-based ERP
ERP software packages (from vendors such as SAP AG,
Oracle and The Sage Group) are
designed to optimise the
resource planning of an enterprise. In terms of the manufacturing
process they can generate recommended purchasing schedules in order to achieve an ideal
just-in-time (JIT) production cycle.
One of the many features of ERP software is its ability to automatically generate purchases
orders using the Bill of Materials for the finished product as a basis. Web-based ERP
software can go one step further. As well as generating purchase orders it can forward
them to suppliers in order to fully automate the procurement process. Based on the ideal
manufacturing process laid out by the ERP software, these orders ensure that materials will
be available in time to begin production at the ideal time.
In addition to generating new purchase orders, ERP software can also issue reschedule
notices to suppliers. Reschedule notices are supplementary orders that can either cancel,
delay, speed up and alter the size of pending orders.
ERP software can also generate and send purchase orders for maintenance, repair and operating
supplies to enable the smooth running of the production process. When repairs are necessary to
components of a production line, e-MRO orders can greatly reduce down time.
E-MRO orders are of greatest benefit to automated production lines using numerical control
machine tools. Many automated machine tools can run self-diagnostic programs, notifying an
operator by SMS message to a cell phone in the event of components failure. In addition to a
message to the operator the tool can also use ERP software to generate an e-MRO order for replacement parts.
E-sourcing is the use of the Internet for the identification of new suppliers for a
category of purchasing requirements. Otherwise known as reverse auctioning, e-sourcing is a
method by which enterprises can move their procurement process online in order to reach a
larger number of suppliers than would be possible through usual channels.
The major benefit of e-sourcing is the competitive aspect by which suppliers bid for projects.
Suppliers submit bids along with various details of the service they promise to provide, and
purchasers can pick and choose from the offers.
While reverse auctions can be performed through traditional channels, many enterprises prefer
using the Internet as they can connect with a wider range of service providers than would be practical in the real world.
Finally, e-Procurement can be used for the simple job of exchanging purchasing information
between buyers and suppliers. Using Internet technologies such as e-mail the process of
accumulating a database of supplier information can be made much simpler than by using
traditional contact methods.
Perhaps most importantly, these databases can be applied in the future to generating action
in a reverse auction. By informing suppliers of forthcoming auctions an enterprise can allow
suppliers the time to build a tender.
In a Nutshell
E-procurement, then, offers two main advantages. The first is the further automation of
business processes related to the
production of goods and services. By automating procurement
orders an enterprise can ensure that orders are placed in time to align with the recommended
production schedules of
Furthermore, e-procurement can also be a valuable tool in sourcing new suppliers of goods and
services, driving down materials expenditure by promoting competitive bidding.