E-Procurement
E-Procurement is short for electronic procurement and describes the purchasing of goods or services with electronic systems often via digital networks such as the Internet. Electronic procurement is usually an integral part of e-commerce and thus also of e-business. In the area of e-procurement, modern communication methods are combined with classical procurement procedures and the associated processes are managed electronically or digitally. The electronic processing of orders is called e-fulfillment. The advantage of e-procurement is time and thus cost savings in the handling of order processes.
Background
Electronic commerce, e-commerce, has evolved as a result of digitalization and the spread of the Internet. In the same period, the procurement mechanisms of goods have changed and have already been adapted to the new conditions in many industries. One result of these changes is e-procurement.
Up until now, many individual steps had been necessary in companies to order goods. This entire process can now be shortened by many steps. Prior to digitization, the requirements first had to be determined, then the budget had to be checked, offers compared, the order forms created, and finally the goods receipt had to be checked and archived. Today, these individual procurement steps can be automated and can be started with just one button. E-procurement and fulfillment can often be realized with just one software solution in the form of ERP system.
Especially for larger companies, e-procurement offers the possibility to save personnel costs and significantly reduce the time between ordering of the goods, deliveries and depending on the company’s purpose, resale. As a result, e-procurement is particularly suitable for online retailers whose customers usually rely on high product availability as well as fast delivery. You can thus achieve a clear market advantage if you optimize your e-procurement processes.
Types of e-procurement systems
There are various features that can be used to classify e-procurement systems. The system participants play a role for example. Usually, e-procurement is usually carried out in the B2B area. The type of goods procured through the system is also a factor. In addition, the costs of the procurement process are relevant as well as the relationships between the responsible persons within the eProcurement cycle.
In principle, three different systems can be distinguished on the basis of the listed features:
- Supplier systems (sell-side solutions): The supplier implements the e-procurement system. It provides the necessary platform and customers can procure their goods there. The supplier determines both the goods availability and the prices.
- Purchaser systems (buy-side solutions): In this case, the purchaser defines the conditions such as prices and quantities for their procurement process. If, for example, large industrial companies have a need for spare parts, a call for tender can be posted through the e-procurement system. A number of suppliers have the possibility to obtain the contract for the production of these parts via the system.
- Marketplaces (many-to-many solutions): These systems are mixed with both procurement and delivery systems. Manufacturers can offer their goods and customers can specify their needs at the same time. The marketplace is then usually regulated by a third party. A modern example of such a marketplace is the trade platform Alibaba, which also partially blends the B2B with the B2C area.
Requirements
In order for e-procurement to achieve its full performance potential, participants should use uniform standards. These may be related to labeling of goods (GTIN or ISBN) or the file formats used (for example, XML). In addition to standardization of the formats being used, the infrastructure should also not be neglected. E-Procurement can be implemented in intranets, extranets, virtual servers or through certain marketplaces. In individual cases, they have to be coordinated with the participants and partners.
Benefits
The electronic processing of goods procurement has immense advantages for companies, which are briefly listed here:
- Decreased time, labor, and cost as compared to conventional procurement
- Faster procurement of materials or products
- More comparisons of prices or suppliers available
- Uncomplicated integration of new procurement sources
- Flexible purchasing, since the sources are available online around the clock
Service providers can pass on the advantages resulting from e-procurement directly to their customers. Thus, electronic procurement offers an advantage for consumers as they can benefit from lower prices.
Example
E-procurement is recommendable for medium and large companies. The manufacturing industry and trade rely on e-procurement solutions when the procurement of goods has to be carried out on a large scale or be particularly flexible. To implement this all electronically, using a VPN system or intranet requires large investments, which can be amortized by savings in time and money.
Suppose company X is dependent on supplier Y, who produces and supplies raw materials for a product. Many suppliers want standardized data storage so they can react quickly and easily to their corporate customers. If an automated interface is used, communication about goods inventories, delivery lists, quantities, and amounts to be paid takes place entirely via an extranet or intranet, a secure connection between the supplier and the company, which is also connected to the ERP system.
This results in a highly efficient, automated management of deliveries and available data. In this case, company X will have to integrate an e-procurement system, since supplier Y would otherwise no longer provide its services. At the same time, various areas of company X will profit from this system, such as logistics, goods receipt, and financial accounting, and not least the customer. The internal advantages are passed on directly to the customer thanks to the rapid availability and up-to-date information on products (delivery time, etc.).
Benefits for online marketing
Process optimization always plays an important role in online marketing. With e-procurement, online stores have the opportunity to optimize their product procurement. The faster goods can be purchased, the faster they are available again for sale. The more cost-efficient goods are procured, the greater the pricing options. Low prices can in turn be advertised in a targeted manner, thereby increasing brand awareness and reach. Together with an ERP system and shop CMS, online merchants can automate many different processes at once, thus saving additional costs or using resources for advertising or personnel.