Slide 7.1
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
E-procurement
Slide 7.2
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
How important is procurement?
We estimate that for every dollar a company earns in revenue, 50 cents to 55 cents is spent on indirect goods and services—things like office supplies and computer equipment.
That half dollar represents an opportunity: By driving costs out of the purchasing process, companies can increase profits without having to sell more goods. Hildebrand (2002)
Slide 7.3
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
The 5 rights of e-procurement
• at the right price• delivered at the right time• are of the right quality• of the right quantity• from the right source.
Baily et al., 1994
Slide 7.4
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.1 Key procurement activities within an organization
Slide 7.5
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.2 Electronic procurement systemSource: Tranmit plc
Slide 7.6
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.4 Use of different information systems for different aspects of thefulfilment cycle
Slide 7.7
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.5 E-mail notification of requisition approvalSource: Tranmit plc
Slide 7.8
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.6 Document management software for reconciling supplier invoice with purchase order dataSource: Tranmit plc
Slide 7.9
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.7 The three main e-procurement model alternatives for buyers
Slide 7.10
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Figure 7.8 Integration between e-procurement systems and catalogue data
Slide 7.11
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Practical examples
• http://www.yale.edu/procurement/eprocurement/training/videos/TourV2.htm
• https://www.supplycollins.com/portal/server.pt?
Slide 7.12
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Measurement of e-procurement benefits
Peter Trkman Ph. D.assistant professor
This presentation is based on: Trkman, P. & McCormack, K. (2010) Estimating the benefits and risks of implementing e-procurement IEEE Transactions on Engineering Management, in press.
Slide 7.13
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Content
Motivation
Importance of evaluation
E-procurement: benefits and challenges
Methodology
Value-at-Risk use in e-procurement
Conclusion & Further research
Slide 7.14
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Important!
Purchasing has undergone a transformation from merely being a necessary function to one that has become more strategic with a focus on generating a competitive business advantage
Elektronsko poslovanje 14
Slide 7.15
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Purpose
The challenge that remains is how to measure the increase in efficiency (both value and risks) of e-procurement implementations and simultaneous changes in the organization and strategy.
Elektronsko poslovanje 15
Slide 7.16
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Expected benefits
The main benefits of e-procurement are an increase in firms’ competitiveness through cost reduction and/or boosted efficiency with inbound logistics.
Those benefits can materialize in a reduction of purchasing transactions costs, order fulfillment and cycle time, a reduction of the number of suppliers or even a reduction in the price paid and the number of staff to support purchase transactions
Elektronsko poslovanje 16
Slide 7.17
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Importance of P2P process
E-procurement is the use of electronic means (the internet, web, e-mail) to enable the purchase of products and services over the internet
One of the major processes (global sourcing)
Both savings & risks are important
Important to study the whole process!
Slide 7.18
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
P2P process
Slide 7.19
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Importance of benefits estimation
Previous estimates (up to 40-60% of total transactions costs)no methodology reporteddifferent companies may have different savings
Important to:justify such investmentsmonitor the projectsevaluate the benefits
in a specific company settings
Slide 7.20
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
EB evaluation importance
Organizations lose up to 600 billions $ per annum due to unsuccessful IT/EB projects (Gartner)
40% of IT/EB expenditures does not bring any value to the organization (IBM research)
Slide 7.21
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
EB evaluation importance - 2
despite the importance of EB investment the companies are still unsure about the benefits and way to measure the value and what influences this value (Subramaniam, Shaw, 2004).
There is a lack of understanding which methods and techniques are appropriate for evaluation of EB investment (Love et al., 2005)
Therefore the companies often see no real benefit of EB investment (Gunasekaran et al., 2008)…..
….and the expectation of EB investment are rarely fullfiled (Tanner et al., 2008)
Slide 7.22
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
You get what you measure
Slide 7.23
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Tangible & intangible benefits
Tangible benefits:- increase in sales- stock turnover- transaction costs reduction- quality (e. g. number of mistakes per million products)- lead times
Intangible benefits:improved image of a companysatisfied employeesbetter team-work…
Slide 7.24
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Qualitative methods for evaluation
Source: Brun et al., 2006
Slide 7.25
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Cost-benefit analysis
Slide 7.26
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Quantitative methods for evaluation
Vir: Brun et al., 2006
Slide 7.27
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Back to our case!
Elektronsko poslovanje 27
Slide 7.28
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Main questions
how can the reduction of procurement cost, lead times and employee workloads be measured; and
which advantages and potential risks do organizational changes (in our case a change in approval procedures) bring to the procurement process?
28
Slide 7.29
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Methodology
Six major companies’ P2P (different industries) process were examined from 2006 to 2008 via interviews and analyses of transaction data
Process maps developed
The results were validated with the company employees
249,295 orders of an American multinational company used as inputs
Business process simulations (Igrafx 2007) for each scenario
Slide 7.30
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Why simulations?
It enable the mapping of current and future state and the estimation of reingenering benefits (Caridi et al., 2004)
Can be used for evaluation of various scenarios (Cho et al., 2005)
Enables the comparison of various business process configuration (Roeder et al., 2004)
Several successful examples of use in e-procurement projects (Mohebbi et al.,, 2007; Changchien et al., 2002; Reiner et al., 2004).
Slide 7.31
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Simulations - problems
The main problemsrelatively expensive {Vergidis et al., 2008),
hard to acquire the neccessary knowledge (specially for SMEs) (Berlak et al., 2004),
the model is always a simplification of reality. Verification and validation of the models is of outmost importance (Persson et al., 2002).
• GIGO principle
Slide 7.32
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009Elektronsko poslovanje 32
Slide 7.33
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
The role of simulations
optimizationanalysis of decisionidentification of problems/bottlenecksrisk management
prediction of the future
Slide 7.34
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009Elektronsko poslovanje 34
Company name Sales (per year in million $)
Headquarters Industry/products No. of purchase orders per year (approx.)
Chemicalia 3500 Houston, TX poly propylene, poly ethylene resins
85,000
Judril 250 Houston, TX skid-mounted drilling, equipment to oil field
48,000
Cementy 500 Nazareth, PA cement 28,000 Energy Company
8000 Calgary, Alberta
oil sands mining and production
85,000
Polymerco multibillion Switzerland various chemicals and resins
52,000
Energocom multibillion Houston, TX gas pipeline company 68,000
Slide 7.35
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Scenarios
Scenario 1 (scen1): 100% are buyer assisted (BA);
Scenario 2 (scen2): 80% BA, 10% Pcard, 10% e-catalog (EC),
Scenario 3 (scen3): 60% BA, 20% Pcard, 20% e-catalog (EC)
Scenario 4 (scen4): same as scen2, but approval levels tripled (USD 3,000, USD 30,000).
Slide 7.36
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Business process model
Elektronsko poslovanje 36
Firm
type
e-catalog
PCard
buyer assisted
material need
End (PCard)
requisition (EC)
requisition (PC)
requisition (BA)
approval, level 1 (PC)
approval 1
needed?
approval 2 needed
approval level 2 (PC)
Yes generate order (PC)
Approve & pay invoice (PC)
End (EC)
approval level 1 (EC)
approval 1
needed?
Yes approval 2 needed
approval level 2 (EC)
Yes generate order (EC)
No
Approve & pay invoice (EC)
No
End (BA)
approval, level 1 (BA)
approval 1
needed?
Yes approval 2 needed
approval level 2 (BA)
Yes generate order (BA)
No
Approve & pay invoice (BA)
No
Yes
No
No
Slide 7.37
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Lead time distribution
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
no. of days
no. o
f tra
nsac
tions
scen1scen2scen3scen4
Slide 7.38
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Summary of results
Slide 7.39
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009Elektronsko poslovanje 39
Table 4: Probabilities that a transaction will finish within a given period of time
time of completion
likelihood of completion within the given time
scen1 scen2 scen3 scen4 8 days or less 5% 23% 33% 36% 14 days or less 89% 91% 91% 96%
Slide 7.40
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Costs per approval level
approval 1 (indexed)
approval. 2 (indexed)
supervisor workload (FTE)
manager workload (FTE)
approval costs (USD)
value loss costs (USD)
total costs (USD)
10 10 10.6 6.70 3,625,000 397,276 4,022,276 50 50 8.7 0.94 1,589,300 844,015 2,433,315
100 100 6.8 0.08 1,049,500 1,078,234 2,127,734 300 300 2.5 0 379,400 1,466,992 1,846,392 500 500 0.94 0 142,100 1,743,300 1,885,400
1000 1000 0.08 0 12,000 2,000,453 2,012,453
Elektronsko poslovanje 40
Slide 7.41
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Total costs & approval level
Slide 7.42
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
Value-at-Risk
Mainly used in financial industry…as the expected loss arising from an adverse market
movement with a specified probability over a period of time.“the sum of the probability of events times the monetary impact
of the events for the specific process, supplier, product or customer” (Supply Chain Council)
Still not widely used in supply chain/procurement management, but its use is increasing.
Methodological approaches are needed (can be computationally intensive)
Several other critics
Slide 7.43
Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009
VaR & approval level
Which one is preferable?
scenario approval/check costs in USD
VaR (95% probability) in USD
VaR (99% probability) in USD
scen2: more control 1,049,500 2,052,932 2,330,755 scen4: empowerment of employees 379,400 3,740,071 4,315,433
Top Related