E-procurement

E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, work, and services through the Internet as well as other information and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning.

E-procurement is done with a software application that includes features for supplier management and complex auctions.

The e-procurement value chain consists of Indent Management, eTendering, eAuctioning, Vendor Management, Catalogue Management, and Contract Management. Indent Management is the workflow involved in the preparation of tenders. This part of the value chain is optional, with individual procuring departments defining their indenting process. In works procurement, administrative approval and technical sanction are obtained in electronic format. In goods procurement, indent generation activity is done online.

Procurement cycle starts from raising of the requirements for an item or a service and ends only after settlement of supplier payments.

E-Procurement Models

There are three major procurement models. While they all require the same basic e-Procurement functionality, each model dictates its own e-Procurement requirements and emphasizes certain features and functions above others. This post will address the different models and which features and functions are emphasized by the models.

Decentralized Procurement – In it each business, functional, or geographic unit is responsible for its own purchases. Individual business units are empowered with autonomy and control over their process and design decisions. It allows for quick processes and issue resolution and allows the organization to take advantage of expertise in the local market. However, it does limit an organization’s ability to leverage the corporate spend or to align the business unit objectives with the objectives of the global organization.

If an organization is using a decentralized model, the e-Procurement system will need to be quite flexible as each unit will likely have its own requisition formats, approval processes, purchase order distribution, invoicing, and payment processes. It will have to support multiple workflows, and allow for analyses against multiple budgets. And it will have to meet the different needs of the different units.

Centralized Procurement – In it, all procurement goes through a single centralized model. This has its advantages as it allows the organization to fully leverage corporate spend and drive standardized sourcing processes across the organization. However, it can lead to lost knowledge of local supply markets and consumption patterns, which can result in sub-optimal buys for many regions. It can also increase the risk of maverick spend when the geographically dispersed site managers do not agree with centrally mandated decisions. And it can increase reaction times to unexpected changes in supply or demand.

If the organization is using a centralized model, the e-Procurement system will need to be scalable and high performance as the global organization will be using a centralized instance and a centralized data store. It will need very good fine-grained roles management as there will be hundreds, or thousands, of users, who will not only have different roles, but different levels of access to the system and the data contained within. (A manager might only be allowed to see activity from her team in her local unit.) And it will need fine-grained data classification capabilities to support unit-based analysis, which could be built-in or through an external tool.

Hybrid procurement – It is also called as center-led procurement having a procurement center of excellence (COE) which focuses on corporate supply chain strategies and strategic commodities, best practices, and knowledge sharing while leaving tactical buys and tactical execution to the individual business units. It was designed to give an organization the best of both the centralized and decentralized worlds with as few disadvantages as possible.

If the organization is using a center-led model, the e-Procurement solution needs to be extremely flexible, scalable, and robust as it will need to support distributed instances with different workflows for each business unit for decentralized purchases as well as a centralized instance with a single master workflow for centralized instances. Role management and security will need to be extremely fine grained as users could have different permissions depending upon whether the spend is centralized or distributed. And data management will have to be fairly intelligent as some spend will be centralized while other spend is distributed.