e-commerce / e-purchasing

CIPS is putting forward its views on e-purchasing as it is having a radical effect on the ways in which purchasing and supply management is undertaken. The CIPS mission is to: develop improved methods of purchasing and supply management demonstrate purchasing and supply management's contribution to prosperity represent the purchasing and supply management profession promote and maintain standards of skill and integrity
It is recommended the reader first reads the definitions of eSourcing, eProcurement, ePurchasing, eCommerce and eBusiness in the eCommerce and eBusiness Knowledge Works documents. eHubs; eMarketplaces - allowing shared real time information such as suppliers accessing real time sales Sourcing e.g. identifying new sources via the Internet; use of intelligent search engines The growth of e-commerce does not affect the CIPS Content management e.g. private catalogues, public mission. It does however facilitate significant new catalogues, internal inventory management, maintenance opportunities in purchasing and supply management, and management also creates substantial threats, due to the rapidity of the change and because of its challenge to traditional purchasing Connectivity to internal systems and sources of information and supply management functions. It is therefore CIPS' role, such as inventory management, maintenance management, in accordance with its overall mission, to: Materials Resource Planning (MRP) systems Payment systems e.g. purchasing cards support its members, and other purchasing and supply Multimedia (although eProcurement does not necessarily management professionals, in fully taking advantage of the contain multimedia elements) opportunities arising from eProcurement Improvements in localised supply chain mechanisms and lead the purchasing and supply management profession in consortia etc. leading to mutual benefit developing eProcurement expertise to meet future challenges To conduct e transactions of any sort does however require CIPS appreciates that there is a great deal of hype and also nervousness about ePurchasing. This can lead to uncertainty and self-preservation. ePurchasing should not be driven by technology but by the need for process improvement to meet the objectives of an organisation and its customers. Purchasing and supply management professionals should view it as a positive opportunity to increase their value-add rather than as a threat. infrastructure such as; Internet, Intranet and Extranet; eHubs; information access and exchange e.g. on-line design.

Connectivity to external supply chains e.g. extranets, EDI;

The CIPS holds the following viewpoints in respect of ePurchasing: Strategy

Organisations should consider incorporating eCommerce / ePurchasing within their corporate strategies. Correctly chosen eProcurement options can be a relatively low risk eStrategy offering significant benefits.

Definition The CIPS definition of e-purchasing is:

'The combined use of information and communications technology through electronic means to enhance external and internal purchasing and supply management processes. These tools and solutions deliver a range of options that will facilitate improved purchasing and supply management'.

CIPS strongly recommends that organisations have a welldefined purchasing and supply management strategy and use appropriate eSourcing/eProcurement methods as a facilitator to achieve this. A progressive purchasing and supply management strategy will deliver significant business benefits maximising value for money. An eSourcing/eProcurement solution should never be e-purchasing enables: implemented in the absence of such a strategy. An organisation's ePurchasing strategy should also support its Evaluation of end-to-end trading cycles e.g. evaluation and eBusiness strategy including the eCommerce strategy (eSelling) and vice versa. possible re-engineering of trading cycles leading to reduced cycle times Improved workflow of the internal procurement process enabling end-user self service and E-purchasing Programme decentralisation with centralised control through company-specific catalogues New functionality such as Purchasing professionals should, ideally, lead and drive the on-line bidding in eAuctions and e-requests for procurement part of any e-commerce project and work Quotations (RFQs) cross-functionally with colleagues. Where this is not practicable, a purchasing and supply management Use of more efficient and cheaper connectivity methods professional must ensure he, or she, is consulted by the such as the Internet and XML (a computer language for eCommerce Project Team involved in decision making coding content and delivery). XML is not however a and kept abreast of developments. New technology is not a requirement for eProcurement as many solutions do not substitute for good professional knowledge and abilities. utilise it

Connectivity to external sources of information e.g. portals;

eHubs; eMarketplaces

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Processes and Systems
Organisations should not simply automate existing procurement processes and systems but should consider improving ways of working and re-engineering business processes prior to the implementation of eSourcing/ eProcurement. Purchasing and supply management professionals should challenge established procurement practices to test whether these have evolved around a paperbased system and as such can be replaced. CIPS strongly recommends that, wherever possible, processes should be re-engineered prior to implementing ePurchasing. ePurchasing is not a discrete systems application, but rather an ongoing program which should be continually developed as technology and purchasing and supply management expertise evolves within an organisation. ePurchasing will also provide added value to the procurement function and as such will improve procurement strategy as it will, for example: generate accurate and detailed management information which should enable strategic insight into organisation's buying patterns enable improved sourcing, supplier management, improved scheduling, reduced stock holding, demand management and supplier performances. To optimise these and other benefits, companies should focus on overall supply chain eProcurement solutions. CIPS suggests that the most significant benefits gained (as opposed to predicted or expected) from ePurchasing to date are improved management information, reduced cycle times and reduced transaction costs. In order to reap the benefits of ePurchasing, purchasing and supply management professionals should ensure that they undertake appropriate training and ensure their skills, knowledge and competencies are continuously developed. Such skills relating to ePurchasing include wider management skills such as those involved with change management.

Changes and Benefits

Many of the benefits predicted for eProcurement have been over-optimistic as they include procurement benefits which many organisations will have realised without introducing eProcurement. They have often been based on organisations in which the benefits of professional purchasing and supply management strategies have not yet being realised or where purchasing and supply management solutions have been implemented and the outcomes are being incorrectly attributed to eProcurement. Few organisations have implemented eProcurement for long enough to have realised tangible business benefits. ePurchasing will change the dynamics of the purchasing and supply management profession as for example there will be a greater emphasis on knowledge management. It is suggested that ePurchasing will change the culture of purchasing and supply management in an organisation and may lead to a greater emphasis on cost and prices. ePurchasing will also facilitate purchasing from global sources. Such changes will present purchasing and supply management professionals with enhanced career opportunities. ePurchasing will release time to be spent on more value-add aspects of purchasing such as the development of end users' purchasing competencies and the development of suppliers. It is an opportunity to deploy competencies to the greatest effect. ePurchasing can enhance transactional purchasing by providing end users with quick and easy to use electronic systems such as electronic catalogues for selecting and purchasing their requirement from preferred suppliers. This should reduce transactional costs by improving speed and efficiency and provide greater commitment to contracts by the reduction of "maverick purchasing" i.e. purchases made outside an organisation's contractual arrangements. CIPS believes that ePurchasing will continue to develop with new technologies becoming available for the more sophisticated aspects of purchasing and supply management.

Benefits to Suppliers
Engaging in the eBusiness process also brings potential benefits to suppliers. These include:

Time savings in re-inputting orders Reduction in errors e.g. from re-inputting returns,
deliveries

Reduced transaction costs and cycle times Holding less stock as a result of more efficient

communications with customers i.e. real time sales data,

information for use in forecasting Improved supplier performance by sharing supplier

measurement information

Faster payment Improved management information

The resulting benefits to buyers will be:

Reduced transaction costs and cycle times Possibility of developing Vendor Managed Inventory Improvements in Just in Time deliveries More accurate deliveries due to reduced input order errors by suppliers Shared performance measurement data which encourages improved supplier performance Potential for less expediting by the buyer as the supplier acknowledges orders by exception which automatically updates the buyer's system Reduced stock due to shared sales/forecast information

ePurchasing has the potential to facilitate communication between purchasers, their customers, suppliers and employees. It can encourage suppliers to become more efficient and more focused on meeting the organisation's needs.

Implementation Issues
There are also issues to overcome when implementing ePurchasing including:

Ensuring that by deploying eProcurement, organisations

are not simply passing costs or process inefficiencies on to another part of the organisation or on to suppliers

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Competition issues e.g. in exchanges using collaborative Possible negative perception from suppliers e.g. their Website and information control lost to exchange Negotiated procurement benefits may be shared with
other exchange users who may be competitors suppliers administrators margins reduced further from eAuctions purchasing

Creation of catalogues can be a long process and costly to Catalogue management can be costly Product coding and classification can also be costly The cost of changing suppliers once they have invested in
catalogue production may inhibit competition and lead to inertia Culture profile within organisations e.g. resistance to change

Future
CIPS encourages the ongoing development of technology based-solutions for more complex procurements. It encourages purchasing and supply management professionals to learn about eCommerce and then provide leadership on all facets of ePurchasing projects in their organisations in order to, for example: Identify all the procurement needs for direct and indirect materials and services prior to developing an appropriate eProcurement solution Carry out due diligence on potential suppliers Persuade suppliers to join the market Suggest improvements to business processes

Conclusion
CIPS encourages organisations to fully understand how ePurchasing can be of benefit to their business. It suggests that purchasing and supply management professionals ensure their organisations have a comprehensive eCommerce strategy. Purchasing and supply management professionals should evaluate eSourcing/eProcurement options in order to ascertain the most appropriate solutions for their own organisation. CIPS believes that there is nothing unethical or unprofessional about the use of information technology e.g. to facilitate eAuctions. The ability of the procurement function to effect change will depend on the company, the industry sector and the maturity of purchasing and supply management within an organisation, its resources, culture, nature of business and markets within which it operates. ePurchasing will impact on people, processes, and procedures as well as on financial performance. CIPS strongly encourages and supports purchasing and supply management professionals in their pursuit of the ePurchasing challenge.