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Group Purchasing Essay

There may be certain other limitations in successfully implementing an e-procurement system such as loss of strong internal controls that may be present in a manual procurement system. For instance, an important internal control – “the separation of duties” – may very easily be compromised if caution is not taken in the implementation of the system. There may also be some legal issues that need to be examined and taken care of. For instance, an authorized signature is required on every purchase order and other official purchasing documents which may be required by internal audit as well as the law.

To counter this problem, digital signatures with password controls can be placed in the system. Moreover, adequate arrangements need to be made for proper back up of electronic documents generated by the e-procurement process which may be required for the audit trail. There are several reasons for adopting e-procurement solutions. Cost saving is ofcourse the number one reason. Companies have claimed millions of dollars in savings owing the adoption of e-procurement solutions.

Group Purchasing is a significant cost saving benefit provided by the e-procurement solution as e-vendors aggregate their demand through a huge customer base and leverage it against the suppliers in

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the form of deep discounts. This way, even a mid-sized or small company can benefit from economies of scale if it has a material spend large enough to justify the investment in e-procurement. Further cost savings occur through elimination of ordering, expediting and requisitioning costs as well as the costs associated with spend, transaction and market analysis which is handled by the e-procurement platform.

Once the system is in place and properly integrated, companies need only to update their own purchasing application, and the procurement cycle initiates itself ensuring the best price possible. According to Laura Carbello, owner of CPRi communications, a company can save on average 30% per item. Cost savings also result from a significant cut down in staff costs as significant staff is eliminated that were previously required for the traditional manual procurement cycle.

Furthermore, e-procurement offers unprecedented efficiency as the procurement cycle time is significantly reduced and a huge amount of paperwork is eliminated. Also, a great deal of research time to look for the right suppliers gets cut down. Therefore, lead time in ordering and delivery are reduced and the supply chain gets lean and streamlined. The lead times are further reduced through direct shipment by suppliers. This eliminates intermediaries and saves the company a lot of money which would otherwise be paid out to the middle-men.

As lead times are reduced, the overall time to market for a firm’s product gets reduced which increases the probability of a firm to gain first mover advantages which have great revenue generating implications. Apart from that, as buyers and sellers start to share information through e-procurement, the trust relationship between the two businesses strengthens which results in better supplier relationships and can in the future make it easier to form strategic partnerships with the Suppliers. This paves way for Earlier Supplier Involvement if a firm is to develop a new product.

In addition to that, the use of e-procurement increases visibility of transactions which facilitates compliance with corporate supply practices thereby increasing total amount of money saved by the organization. Moreover, e-procurement adoption can facilitate the implementation of JIT which in turn has several benefits in cost savings and revenue enhancement. JIT is facilitated by the availability and exchange of real time information between buyers and suppliers, and the ability to cut down inventory levels to the minimum.

JIT is further facilitated through the automation of the requisitioning process and possibility of direct shipment. Several other direct or indirect benefits entail e-procurement. For instance, Peter Lawton, strategic procurement officer at south Tenyside council, claims that the adaption of e-procurement solution in 2008 gave his council a better visibility of their spending. He went on further claiming that e-procurement also helped the council to comply with corporate contracts.

Malcolm H. Morrison, CEO of Morrison Informatics, claims that huge amount of savings can be claimed through e-procurement as it automates procurement processes and saves significant amount of time and resources. It also removes uncertainty through standardization and clearly laid out procedures to follow in purchasing decisions. Morrison also adds that a fully integrated e-procurement solution can go as far as automating the requisition process of a traditional procurement cycle.

Inefficiency can be minimized by eliminating the use of papers which saves money and storage space. Moreover, he argues that the standard procedures embedded in an e-procurement platform would ensure internal consistency in a company’s procurement procedures which in turn results in reduced procurement costs. Procurement costs are also reduced through a reduction in errors as the whole process is computerized. Despite the popularity of e-procurement, it is still dominantly used only for direct materials which is estimated to be 70 to 75% of a company’ total spend.

The other 20 – 25% includes indirect products and services which are not strategically as important and are hence procured using catalogues, telephones and fax machine etc. Given the various benefits that e-procurement provides, a survey by Industry week revealed that the main drive toward its adoption is to improve compliance as responded by 54% of the participants. Cost savings come next in the list of priorities with 41% of the companies listing lower requisition to order cost as the main reason.

Further 38% of the companies report the reason for adoption to be reduction in maverick spend, while 31% claim that they are interested in reducing the requisition to order cycle times. Despite the numerous advantages that e-procurement provides, it is ironic to note that many companies are finding it difficult to implement and reap full benefits of the e-procurement solutions. This is primarily due to the fact the companies fail to conduct proper risk assessments before implementing the system and end up implementing the wrong software, or the wrong type, or fail to establish proper control mechanisms.

Owing to the uncertainty and complexity associated with the implementation, a majority of companies are taking a “wait and see” approach and letting go huge potential savings in order to wait for the evolvement of the best e-procurement model that would fit in with the organization while serving the necessary goals. While the true potential of e-procurement hasn’t yet been discovered, it certainly is one of the most important breakthroughs in Supply chain management.

WORKS CITED

Laura Carabello, E-Procurement can reduce expenses – Digital Perspectives – electronic commerce and the health care industry – Brief Article http://findarticles. com/p/articles/mi_m3257/is_12_55/ai_82481901/ 2. Deepak Shikarpur, Advances in Eprocurement, http://www. expresscomputeronline. com/20030519/opinion3. shtml 3. Michael A. Verespej, Eprocurement Explosion http://www. industryweek. com/articles/e-procurement_explosion_1042. aspx 4. Michael A. Verespej, Getting Started in Eprocurement http://www. industryweek. com/articles/getting_started_in_e-procurement_1043. aspx

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