Category : E business, General Motors Case Studies
It is a reality that without an effective procurement solution, companies must rely on purchasing and invoicing processes that waste time and money as well as frustration with system inefficiency then reduces user and supplier efficiency and compromises compliance with contracts and preferred suppliers. Thus, spending on goods and services hampers the ability of corporations to control costs and find new opportunities for savings. As retail companies are seeking a competitive edge by implementing strategic procurement initiatives that delivers the first cost-effective, on demand procurement application for direct and indirect goods and services. The procurement management enables retail companies to improve spends compliance and maximizes savings by eliminating too much spending as the e-procurement service for retail industry decentralizes procurement practices while helping to maintain centralized control over preferred suppliers and negotiated prices.
E-procurement is a way of using the Internet to make it easier, faster, and less expensive for businesses to purchase the goods and services they require. While e-procurement is a general term that covers a wide assortment of techniques, such as reverse auctions, its overall goal is to streamline the purchasing process so businesses can focus more management time on earning revenue and serving customers. Implementing an electronic procurement system offers a company many benefits. For example, if an employee needed to purchase a laptop computer for a business trip, he may at one time have been told to visit the local business supply store and charge the purchase to the company account. He may have been given a spending limit or may have been required to bring back a receipt for his purchase; however, those rules were not easy to enforce or to keep track of. He could purchase a top of the line laptop more for personal use than for business, but it would be the company that would foot the bill as for instance, a buyer would never want to hold a reverse auction because the seller would be able to drive up the price since they have the power in that relationship.
The understanding the various e-procurement techniques is critical if a company plans to successfully implement such a system and many indicate that most retail companies use e-procurement processes with the amount of purchases companies will make. As companies become more comfortable with using the Internet to handle their purchasing needs that number will continue to grow. For the objectives, it is important to consider the crucial aspects of E-procurement management being the best tool that could engage retail industries to give its best shot to communicate being good retailers to their manufacturers, and other important sectors involved in the E-procurement management practices as in recent years, there was a great deal of attention has been paid to the significance of ‘relationships’ both internally and between various members and tiers of supply chains. Moreover, there needs discussion of the pre-requisites for effective relationships and within the parameters of the role of trust. There has to be critical discussions in extent to which E-procurement offers a significant contribution to the retail industry for maintaining a competitive advantage as suppliers to both domestic and world-wide markets, paying particular attention to impacts on the roles of partnership and trust. In the context of retail industry, there considers the practical issues which may arise and evaluate the consequences, both positive and negative which may emerge in the future.
E-procurement systems provides management consulting services to help consumer goods producers, distributors and retailers rise above the competition and compete more effectively in today’s crowded marketplace helping the clients improve top-line performance, while simultaneously driving down costs. Through working with consumer goods producers and retailers worldwide, business sectors have developed a wealth of insight and talent to help clients solve their strategic, operational and technological challenges.
The specific objectives emphasizing the retail industry ways are to:
Ø Realize corporate vision and strategy through business portfolio management and corporate restructuring
Ø Achieve top-line growth through innovation and product design, product marketing, merchandising and channel strategy
Ø Increase their operational effectiveness, through improved sales force and marketing investment productivity; excellence in distribution, logistics and manufacturing and powerful cost reduction through strategic sourcing
Ø Improve organizational productivity through technology-enabled systems, streamlined structures and appropriate skills management
Ø Leverage technology by developing enterprise technology strategies that enable e-procurement and supply chain management
The Retail industry is in a state of change as the customers are increasingly well-informed and comfortable with multi-channel shopping. They demand higher value at lower cost. And they expect personalized services and shopping experiences. Driven by these evolutionary trends, as well as others in technology, processes, and participants, retailers today face challenges that demand strategic imperatives:
Ø Slow sales growth is driving greater efforts to increase revenues
Ø Shrinking profit margins stemming from consolidation and economies of scale
Ø Unstable customer loyalty as product and price comparisons become more accessible
Ø Multiple shopping channels and geographic expansion give consumers more options of where and when to buy
Ø New applications of technology heats up competition and complicates differentiation
Ø Increasingly complex supply chain demands greater ROI from IT investments.
New investments in technology can strengthen infrastructures and exploit advanced functionalities that enable new and innovative business strategies. IBM e-business has solutions that can help Retail companies:
Ø Build a more differentiated market position
Ø Seize global opportunities
Ø Strengthen and streamline supply chain
Ø Migrate customers to low cost web channels
Ø Optimize operating effectiveness and efficiency
Ø Speed time-to-market for new products and services
Ø Improve and rekindle customer relationships
In the retail and consumer products industries, pricing is one of the most important decisions companies can make. The industry rule of thumb is that a one percent increase in price can drive a ten-plus percent improvement in operating profitability for price and promotion optimization, to offer a solution designed to help you accurately forecast consumer demand on hundreds of thousands of items simultaneously and to execute pricing and promotion strategies that meet goals for sales, profit and price image. Choosing a service that provides critical business process on demand as business firms can acquire the capabilities they need quickly, with a low up-front investment and predictable monthly charges directly linked to business activity levels.
For the methodology, there needs to be the use of a descriptive as well as certain case study information technique of such retail companies in which it provides clear and direct emphasis of any possible research evidences and information in the purpose of providing critical discussions of such E-procurement management integrating the retail industry as it focus on the relationship of retailers and manufacturers. There is also the use of an exploratory study as being conducted into the level of deployment and benefits of Web-based procurement systems for the procurement of operating resources in a country as participants in the study included 21 procurement executives, 13 information systems executives and in three cases, key account sales executives. All of the respondents had involvement in the study, implementation of Web-based procurement systems for MRO purchases, depending on the stage of development within the organization using customer records of an electronic procurement system provider and through process recommendation.
A quasi-Delphi method was adopted in which three rounds of interviews were conducted with the respondents, at each stage reporting back the analysis from earlier rounds as well as providing the opportunity to explore issues in further detail in at least one face-to-face interview. The remaining seven respondents were interviewed by telephone on at least two occasions. E-mail was used in five interviews, and also to circulate the summaries of each stage to all respondents. The study set out to identify the current level of activity in the development of electronic procurement for MRO items, and the process of implementation, it was noted that the study organizations had significant difficulties in terms of clear tracking and auditing of the level and nature of MRO procurement taking place. From this, the process of implementation and initial objectives and bafflers were identified and summarized. A brief review was distributed to respondents inviting comment, further elaboration, and also soliciting key issues of interest. The second round of interviews conducted six weeks later employed a highly structured questionnaire to guide the interviewer. Key areas investigated were system design, benefits achieved to date, perceptions of process and functional impact, and the barriers to implementation. The analysis of the study provides insight into the impact of electronic commerce on the procurement process, and the implications it will have on the role and strategy of the purchasing function.
Everybody complains about the weather, but nobody does anything about it as the same could be said of the working relationship between retailers and manufacturers until now. All in all, it seems a small price to pay for improving relationships with your trading partners. The marriage between retailers and manufacturers is in danger of disintegrating unless both partners begin to trust and communicate with each other again, as the basic issue that is causing problems is money the costs of doing business and how they should be shared more equitably. Business people must work together and be more sensitive to each other's values, efficiencies and costs so they can do a better job serving consumers as it's a marriage and an enduring partnership. It can be a perception that there's a conscious effort by retailers to reduce the profit margins of the manufacturers while increasing their own profit margins as another area in which retailers take advantage of manufacturers, it is justified for a retailer to expect the manufacturer to carry share of the damage -- but what is the share?
Trade associations such as the Food Marketing Institute and the Grocery Manufacturers of America are working together to try to resolve some of the differences between retailers and manufacturers. In either case, consumers will be hurt and so will retailers, who rely on manufacturers to develop new value-added items that offer higher retail profits. Manufacturers have their finger on the pulse of the American consumer, these products offer higher retail values as well, and we spend millions on consumer research, millions on technology to develop products that meet the consumers' needs and millions on advertising. The business relationship between manufacturers and retailers is changing so that retailers are taking a more active role in merchandising. Retailers are beginning to demand that their suppliers follow certain requirements, such as Wal-Mart's new Business Planning policy. Wal-Mart offers information on its merchandising efforts and asks vendors to outline their marketing goals. Supermarkets are taking a more powerful position by moving from outside brokers to in-house private-label brokers. There can be little doubt that the relationship between retailers and manufacturers is being transformed.
Wal-Mart provides a full description of its upcoming merchandising program. In addition, the giant chain asks its suppliers to provide a detailed outline of their sales and marketing strategies. The story indicates "the package also included a list of roles Wal-Mart expects vendors to play in their future relationships, which implies - but apparently does not demand - that an interdisciplinary account team is set up by each vendor." If reports are accurate, Wal-Mart's move gives new meaning to the term "power retailing." The program involves information sharing on a broad front, but it is the retailer that is dictating the terms of collaboration. One of the most potent benefits provided by these brokers is that they allow midsized retailers to compete on even terms with their giant competitors. These brokers are a source of some controversy, but there is no doubt that they are changing the relationship between retailers and manufacturers within the private-label community consumers will benefit, and the retailer-manufacturer relationship will be significantly changed. Executives responsible for maintaining an unceasing flow of supplies to keep production lines running and distant field operations on schedule were at the mercy of primitive purchasing processes that were beyond their control.
E-procurement can smooth out all of these kinks by bringing together all supplier information and automating the process of requisitioning supplies, obtaining purchase-order approval, and dispatching orders to the appropriate suppliers. Schlumberger Oilfield Services implemented an e-procurement system because the company determined that it was the only practical way to efficiently buy essential supplies for its far-flung operations. But when it came to buying supplies from external suppliers, Schlumberger was convinced that there had to be a better way to organize the corporate requisition, approval and order-processing cycle, explains the company's director of e-commerce strategy. The company wanted a highly centralized supply chain management system, because it works with a number of key suppliers around the world that provide common raw materials used in manufacturing processes at its plants in North America, Latin America, Europe, and the Asia-Pacific region. The company established a single database standard using the Oracle relational database and the Oracle E-Business Suite that includes enterprise resource planning, customer relationship management and supply chain management.
The basic objective is to leverage these systems to "have a consistent way in which we manage our supplier relationships, manage the cost of those relationships and manage the quality and the consistency of the products so business can fulfill customer objectives". In order to maximize the cost efficiency and the economies of scale associated with having a centralized procurement process, with various types of raw material suppliers as more suppliers tied into the system and as it rolls out the solution to its global sites. The company will focus on bringing the top 20 percent of vendors into the system who delivers 80 percent of the supply volume that will be linked into the e-procurement system. The company will set up online business-to-business relationships that allow the share of technical specifications with key suppliers to streamline the ordering process. Frequently, there are only a few suppliers providing key ingredients for top-selling products. In these cases, there is little incentive to change suppliers. The nature of this business-to-business relationship will check inventory levels, make sure that the latest supplies shipments arrive on time and minimize the inventory carry. The company offers both standard and customized, more complex solutions, along with bid and quote services, supplier and contract management, and reporting. The company's site also notes that it offers specific services that help districts work with their existing supplier relationships and integrate the online procurement system with districts' financial systems.
According to information on the company's site, using link's services continue to pay their vendors and suppliers directly. The company does not interfere with the billing processes between companies from whom they purchase. Now that same planning and early development are serving the company's customers well. According to , there begun to think of e-procurement systems as an important and more efficient channel for managing the requisition process from start to finish. She also noted that many large school districts provide educators and administrators with procurement cards. This system has helped to streamline the purchasing process that can benefit from e-procurement processes. The company's many representatives often work closely with districts to establish customized purchasing gateways that enable districts to access a pre-determined selection of products, available at negotiated prices.
In fact, e-procurement solutions are more than interesting experiments in the Internet laboratory. They're a thriving, growing and a vital part of the business environment. A new study of the e-procurement marketplace issued by Frost & Sullivan, the international marketing consulting company, underlines that in-house self-service e-procurement applications will continue to be implemented by companies looking to automate requisitions, approvals and purchases of maintenance, repair and operating (MRO) goods, complementing sourcing and private exchanges procurement activities. Although some vendors claim e-procurement for a wider range of applications, the market is still largely based around MRO supplies. Indirect e-procurement solutions remain a double-edged sword for contenders in the European business-to-business (B2B) software realm. While some vendors in the e-procurement solutions market, currently valued, feel threatened by the perception that the technology is too niche to survive as a stand-alone software application, others appeared challenged to jostle for key position in the market.
Success in the e-procurement market hinges on a number of factors, including the ability to attract partners to complement, distribute and roll out solutions as well as manage e-catalogues. Frost & Sullivan highlights that the creation of online digital content is of paramount importance to the development of the European e-procurement market. The complexities associated with the compilation of supplier product information and converting it into e-catalogues to perform transactions is becoming increasingly prevalent. "The difficulty of aggregating supplier catalogues into one uniformly accessible data format is further compounded by the confusion surrounding the multiple standards for tagging catalogue information and exchange, all competing for acknowledgement and implementation. The evolving extensible mark-up language (XML) aims to overcome this by providing a common data interchange format facilitating companies' electronic communication." The market is still dominated by pure-play companies such as Ariba and Commerce One; however, enterprise resource planning (ERP) and supply chain management (SCM) will triumph by strengthening their position in an area facing increased consolidation.
Thus, e-procurement vendors must accentuate the prospect of generating a positive return on investment (ROI) through the deployment of an effective e-procurement strategy to end-users that vendors need to successfully reinvent themselves and adapt to a rapidly changing market. Transaction processing is the first boom that the internet has created for the area of procurement. The focus is on the impact of Web-based order processing systems for procurement strategy in the management of maintenance and operating (MRO) supply. The management of MRO supplies has been little discussed in the literature, and in many organizations is undertaken in a devolved, decentralized, and uncoordinated fashion. Consequently, MRO procurement is often a poorly managed and non-value-added activity, yet MRO purchases may account for many millions of dollars of expenditure for organizations across most, if not all, industries. To explore the impact of Web-based procurement systems on MRO purchasing, a Delphi study was conducted providing access and analysis of commercially sensitive data. In this report, it is contended that greater information processing capability achieved through the use of electronic commerce, specifically Web-based procurement, will enable significant cost improvements and strategic leverage to be obtained through a more strategic approach to management of the typically low-value, high-variety goods and services that constitute the main category of MRO items. E-procurement of MRO items may be a so-called "killer application" on the basis of potential efficiency gains.
Furthermore, an important consequence of the reengineering of the MRO procurement process will be to raise the professional profile of the purchasing function through enhanced internal customer service and significant total cost improvements. The growing use of the Internet for conducting business transactions is widely regarded as a major revolution in business practice. This article is founded on a research project about the adoption and development of Web-based electronic commerce in business-to-business markets ( 1998). The focus of the study was the management of the procurement of non-core products and services, variously known as operating, non-production resources. This paper is thus concerned with the implications of the adoption of electronic procurement for MRO items on purchasing management. This is an area of purchasing practice that has received little relative attention in the literature, as by far the dominant focus of the purchasing literature has been the management of production item procurement. The report firstly examines the literature relating to electronic commerce in order to establish some of the main implications for purchasing management of the growth in Internet-based trading. Second, analysis from an exploratory study into the nature and use of electronic procurement systems is presented (1993; 1988; 1985).
In particular, as the barriers to participate in electronic transactions diminish, some researchers now believe that the conditions are ripe for the establishment of electronic marketplaces, with such new electronic markets conceivably including larger numbers of buyers and sellers (, and 1987; 1991; 1997). "Some of the initial providers of electronic markets have attempted ... to capture customers in a system biased toward a particular supplier. We believe that, in the long run, the significant additional benefits to buyers possible from the electronic brokerage effect will drive almost all electronic markets toward being unbiased channels for products from many suppliers." (1987, p. 492) Thus, the use of open information systems may be seen to provide greater levels of information to buyers, thereby opening up greater competitiveness between providers. In simple terms, the development of electronic markets providing conditions approaching the economic model of perfect competition may be likely to emerge. However, a converse effect has also been hypothesized, whereby using electronic networks to reduce the costs of tightly integrating a particular buyer and seller, firms can achieve an electronic integration effect ( 1987).
To the extent that the costs of communication and information processing are reduced, the cost of the disadvantage of outsourcing a production process is also reduced. Existing evidence at the industry level indicates that increases in investment in information technology are associated with a decline in average firm size and a rise in the number of firms ( 1993). (1991) also shows that industries investing more of their capital stock in information technology also contract out more of the value of the goods and services they produce to external suppliers, with a two-year lag. From the literature, it may be expected that greater information availability will lead firms to increase their level of outsourcing ( 1998). Today, electronic business-to-business commerce can be seen to have progressed through three waves of development based upon the mediating technology: EDI, area networks and the Internet. The fundamental impact for procurement may be seen in two areas: the electronic procurement will greatly improve organizations' ability to manage a complex of small-value, multiple-transaction, and high-variety purchases.
Henceforth, the adoption of Web-based systems will impact on the nature of the governance structures adopted for the management of purchased MRO items as not only could people expect more goods and services to be sourced with external suppliers, but perhaps important for purchasing management, people may begin to see some major changes in the way that MRO supply relationships are managed, there is useful empirical analysis on which to base any examination of the impact on purchasing of the adoption of Web-based procurement systems.
THE IMPACT OF WEB-BASED PROCUREMENT
The operational benefits relate to the ability to reduce the administrative costs of the whole procurement process by two-thirds, and the improved audit of each transaction throughout the process. The strategic benefits include greater influence and control over expenditure by the procurement function and greater opportunity to manage the total supply base. Concerns with Web-based transactions related to the supply of services and issues pertaining to information and data security.
Due to the fragmentation of budget holders in organizations as varied as retail banks, government departments and international food product manufacturers, it is very difficult to establish the exact size of the internal customer base such as those individuals who would raise requisitions. It has only been possible through this study to obtain estimated numbers. The e-procurement process provides visibility of the organization's many MRO transactions by individual budget holders, and thus offers a considerable improvement in the audit trail. In fragmented organizations, procurement is carried out by numerous functions, either as local purchasing offices or outside of the purchasing line of management. Furthermore, purchasers may be remote from the user, often never having contact other than via telephone and requisition. The consolidation, transparency, and real-time data benefits of Internet procurement enable greater coordination between the user groups and purchasers. In addition, any centralized purchasing function was able to exert greater control over sources of supply, purchase price, and inventory policy. Coupled with the enhanced status of purchasing, the ability to gain influence over MRO procurement was seen as being a critical factor in the decision to adopt an e-procurement system.
A prerequisite for many e-procurement systems is a comprehensive supplier catalog, and thus a supply base reduction strategy was seen as a complement to the adoption of e-procurement. Supply base reduction brings with it considerable benefit in terms of consolidation economies arising from the reduction in the number of supplier relationships and the ability to increase the volume of transactions with each supplier without a commensurate increase in the level of process activity. However, there was a real concern relating to the extent of dependency on the suppliers once they are tied in to the supplier catalog system. The capability of any system to provide secure data transfer was regarded as a major criterion for both existing and potential users of e-procurement systems, it was considered that such elements were strategically important: the terms and conditions of supply and access to communication with internal customers. (1999) states that the adoption of e-procurement for MRO purchasing represents the "killer app" to Motorola due to the potential cost savings available through greater strategic management of such items. One of the key benefits of using Web-based systems their ubiquity may be a countervailing force to improved professionalism in procurement without clear controls and intervention by professional buyers and the adoption of e-procurement thus requires training and development in both systems and purchasing capabilities.
The impact of e-procurement on purchasing strategy is believed to be a major factor in the adoption of MRO systems. Currently, many MRO items are managed as tactical, administrative commodities or services. As a consequence, there is considerable sub-optimization in current MRO procurement. This is largely due to the high variety and low value of many MRO items. However, improved information will enable greater consolidation and increased economies of purchase leverage. The use of e-procurement for the management of MRO items will provide an immense strategic advantage to the purchasing organization. We have seen how the management of core production purchases has developed into a strategic and critical capability (1993). Providing buyers with accurate and comprehensive data relating to the cost, range, and usage of MRO items enables sourcing and pricing arrangements to be conducted under conditions of greater purchase leverage, and also delivers a concomitant increase in purchasing internal service level. A procurement matrix may be employed to illustrate how re-positioning of MRO items may benefit the purchasing function and the company as a direct consequence of the informational advantages of e-procurement ( 1985; 1999).
It is clear that information is seen as a critical resource in attempting to raise MRO items to a more strategic profile. One of the main early benefits of e-procurement has been consolidation of purchased items. As a result, improved information transparency makes it possible for purchasers to adopt more "strategic" procurement approaches such as supply base reduction, lean logistics, partnership relationships, and long-term supply contracts ( 1993; 1994). This research has been exploratory in nature, intended to identify key concerns and opportunities for electronic procurement rather than examine the scale and relationships between dominant variables in the adoption of e-procurement. It is contended that such research is a useful development from the study reported here.
A number of key recommendations can be made regarding the impact of open Web-based transactional channels on business-to-business markets:
Electronic commerce may be conducted through a range of electronic governance structures from electronic markets to electronic hierarchies. In practice, imperfect knowledge and opportunistic behaviors serve to distort transactions and lead to less than optimal conditions. It has been posited that electronic commerce improves knowledge assets, thereby leading to economic transactions near to optimal efficiencies. However, while economic theory provides an insight into the impact of e-procurement on transaction costs, a significant weakness of transaction cost theory is its handling of behaviors and relationships. Thus, there need to consider the strategic behaviors available to firms utilizing electronic commerce for procurement or supply. The development of strategic supplier relationships or, by the supplier, strategic account management ( 1997), will serve to impact upon the longevity closeness, and strategic effectiveness of the customer-supplier relationship.
The internal service provided by e-procurement is not achievable in non-e-procurement environments due to the fragmented, high-variety low-value, and decentralized nature of much current MRO procurement. The opportunities for strategic management of MRO items were perhaps the most important considerations cited by participants in this research in terms of their decision to adopt e-procurement. By raising the service levels to internal customers, and by providing greatly improved and robust information relating to the procurement process, the benefits of any form of e-procurement system are far greater than the frequently cited process cost reductions. The new "e-procurement" using the Internet or e-mail to identify and negotiate with suppliers and buyers is still in its early stages, but it is encouraging companies to find more customers, offer products for export and increase efficiency to compete in global markets. E-procurement allows aid-funded buyers to compare quickly, easily and cheaply prices, specifications and delivery dates from suppliers worldwide.
There are many advantages to e-procurement, especially in giving companies from developing countries an equal chance to pitch for global business. It should help cut time and costs from sales and marketing, increase efficiency, and improve products and services by showing what competitors are offering. Companies can also use e-procurement to cut supply chain costs. Today, most manufacturing companies are just dipping their toes into the e-procurement waters. Their initial efforts usually are targeted at reducing the cost of the transaction process and/or getting lower prices through activities such as online "reverse" auctions. Most early e-procurement strategies involve buying nonproduction goods, such as maintenance, repair, and operations (MRO) supplies and office products. Plus, it's always a good idea to use new technologies and systems to buy non-critical supplies before using them for parts and materials that actually go into a product. Companies on the leading edge of e-procurement are using the 'Net in other applications as well. These include sharing design drawings and other product-development information with suppliers, communicating purchasing policies and benchmark practices to company sites; around the world, posting supplier performance ratings for all global sites to see in real time, and sharing usage and forecast data with suppliers.
Real-time communications via the Web enable manufacturers and their suppliers to minimize inventory levels at every link in the chain--with potentially staggering cost savings. When supply chains are connected end to end, manufacturers will be able to establish true "pull"-type demand systems, where future materials-requirements plans are based on actual use not on a "best-guess" forecast. A sale to a final customer will automatically trigger appropriate actions at all links of the chain. Manufacturers also will be able to identify shifts in customer desires more quickly and fulfill custom orders much faster than is possible today. Manufacturers can maximize the value of their people because the Internet enables complete automation of transaction processing and financial recordkeeping throughout the supply chain. And this, in turn, allows both manufacturers and their suppliers to concentrate their human resources on far more strategic activities than processing transactions. Such strategic activities include long-term negotiations, global market research, relationship building with strategically important suppliers, evaluation of outsourcing opportunities, analysis of business plans, supplier training ... the list goes on. In fact, most senior-level purchasing pros identify this benefit – the ability to shift purchasing resources from the business of processing transactions to more strategic activities as the most important long-term potential benefit of Internet-based e-procurement.
The Internet provides purchasing and supply management professionals with the most powerful tool ever to arrive at their door. And most major companies are now formulating a strategy that will shift buying and supply management activities to the Internet. The ability to electronically connect various links in the supply chain has existed for some time. Unfortunately, prior technologies, such as electronic data interchange, were expensive, proprietary, difficult to implement and use, and ignored by entire industries. Getting different information-technology systems to talk to each other has been a decades-long challenge for manufacturers, and attempts at standardization proved fruitless.
The Impact on the Roles of Partnerships and Trust
Trust is a critical factor fostering commitment among supply chain partners. The presence of trust improves measurably the chance of successful supply chain performance. A lack of trust among supply chain partners often results in inefficient and ineffective performance as the transaction costs. Although the literature often mentions a relationship between trust and commitment, there is a lack of testing of such relationship in the supply context indicating that a firm's trust in its supply chain partner as it is highly associated with specific asset investments and behavioral uncertainty which improves the level of trust. A partner's reputation in the market has a strong positive impact on the trust-building process, whereas a partner's perceived conflict creates a strong negative impact on trust, the level of relationship is strongly related to the level of trust. Moreover, successful supply chain performance is based on a high level of trust and a strong positive relationship among e-procurement partners. Effective supply chain planning based on relationship and trust of supply chain partners is an essential requirement for successful and stable procurement management ( 1992).
Information sharing requires a release of guarded financial, strategic and operating information to partners who might have been and/or will be competitors, since "effective information sharing is heavily dependent on trust beginning within the firm and ultimately extending to supply chain partners" ( 2000 p. 22). It has been argued that "issues of trust and risk can be significantly more important in supply chain relationships, because supply chain relationships often involve a higher degree of interdependency between competitors" ( 2002 p. 68) as trust is perceived as a cornerstone of the strategic partnership and assert that if supply chain partners share information openly and come to have a long-term perspective on the relationship, they may even attempt to reduce opportunistic behaviors ( 1990). A lack of trust among retailers and manufacturers will create a condition where every transaction has to be scrutinized and verified, thereby increasing the transaction costs to an unacceptably high level, productivity is lost and effectiveness, cornerstones of supply chain goals, will be compromised. Creating value-added activities with such partners becomes impossible and the supply chain tools used to improve efficiency and productivity will become ineffective.
The outcome of trust, therefore, is the "firm's belief that another company will perform actions that will result in positive outcomes for the firm as well as not take unexpected actions that result in negative outcomes" ( 1990 p. 20). (1999 p. 78) categorized key negative consequences of lack of trust and key positive results from high-trust relationships. Pertaining to negative aspects resulting from a lack of trust, they observed the emergence of higher transaction costs and agency costs in low-trust relationships. For instance, a manager's time and energy spent on dealing with low-trust relationships are higher than those spent in dealing with high-trust relationships. In contrast, a partnership with high trust would enjoy open communication and willingness to take risks. People in high-trust relationships are not afraid to share all information and believe in the content of the information received. Furthermore, partners with high-trust relationships are more inclined to take risks than low-trust partners. They also indicated that the overall performance would be enhanced if the problems of distrust were reduced (1999 p. 77).
Among several constructs impacting the level of trust, the partner firm's specific asset investments directly and significantly affect trust in the partner, while the respondent firm's specific asset investments and their decision-making uncertainty seem to negatively influence trust in the partner in a calculative way. Continuous and honest communication between procurement partners will be minimized ( 1993). Frequent communications on important company issues are not a privilege in the supply chain but rather essential necessities in the competitive market ( 2002) as in retail industry; good communication helps to build a trusted partnership. In particular, the facets that reinforce the difficulty of implementing successful e-procurement management may be multifold; one of the biggest challenges is cultivating mutual trust (. 2000). For instance, management may be reluctant to share information on costs and processes, and the need to release sensitive and confidential information may compound hesitation with intimidating legal issues and ineffective lines of communication may inhibit the trust-building process necessary for a successful supplier development effort and ultimate commitment. Thus, success will take time by transparent relationships based on trust and commitment between the e-procurement people (. 2000; . 2003).
Most research has emphasized the interpersonal components of trust involved in establishing e-procurement management while limited attention has been paid on the technology and its interactions on such relationships. The report examines the impact of two forms of trust that will give weight to e-procurement management as it involves technology trust relating to institutional structural assurances and security mechanisms embedded in web-based technologies; and relationship trust referring to trading partners competent, reliability and benevolenee in relationship roles and illustrate how the relationships evolve applying such modes of learning, monitoring, collaborating and distancing modes. The Internet has become the foundation for technology-enabled relationship management ( 2002) business to business – a significant subset of retail business, can provide significant benefits to exchange partners including global connectivity, high accessibility, interactivity and greater information richness ( , 2002; 2001; , 2002).
Thus, relationship and trust is evidenced in at least two domains of the connection: (a) trust in the technology that serves as a transmission medium for conducting e-commerce such as the institution or technology trust and (b) trust in the partner like the person or firm known as relationship trust. (, 1998; , 1999) relationship trust is expected to be a critical factor in e-procurement systems and relationships. Furthermore, discussions on trust largely emphasize the interpersonal aspects of the relationship that it is critical to consider the role that technology plays as a transactional component in developing trust. Technology in the e-procurement systems operates as a trust mechanism because it is a relationship specific investment that represents a credible effort to align the firm's interest with that of its partner (, 1994) and it increases the firm's vulnerability because it creates a system capable of disclosing proprietary information, documenting flows and stocks of goods and services and creating shared intellectual property ( 1995; , 1996). Trust forms, not because people know each other personally, but because institutional structures that are akin to policies, auditing, and recourse embedded in the e-commerce technology. (2001) advance this argument in the context of business to consumer e-commerce, arguing, "Beliefs that the Internet has legal or regulatory protection for consumers should influence relationship trust of a particular e-vendor." (p. 13)
An e-procurement system can be used to support a wide range of applications including standing purchase orders, just-in-time sourcing and collaborative design and development. The technology provides a mechanism for monitoring exchange between business partners and speeding communications (, 1996; 1996; , 1998). Finally, goodwill trust occurs when the focal firm believes that the other partner is honest and benevolent (, 1994; , 2000). When expectations of reliability and dependability are met, trust moves to affective foundations that include emotional bonds such as care, concern, sharing and benevolence (, 1995). The communication will be consistent with the focal firm's satisfaction and intentions to continue the procurement relationship. (1994) suggest that a major precursor of trust is communication, which is defined as "the formal as well as informal sharing of meaningful timely information between firms" (, 1990 p. 44) the quality of communication is related to satisfaction with the partner, intentions to continue a relationship and a willingness to provide transfers (1994; 2002).
Furthermore, (1990 p. 45) suggest a positive link between trust and communication and note that the "accumulation of trust leads to better communication." From a transactional perspective, trust contributes to satisfaction, commitment, and intentions to continue. Thus, the higher the trust a focal firm has in the technology, the more credible it will find the information exchanged via e-procurement systems. The intent is to engage in conversations that become revealing and set the stage for sharing of information and increased risk taking (Lewicki & Bunker, 1996; Rousseau, Sitkin, Burt & Camerer, 1998). In most cases, the best place to apply electronic procurement is in circumstances where a very close business relationship must be established and ongoing cooperation is needed with suppliers, especially when developing new products or technologies. Thus, a common pitfall involves the business's relationship with a supplier. Many companies assume that e-procurement will repair or negate a bad relationship between the buyer and the supplier, but this is simply not the case. E-procurement does make it easier to puchase necessary items, but it cannot do anything about the human elements involved on both sides of the purchasing equation. Because long-term relationships and high quality goods/services are often critical to a business's success, no company should ever rely on e-procurement to solely manage those important buyer/seller connections.
E-Procurement is more than just a system for making purchases online. A properly implemented system can connect companies and their business processes directly with suppliers while managing all interactions between them. This includes management of correspondence, bids, questions and answers, previous pricing, and multiple emails sent to multiple participants. A good e-procurement system helps a firm organize its interactions with its most crucial suppliers. It provides those who use it with a set of built-in monitoring tools to help control costs and assure maximum supplier performance. It provides an organized way to keep an open line of communication with potential suppliers during a business process. The system allows managers to confirm pricing, and leverage previous agreements to assure each new price quote is more competitive than the last. E-Procurement helps with the decision-making process by keeping relevant information neatly organized and time-stamped. Most are template-driven which makes all transactions standardized and trackable. Keeping track of all bids means leveraging your knowledge to obtain better pricing.
Companies can focus on their most lucrative trading partners and contracts. Well-managed e-procurement helps reduce inventory levels. Knowing product numbers, bid prices and contact points can help businesses close a deal while other suppliers are struggling to gather their relevant data. E-Procurement systems that allow multiple access levels and permissions help managers organize administrative users by roles, groups, or tasks. Procurement managers do not need to be as highly trained or paid because such systems are standardized and easy to learn. Some firms have discovered that many of their transactions still take place on paper and they have run into problems ranging from content management to supplier participation in their systems. Most companies who desire to make the switch fall into two camps. The first are the slow step-by-step adopters. They implement one piece of their system at a time and slowly bring trading partners on board. The others follow the total replacement model. They build a totally parallel system, test it, then switch over to it when it works. There is usually some pain involved and some mistakes are discovered, but by and large these are absorbed and the business continues.
EXAMPLE CASE SITUATION OF E-PROCUREMENT
The case example will attend to opportunities and challenges arising from the implementation of web-based electronic procurement systems. The experience of General Motors is described. The evolution of GM's e-procurement system is analyzed and some issues and concerns of the future of e-procurement at GM are discussed.
E-PROCUREMENT: CHILD OF THE INTERNET AGE
The Internet has had revolutionary effects on corporate purchasing practices. It recently became a major enabler of significant productivity improvements in various businesses. The companies offering so-called e-procurement solutions are positioning themselves as generators of considerable cost savings for those manufacturers consuming the largest share of the economy's tangible inputs. The overall productivity of the manufacturers often depends on their efficiency in purchasing those inputs. E-procurement sites, also known as business-to-business (B2B) marketplaces, electronic supply chains, trading hubs, or trading communities, are essentially Web-based procurement networks in which one or more companies try to source their suppliers at the lowest costs possible.
From a conceptual standpoint, e-procurement does what tendering, its pre-Internet world analogy, has been doing it helps companies source input products and services at the lowest cost, while ensuring that those inputs meet technical and other specifications by making this process Web-based, e-procurement solution providers are changing the process in ways that go far beyond its mere computerization and automation.
CHARACTERISTICS OF E-PROCUREMENT
Evolution of B2B Marketplaces
Ø Big corporations such as General Electric and Wal-Mart created buying and selling hubs in the Internet designated to cut costs and speed supply procurement
Ø Third-party exchanges appeared, facilitated by independent firms
Ø Major players of some vertical industries, such as GM, Ford, and DaimlerChrysler, are joining in e-procurement consortiums.
These different marketplace forms coexist although they represent different stages of e-procurement evolution. Whether all of them survive depends on the way the industries whose needs they serve will be structured in the future such a marketplace brings participants of a supply chain together in a single location. It is quite possible and that the pool of potential B2B marketplace models is not exhausted and that in future there will be new forms of e-procurement services. These new forms will bring new advantages to participants of such marketplaces. However, even today the benefits offered by B2B e-commerce are enormous, and most businesses cannot afford to neglect them.
Advantages of E-Procurement
B2B marketplaces in the Internet could prove to be the most radical innovation in modern business since the assembly line was invented. Like assembly lines in the beginning of the 20th century, e-procurement sites promise significant increases in productivity across many industries of the economy. Their most often quoted advantage is their potential to cut costs of purchased goods and services. The phenomenon of cost saving allowed by e-procurement is based on the new processes that cut all costs associated with purchasing, that is, the cost of goods and services purchased, ordering costs, and holding costs.
Disadvantages of E-Procurement
One of the greatest impediments to e-procurement's fast adoption is a gap between the expectations of the two sides of the transaction--suppliers and buyers--about the way B2B marketplaces should affect them. On one hand, buyers adopting e-procurement are becoming increasingly dependent on suppliers because of the wider adoption of JIT practices, shorter ordering cycles, increased involvement of suppliers in product development, and so on. On the other, suppliers may be reluctant to adopt the idea of e-procurement because of the necessity of dealing with more than one marketplace, high training costs associated with switching to e-procurement, turbulence in this new industry, the high risk of compromising sensitive data. Some suppliers will need to initiate a full organizational restructuring associated with technological changes related to e-procurement. Another great difficulty in adopting B2B e-commerce is the rapidly growing multitude of standards in the industry. It is not clear which e-procurement solution providers will survive, and which will not. Multiple standards in the industry are already causing confusion and increasing purchasing cost, which undermines the cost savings previously described.
Evolution of E-Procurement at General Motors
Describing the evolution of B2B e-commerce practices at GM is difficult; it has been more of a revolution than a steady, step-by-step development. Perhaps because of the lack of experience in this new area, the "e-procurement division" of the company was often growing beyond its development plans before they were actually implemented. General Motors started seriously pursuing the idea of e-procurement in 1999, when its technology partners, i2 Technologies and Commerce One, started creating a B2B trading community dubbed Trade change. i2 Technologies of Irving, Texas, an advance planning software vendor, signed a memorandum of understanding with GM specifying that it would provide supply chain management services and business process expertise as i2 also agreed to provide the components of its Rhythm suite to GM and GM's suppliers. Commerce One of Walnut Creek, California, an e-commerce software vendor, was supposed to lead the TradeXchange project. The companies' intention behind joining forces in e-procurement was to use their dominance in the industrywide supply chain to lead, control, and benefit from recent and further technological advancements through a single online trading community.
Implementation at General Motors
E-procurement technologies gave rise to many expectations at GM:
Ø Reduction in time and cost of procurement systems development and implementation at the facilities of GM's partners
Ø Significant reduction in ordering costs and in the cost per item of goods purchased
Ø Quicker information flows and better information sharing throughout GM's supply chain
Ø Better forecasting and planning for GM and its suppliers
Ø Supply chain optimization
Ø Build-to-order capabilities, shorter product development cycles, and better customer service
From the technological perspective, a Web-based e-procurement system will require at its lowest end nothing but a simple Web browser. This will not only decrease the time and cost of procurement system implementation across GM's supply chain, but will also destroy many existing technological barriers for entry into the supply chain.
GM's supply chain includes thousands of suppliers. The transformation of purchasing into Web-based, software-driven processes of competitive bidding will significantly cut the cost of goods purchased as well as ordering costs for GM (19). Moreover, having to communicate and source their supplies in an Internet B2B marketplace will make similar cuts in costs possible for GM's suppliers too. E-procurement will lead to extensive information sharing and quicker information flows across the supply chain The Web-based nature of e-procurement ensures increased product customization and develops build-to-order capabilities at GM. The company is already predicting that it will be possible in the foreseeable future to deliver customized cars to end-users after an order is received from a customer.
E-procurement connects a company and its business processes to its suppliers, optimizes supplier performance, and reduces costs. The application simplifies and automates processes and gives managers a way to track interactions while obtaining the best pricing. E-procurement helps control the spending on direct and indirect goods and services, streamlines workflows, and helps managers standardize procurement procedures. Currently leading companies use eProcurement to simplify and automate portions of their procurement processes and optimize purchasing negotiations to realize cost savings. In documented cases, eProcurement has provided enough cost savings to pay for the full installation several times over. In addition to providing savings, the application is easy to install, has a powerful toolset, and boasts a highly intuitive user interface that help managers streamline workflow and establish routines. The eProcurement technology has enabled retailers to reduce distances, integrate and connect value chains and provide a vast amount of information for use. Retailers are moving towards technology enhancements and are increasing their focus on Web-based technologies, especially those aimed at improving their supply chain management and their relationships with partners and suppliers.
The retail segment is constantly challenged with diverse market needs. To combat this they need to formulate their strategies constantly. The aim here is to reduce costs and achieve business process integration, while at the same time confront increasing competition. By adopting eProcurement, the tangible benefits retailers see is automation of procurement processes resulting in improved productivity, cycle-times, administrative costs and better visibility. Reduced procurement costs through strategic sourcing, streamlining of suppliers and negotiation leverage. The retail industry is quickly learning the value of developing strategic relationships with vendor partners to improve supply chain efficiency and procurement costs. There needs to have a complete range of eProcurement services that are focused on the unique needs of the retail industry. The procurement management ways give retailers the visibility and control the need to manage their procurement costs and shorten their procurement process throughout the entire procurement cycle with proven effective and strong domain knowledge in the retail space. Organizations are striving to achieve higher flexibility and responsiveness on the multi dimensions that constitute the retail business environment, essentially customer relationship management, supply chain management and corporate management. Therefore, higher IT integration and smooth, real-time synchronization of information are key prerequisites contributing to retail business transformation
In conclusion, regardless of the type of e-procurement system a company chooses, the company can expect to receive similar benefits including saving money on purchases, improving the timeliness of the purchasing process and eliminating waste. In addition to these benefits, companies can also improve the efficiency of their supply chain. Supply chains essentially include every business, manufacturer and distributor that supplies the goods and services necessary to create a product, so any improvement in the speed of those transactions is obviously beneficial. Additionally, using e-procurement to enhance supply chain relationships can make it easier for accounting departments to track and keep a record of payments and invoices. E-procurement systems don't automatically boost supply chain efficiency, however. The company must select a system that has the capabilities necessary to achieve those benefits first. After all, choosing the right supplier depends on more than just price; it also involves product availability, customer service, industry reputation and quality. Despite the differences in e-procurement applications, the bottom line is that a company must choose one that works for its industry and one that will help make its supply chain more efficient if the system implementation is to truly be successful.
The following table emphasizes acquisition management and contract administration as methods for reducing project cost, schedule and quality risks
Small procurement actions; no significant administrative hurdles; simple requisitions; low procurement risks
Several significant procurement actions; unfamiliar administrative requirements; critical path procurements
Complex procurements and uncertain contracting approaches; procurements central to project success
Numerous and large acquisitions; multiple subcontractors; diverse requirements and administration
Identify all potential acquisition transactions; discuss contracting approach, administrative requirements, and lead-times for each contract action.
Develop list of procurements; identify cost, schedule, type and quality requirements; and performance, specification, administrative, and delivery issues.
Develop structured approach for incorporating procurement management tasks into project plans, schedules, and budgets; include procurement issues in risk assessment and risk management plan.
Identify all contract actions, requirements, dollar estimates, lead times, issues, and risk management actions; obtain sponsor approval for plan; use peer review to verify realism and identify additional risks.
Identify requirements, costs, and lead-times for procurements; discuss administrative and performance risks.
Document contracting approaches and administrative lead-times; factor administrative preparations into staffing, budgets, and schedules.
Write administrative checklist for procurements; develop structured approach to document requirements and deliverables; pre-qualify suppliers and build vendor working relationships.
Apply PM analysis to budget and schedule for procurement tasks; define requirements, establish contract types, write SOWs, develop selection criteria and establish contract administration.
Contact procurement officials and discuss plans to support project; solicit their requirements and issues; maintain active communications exchange.
Obtain procurement point of contact for project; deliver plans, assumptions, and schedules for review; incorporate comments and recommendations into project plans.
Include procurement staff in review of plans, distribution of project communications, attendence at meetings, and in project team building activities.
Identify dedicated procurement official integral to project team; solicit review and approvals for procurement plans and assumptions.
Follow-up with contractors to ensure compliance with delivery, performance, and cost requirements; manage changes deliberately and maintain good records.
Track and report contract awards, milestones, and deliverables; establish controls to verify specifications and manage changes.
Establish project files for all contracts, specifications, and deliverables.
Establish project office function to track contract modifications, deliverables (receipt, review, comments, and acceptance), contract correspondence; establish subcontract management role.
COMPARATIVE ANALYSIS OF TRADITIONAL
VERSUS ELECTRONIC PROCUREMENT
Procurement Current Procurement
Metric Process Web-Based Procurement
Potential for Low High
Process Cost Index 100 33.2
Process Time 15 days 2 hours
No. of Buying Multiple, unknown Multiple, known
Audit Trail Decentralized -- Centralized --
difficult clear activity trail
Data Warehouse Often negligible Integral element of
for low-value items e-procurement
Management of Transactional Strategic/relational
MRO Supply Base
Information Favors supplier Favors buyer (system
Asymmetry (suppliers have more provides data warehouse
Complete view of their of expenditure activity)
Internal Customer Poor Considerable speed and
Total Acquisition Very high "Lean" supply
Cost (as cost per unit)