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E-procurement TechnologyE-procurement Technology
Dubai Municipality
Nader HaffarMaged Wassim
2
Agenda
What is procurement? Why is procurement important The evolution of procurement What is e-procurement? Procurement Vs e-procurement Demonstration of e-procurement in action The benefits of an efficient procurement process Lessons learned in procurement project Questions and Answers
Procurement is the process of sourcing
products and services from point of supply to the point of demand
Procurement is the process of sourcing products and services from point of supply to
the point of demand
3
Why is procurement important?
It received a lot of attention Open up countless opportunities Multidimensional relationships
4
Procurement Evolution
Strategic
Sourcing
PRESENTPRESENT
e-Procurement
FUTUREFUTURE
“Partnerin
g”
PASTPAST
5
Reduction in Process cost
Shorter cycle times Lower personnel costs Greater accuracy
Source: RB Weber (data derived from Source: RB Weber (data derived from sources including CAPS, NAPM and sources including CAPS, NAPM and Stanford University)Stanford University)
$79$79
$6$6
PRESENTPRESENT
FUTUREFUTURE
PASTPAST
$6$6$33$33
$79$79
6
In order to In order to obtain an obtain an equivalent equivalent impact, a firm impact, a firm would have would have to...to...
In order to In order to obtain an obtain an equivalent equivalent impact, a firm impact, a firm would have would have to...to...
Increase revenue by 50%Increase revenue by 50%
Reduce overheads by up to 20%Reduce overheads by up to 20%
Significantly reduce staff numbersSignificantly reduce staff numbers
A 5% reduction A 5% reduction in purchase in purchase cost can result cost can result in a 50% in a 50% increase in increase in profit margin.profit margin.
A 5% reduction A 5% reduction in purchase in purchase cost can result cost can result in a 50% in a 50% increase in increase in profit margin.profit margin.
ProfitProfit
OtherOtherCostsCosts
PurchasesPurchases
100100 100100
45
50
45
47.5
55 7.57.5
-5%-5%
Savings go direct to the bottom line
7
E-Business and E-Commerce … What do they mean?
E-Business is using electronic information to improve performance, create value and enable new relationships between businesses, their suppliers and customers
E-Commerce is the electronic buying,
marketing, and selling of products and services
E-Commerce is the electronic buying,
marketing, and selling of products and services
8E-Business impacts three broad areas of Municipality activity
Supplier network Customer network
Source & Buy Products
Develop ProductsDistribute Products
Sell to & Serve Customers
Plan Categories & Assortments
Replenish & Allocate Products
Buy-Side Sell-Side
B2CB2B B2E
E-business is the use of the internet application across the B2C, B2B and B2E to increase the effectiveness of
the Municipality.
9
Traditional Vs Internet Procurement
Traditional Purchasing
Need
Inform purcha-sing Department
Get Approval
Create Purchase Order
Receive in one week
Request for quotation
GetApproval
Internet purchasing
Need
Search approvedelectronic
catalog
order
Receive in 2 days
Approve online
10
What is E-procurement
Automate the ENTIRE supply chain from product selection through receipt.
E-Procurement offers real-time interactivity with trading partners locally and worldwide
select requisition approve status receive Pay
11
Suppliers Buyer
Connectivity Models
EDI
Website Website
Many to ManyMany to Many
Many to One &One to Many
Many to One &One to Many
One to One to ManyOne to One to Many
Shared Solution
12
Business Models - Auctions Used to sell or buy
Forward Auctions - The forward auction allows originators to post items or services they want to sell and buyers to compete for the best prices the originator will accept for the items or services.
Reverse Auctions - The reverse auction allows buyers to post items or services they want to buy and originators to compete for the best price at which they are willing to offer the items or services. This auction format is ideal for procurement.
Prior to rewarding the business, service history of the supplier should be taken into consideration.
13
Connectivity Approach
A Single,Secured
Connection!
UAE Marketplace
Japan Marketplace US
Marketplace
UK Marketplace
SE Asia Marketplace
Construction Marketplace
Government Marketplace
Healthcare Marketplace
14
The Total Solution
Automates entire buying and selling process
Provides access to new services, portals & communities
Elect
ronic
Elect
ronic
Procu
rem
ent
Procu
rem
ent
Elect
ronic
Elect
ronic
Procu
rem
ent
Procu
rem
ent
B-to-B
Porta
l
B-to-B
Porta
l
B-to-B
Porta
l
B-to-B
Porta
lSuppliersSuppliers
Other Other PortalsPortals
Business Business ServicesServices
15
How the e-procurement process works...
e-procurement enables distributed but controlled purchasing. It automates the process from requisition to payment - to streamline operations, shorten cycle times and reduce costs
End User
• Select approved goods• Check prices • Check availability• Submit requisitions
Suppliers
• Manage content• Maintain accuracy
• Negotiated relationships• Buyer specific content
Purchasing Dept.• Approve requisitions• Place orders• Manage consolidation• Analyse purchasing data
Catalogues
16
Demonstration
17
Closed item
Overtime item
Open item
Auction Example ..
18
e-procurement - The principal Benefits
Processes Efficiency
Compliance
Leverage of Purchasing Power
19
e-procurement savings: e-procurement savings: the principal the principal benefitsbenefits
1: Increase in Process 1: Increase in Process EfficiencyEfficiency
E-Procurement reduces the E-Procurement reduces the administrative cost for each transaction administrative cost for each transaction shifted from paper to the electronic shifted from paper to the electronic channel:channel:
• reduced error ratesreduced error rates
• reduced processing timereduced processing time
• reduced fax / phone usagereduced fax / phone usage
• reduced on-site inventoryreduced on-site inventory
Los Angeles Los Angeles CountyCounty have have reduced the cost of reduced the cost of procurement from an procurement from an average of $130 per average of $130 per order to $40 per order.order to $40 per order.
Their target is to Their target is to achieve a cost of $25 achieve a cost of $25 per order.per order.
(Costs are inclusive of (Costs are inclusive of all business & IT all business & IT personnel and systems personnel and systems involved in the involved in the procurement process)procurement process)
20
A PwC client plans to A PwC client plans to generate savings of generate savings of $50m per annum $50m per annum
through increasing through increasing compliance from 40% to compliance from 40% to
75%.75%.
On-contractOn-contract spendspend
Off-contractOff-contract spendspend
e-procurement: e-procurement: the principal benefitsthe principal benefits
Electronic procurement enables Electronic procurement enables organisations to ensure procurement organisations to ensure procurement compliance: compliance:
• increased use of preferred suppliersincreased use of preferred suppliers
• reduced off-contract spendingreduced off-contract spending
• reduced processing errorsreduced processing errors
so that:so that:
• more goods are purchased at lower more goods are purchased at lower pricesprices
Typically this is the largest Typically this is the largest element of the e-Procurement element of the e-Procurement value propositionvalue proposition
2: Increase in Contract Compliance
21
On-contractOn-contract spendspend
Off-contractOff-contract spendspend
The same client is The same client is currently not certain currently not certain where indirect spend where indirect spend goes and cannot fully goes and cannot fully
exploit its buying exploit its buying power - estimates power - estimates another $29m per another $29m per
annum through annum through leverage.leverage.
e-procurement: e-procurement: the principal benefitsthe principal benefits
3: Increased Leverage of 3: Increased Leverage of Purchasing PowerPurchasing Power
Electronic procurement provides greater Electronic procurement provides greater oversight of purchasing spend:oversight of purchasing spend:• consolidated details of actual spend consolidated details of actual spend
with each supplierwith each supplier• consolidated detail of actual spend in consolidated detail of actual spend in
each product categoryeach product category
so that:so that:• full purchasing power is leveraged to full purchasing power is leveraged to
negotiate increased discountsnegotiate increased discounts• appropriate product categories can be appropriate product categories can be
targeted for preferred supplier targeted for preferred supplier contractscontracts
22
Key points in Introducing e-ProcurementKey points in Introducing e-Procurement
e-procurement is a “flexible solution” technology could e-procurement is a “flexible solution” technology could be a point solution and is better connected to an ERP.be a point solution and is better connected to an ERP.
Does not need to be part of a strategic enterprise-wide Does not need to be part of a strategic enterprise-wide architecture.architecture.
e-procurement is mostly about changing buyer behavior.e-procurement is mostly about changing buyer behavior.
Supplier adoption, system Integration & Content Supplier adoption, system Integration & Content Management are the challenges.Management are the challenges.
Must go hand-in-hand with a Strategic Sourcing Must go hand-in-hand with a Strategic Sourcing Strategy.Strategy.
23
Questions and
Answers
24
25
26
e-procurement
Electronic Procurement:
The act of placing an order using the Internet Technology.
Source: “IDC -International Data Corporation”
27
Procurement Issues
Analysis indicates that Procurement is one of the operational areas that can yield significant efficiency and savings opportunities.
Opportunities can be a result of lack of control in the following areas:
Identification of spend by commodity type and visibility to supplier relationships;
Lack of control & compliance to procurement policies & procedures
28
Procurement has traditionally been under-utilized as a Procurement has traditionally been under-utilized as a lever for improved performance for a number of lever for improved performance for a number of reasons:reasons:
• Procurement viewed as a collection of administrative and logistical tasks focused on transaction processing
• Performance measures not linked to
business objectives and focused primarily
on unit price
• Significant portions of the spend base do
not pass through procurement
Procurement Issues
29
By removing the administrative overhead from indirect purchasing, your procurement staff can focus on:
• strategic procurement: improving existing contracts and building new supplier relationships
• supporting priority or time-critical purchases
E-Procurement:
• eliminates re-entry of orders
• accuracy of stock item and price eliminates need for supplier to re-work orders
• eliminates order-chasing by providing on line status information
• reduces cycle-times so can deliver reduced inventory stock levels across supply chain
2: Reduction in Process Costs2: Reduction in Process Costs
How e-procurement delivers the savings
30
Off-contract purchasing is typically because of the implicit delay or difficulty in locating preferred supplier product range. E-Procurement:
• Reduces time taken for employee to source product by provision of single composite catalogue of preferred suppliers
• Simplifies requisitioning process by point-and-click ordering
• Reduce time to place order by providing immediate placement of requisitions within approval limits
• Reduce fulfilment time by avoiding need for supplier rework of orders.
3: Increase in Contract Compliance3: Increase in Contract Compliance
How e-procurement delivers the savings
Internet purchasing
Need
Search approved Internet catalog
Order
Receive in 2 days
Traditional purchasing
Need
Call purcha-sing
manager
get approval
Phone in order
Receive in one week
find item in catalog
31
How to Start: implementation Decisions
Level of AutomationLevel of Automation
End to end processEnd to end process
Req to orderReq to order
DeploymentDeployment
DesktopDesktop
Limited accessLimited access
Purchasing dept onlyPurchasing dept only
Content (catalogue)Content (catalogue)
Cat managed externallyCat managed externally
Cat managed internallyCat managed internally
Supplier managedSupplier managed
Distribution ofDistribution of
FunctionalityFunctionality ERP basedERP based Free standing Free standing
integrated best of breedintegrated best of breed Distributed functionalityDistributed functionality
OrganisationalOrganisational
GlobalGlobal
RegionalRegional
DivisionalDivisional
Spend Spend SegmentationSegmentation
… … Getting the benefits at lowest riskGetting the benefits at lowest risk
32
Factors influencing implementation strategy
Reaching critical mass in contract coverage
Strategy
User adoptionCultural adoption
Change Management Approach
SupplierAdoption
Country
BU / Siteconstraints
TechnicalIntegration
33
e-Business IntegrationThe integration points of the e-business solution should maintain the integrity and workflow of the transactional system.
1. HR Organization
Synchronize HR data and structure for sign-on existence and approval hierarchy
2. Accounting Information
Synchronize company codes, cost centers, accounts, etc.
3. Pass Requisition to transactional system
Export requisition (approved or unapproved) back to transactional system for PO creation
4. Create PO and output to e-Business Transaction Manager
Generate output at PO creation (EDI-style) and pass to EDI, Fax, or e-Business Transaction Manager for web-based processing
5. Pass status changes back to e-Business requisition
Backflush changes to update req. status
6. Synchronize item masters if appropriate
Keep catalog records in sync with internal purchase item masters
34
Key Implementation issues Clear procurement strategy Up-Front strategy is critical to set program direction Defines implementation detail
Content management Who/How much? Standard formats
Supplier adoption Numerous vendors to integrate - which suppliers to use? Multiple small vendors often used to form end solution Trade off between transaction and content
ERP Integration Complex application requires diverse skill sets Short development cycle is typical Level and detail Coverage of process
35
Key Implementation issues
ROI case As-is/to-be Metrics
Procurement policy Change management Competing with phone/direct supply sites
Internet technology is in its adolescenceRapid change is the normStrong program manager is a must
36
Direct
Indirect
Indirect Goods Companies spend 50% to 65% of gross revenue on material
purchases to fuel their business. Millions of dollars are expended for two different purchasing processes:
Direct goods: raw materials and components of the end product. 70% to 80% of purchasing falls into the direct category.
Indirect Goods (MRO): valves for machinery and pencils for the paperwork. These high-volume/low-dollar purchases account for 20% to 30% of most companies' procurement dollars and a greater percentage of paper volume.
37
Business opportunities:• Reduce cost of procurement• Gain management oversight
of spending on non-production goods
• Provide basis for improved supplier contracting
Source: AMR; CAPS (Center for Advanced Purchasing Studies)Source: AMR; CAPS (Center for Advanced Purchasing Studies)
Taxes13%
Profit6%
HR17%Direct
28%
Division of the Corporate Dollar
Indirect 36%
Example PwC clients (Spend on Indirect Goods): Technology Co.~ $1.3bn Consumer Electronics~ $8bn Energy Company ~ $20bn
Indirect Goods - the Cinderella of purchasing
38
Indirect Goods
On average 36% of gross revenue is spent on indirect purchases.
These goods and services: are purchased by dedicated non-production related purchasers armed with
paper catalogs, fax machines, and the telephone.
are high-volume/low-dollar purchases.
Tens of thousands of purchases are required each year to keep a company running, leaving lots of room for inefficiencies:
the time to purchase items drives employees to purchase outside of the system as on expense items.
procurement staff are focussing on administrative tasks rather than negotiating improved relationships with suppliers.
lack of oversight of purchasing volumes prevents negotiation of best deals.
39
Business Focus Focus has shifted within the airline industry to include emphasis
on the costs associated with procurement of indirect materials. When you compare the volume of purchases and the processing costs that may be associated, it adds up!
Raw Material, Direct
Materials, CAPX
Expenditures
ProductionConsumables
Indirect
$$$’s
per Unit
$$$’s
per Unit
No. of Units / unique items purchasedNo. of Units / unique items purchased
Traditional High Value Focus
Traditional High Value Focus
All costs get magnified
for these purchases
Often Ignored FocusOften Ignored Focus
40
E-Procurement Business Opportunities
Reduced Cost of Goods…
Reduced Administration..
Shorter Cycle Times……..
Inventory ………….….……
Automating the Entire Goods & Services Supply Chain can Deliver:
3 - 5% or More
$ 80 to $ 7 per PO
From Weeks to Days
Reduced or Zero-Stock