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Deolu:
Let me address questions 2 and 3 of your message. The specific steps you take to implement the strategy (your question 1) will depend on the nature of the strategy, and there are several key issues you first need to address in devising that strategy. My response is taken in large part from an excellent tutorial on this subject presented at Data interchange Standards Association's (DISA's) conference earlier this year by Jeff Donnelly, CEO of Blackhog Inc. (www.blackhog.com).
A strategy for e-procurement needs to be part of the larger company strategy for cost containment, process improvement, increasing productivity, and new business development. Fortunately, e-procurement can address many of these areas, but any recommendations on e-procurement need to reflect these larger goals.
You will first need to address the basic type of goods and services covered by your e-procurement program: direct or indirect. Direct materials are those used directly in the manufacture of the products of your company. Another type of direct materials is parts custom-engineered for your industry, which I am sure there are many. Indirect procurements are those used for purposes other than direct production, usually the management or operation of the enterprise. (ie: Office supplies)
In e-business, systems and services for indirect procurements are further developed than for procurements of direct materials. Indirect materials generally include commodity and standardized items, available through multiple sources. And because they often cut across industry lines, the first e-procurement systems and services addressed indirect materials. The number of systems and services available, as well as the low-risk nature of the goods and services, make it possible to establish company-wide policies, corporate accounts, and standardized procurement practices. With these tools, companies can let the line employees handle the purchases of indrect materials, and free-up the purchasing pros for the more critical acquisitions.
Systems and services for direct-materials procurement are not quite as developed, because business processes and practices will vary from one industry to another. But direct materials will consume a large proportion of the company's resources and have a big impact on the success of the company. Issues that need to be addressed by companies considering e-procurement in direct materials include the degree of collaboration with suppliers and extent of outsourcing anticipated.
Direct procurements do not lend themselves easily to automation. I used to work in the publishing industries, and was struck by the number of key decisions in procurement that depended on the personal relationships of the people involved in the procurement processes. These informal relationships are not uncommon in other industries. But because so much of the success of the enterprise rides on the timely delivery and quality of goods and services used in production of output, many companies are moving more slowly to replace these practices and processes built up over many years with e-business.
Informal systems and personal relationships have their drawbacks, as you might imagine. The savings and opportunities in direct materials procurement are significant, and require an architecture that incorporates collaboration and flexibility. The early work in this area focuses on materials that are commodities and lend themselves to online catalogues or auctions.
Read the rest of Alan Kotok's advice by clicking here.
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