Last Word: E-procurement - how can it help you?

Intense competition, pricing pressures and breaking down of geographical barriers are making companies increasingly explore the options of keeping costs low, thereby increasing profits.

For manufacturing organisations, with purchased products and services being the single largest expense accounting for 50 to 55 cents for every dollar spent, purchase decisions are crucial to profitability.

But with changing market dynamics, these decisions are becoming very complex.

Way forward

In this scenario, many organisations were quick to adopt eProcurement initiatives and reap good benefits.

These organisations were swift to realise that their existing strategies were proving to be expensive and were neither repeatable nor scaleable.

Besides, they realised that their earlier approaches were grossly inadequate to meet current demands.

In contrast, some of the early propagators of eProcurement realised that through this initiative they were able to achieve 8 to 12 per cent savings on an average on their procurement, in addition to garnering clear benefits in terms of cutting down cycle time between negotiation and order implementation, reducing maverick purchases, improving contract compliance, reducing transaction costs and enhancing productivity.

One of the important eProcurement tools currently in use in many of the 'early adoption' markets is 'Reverse Auctions'.

Here the buyer is able to negotiate the best market price for the material to be procured through online bidding that enables select suppliers to bid their lowest price for the material.

In a typical Reverse Auction scenario, many activities like request for proposal (RFP), supplier discovery and qualification will be done by eProcurement service providers like Wipro 01markets and only qualified suppliers will be invited to bid for a particular material with techno-commercial conditions such as product specification, delivery schedules, quality, payment terms clearly specified. Such activities are typically done offline and are termed as "auction-making".

Advantages

There are advantages both for buyers and suppliers in eProcurement. Buyers gain through cost reduction, as suppliers will bid against one another. It reduces procurement cycle time by reducing the negotiation cycle from multiple to one online process.

In many cases, buyers also stand to gain through new supplier discovery. Service providers help buyers scout for new suppliers who will match all the criteria laid out by the latter.

Last but not the least, it brings in greater transparency and efficiency to the procurement system of an organisation.

For the seller, eProcurement provides direct access to more customers and breaks down all geographical barriers.

More importantly, it gives them an opportunity to analyse the competitive pricing pressure and react to it online, as they will be able to see what price a competitor is bidding.

The process is transparent, thereby letting suppliers know what the situation is and who finally bags the order and why.

More mature markets use other eProcurement tools like electronic tendering system, procurement intranet, supplier extranet and dynamic pricing engine.

These are solutions that companies can deploy in their organisation for the purposes of cost reduction, reducing paper work, transparency, fair play and improving relationships with their suppliers.

Procurement Consulting is another area that enterprises are exploring for gaining efficiency, supplier relationship, refining process and improving spends.

Consultants with deep domain expertise go in depth to analyse procurement patterns within organisations and consult on how best to improve organisations' procurement.

Many experts have hailed e-procurement as the hottest proposition of the Internet era and its adoption across markets has shown that the initial promise holds true.

Now it is up to the marketplace to take advantage of the opportunities that this technology offers and leverage it for their benefits.

From a service provider's point of view, the key is to show the customer the real ROI gains from the adoption of e-procurement tools and technologies.

The author is head of global sales at Wipro-01markets