Strategic Guide to e-Procurement
Procurement Tools
Transactional procurement tools automate the purchasing process and usually include three main components – Electronic Catalogues, Electronic Purchase Orders (POs) and Automated Workflow. Systems can be implemented using either a dedicated transactional e–procurement system or leverage an existing FMIS or ERP system. Some suppliers also offer Vendor Managed Inventory (VMI) services as an extension to transactional procurement systems.
Electronic Catalogues
An electronic catalogue is a list of supplier products that is accessible through
the internet.
Electronic catalogues can be managed in one of three ways:
- hosted and managed in house
- outsourced to a third party such as a marketplace
- hosted and managed by the supplier.
Electronic Catalogues list supplier product offerings accessible through the internet.
Electronic catalogues are best used when there is an existing agreement in place with an end–user base that understands electronic purchasing. Electronic catalogues are typically used for high–volume, low–value transactions where the manual PO process is often more costly than the items being purchased. Catalogues are ideally suited for environments where there are multiple users repeatedly making multiple purchases.
Categories best suited for electronic catalogues include:
- Stationery
- IT Hardware
- PC Peripherals
- IT Software
- Office Equipment
- Furniture
- Uniforms
- Equipment
Individual users can use a transactional e–procurement system to browse an internal catalogue or they can “punch out” to a supplier or marketplace hosted catalogue. Alternatively users may access a supplier’s e–commerce website which may offer supplier catalogue functionality directly without the need for an internal e–procurement transaction engine at the buyer’s organisation.
Internally Hosted Catalogues
In this scenario, the buying organisation loads the catalogue information directly into their transactional e–procurement system. End users then search and browse the internally hosted catalogue to locate the items they wish to purchase. This process and the advantages and disadvantages of internally hosted catalogues are detailed in Figure 4 below.
Advantages
- Can be quick and easy to setup for small catalogues
- Same look and feel for all catalogues makes it easier for end users
- Access to all supplier information in one place can help drive compliance
- P/Os still stored in internal system providing a record of orders and spend
Disadvantages
- Can require significant resources to maintain catalogue data
- Does not provide real time to supplier prices or availability
- Requires significant investment to setup and maintain
- End users may find it more difficult to use at first – for example in searching
- Still requires separate system to transmit PO to Supplier
- Requires additional technology investment over base FMIS functionality
Punch out
Under a “punch out” scenario, the customer uses their transactional e–procurement system to punch out to access information from the supplier’s website and bring this information back into the internal procurement system.
The advantage of this approach is that the purchase details are still captured and stored within the buying organisation’s systems, but the actual catalogue can be maintained and updated by the supplier.
Suppliers tend to prefer this approach over providing their full catalogue for internal hosting within a buying organisation due to the lower maintenance required to ensure the catalogues are accurate at all times. Suppliers are able to own all of the information in the catalogue and can update it in a timely manner, while the customer is saved the expense of managing a catalogue in house or by a third-party. The process of punch out is detailed in Figure 5 below.
Advantages
- Minimal internal catalogue maintenance by agency
- Access to up to date pricing and availability from Supplier systems
- P/Os still stored in internal system providing a record of orders and spend
- Can provide similar look and feel for different supplier catalogues
Disadvantages
- Requires in house transactional e-procurement system
- May not have the same look and feel as supplier’s own system
- Still requires separate system to transmit PO to supplier
- Requires additional technology investment over base FMIS functionality
E–marketplace is an online market where goods and services are bought and sold over the internet.
E–marketplaces are an alternative to using either internally hosted catalogues or using the supplier’s catalogues. In an e-marketplace, the management of the catalogues occur through a third–party. The advantages of this include centralised catalogue management for buyers, but suppliers’ find this arrangement complex technologically and it can be expensive as they may need to pay a fee to host their catalogue in the marketplace.
E–marketplaces can provide a catalogue hosting service, a supplier connectivity service for sending and receiving electronic POs, a set of agreed contracts with pricing, or a combination of all three of these items. There are relatively few operational e-marketplaces in Australia at this time and the business model for this approach has not proven to be as attractive as was once thought.
Contact for information on this page: ICT Procurement