Electronic Procurement (also known as 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.
With electronic procurement, those types of situations are much less likely to occur. For one thing, all purchases are easier to track because they are done over the Internet and the company's managers can easily see who made which purchases without having to wait to receive a monthly revolving credit statement. Furthermore, many companies incorporate product specifications into their e-procurement systems, so an employee wanting a laptop might only be able to purchase a certain brand with specific features, memory capacity, and software.
Also, e-procurement saves time. Buyers do not need to leave their desks or make phone calls to suppliers in order to place orders; they simply go through the Internet. And, because suppliers receive the order almost immediately, they can also fulfill and ship it much faster than with the traditional procurement methods.
Although the benefits of e-procurement are plentiful, there are obstacles that that can arise in implementing this type of process. The biggest pitfall is treating all areas of procurement and all products the same. The reality is that what may work for one good or service may simply not work for all of them, so successful e-procurement systems use a number of different techniques.
The best way to illustrate this point is through a comparison of products. One product is what is called a urgent item. These items are those which are supplied by only a few companies or individuals but which are in high demand. Most companies stock up on urgent items if possible so that they do not run out and find themselves in a difficult situation. Another product might be classified as a noncritical item, such as printer paper or coffee filters. These type of items are extremely important to the business but they are needed. Generally, this category of items accounts for 80% of all company purchases.
While both products are needed by the company, they would require different procurement techniques or else the buyer would end up paying more. With an urgent item that is in high demand, 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, not the buyer, have all the power in that relationship. Reverse auctions work quite well, on the other hand, for noncritical items and can lower costs for these items by as much as 35%.
Understanding the various e-procurement techniques, therefore, is critical if a company plans to successfully implement such a system and many have. Some studies indicate that most companies today use e-procurement processes to some extent, yet these processes deal with a small amount of all the purchases these companies make regularly. As companies become more comfortable with using the Internet to handle their purchasing needs that number will continue to grow. Once companies see the potential benefits of such a system, they can only choose to move forward.