E-procurement Covisint – a typical history of a

Read Mini Case Study 7.1 to understand how e-procurement occurs within an organization. 383

Chapter 7 E-procurement

Mini Case Study 7.1 Schlumberger is a global company that started its life as a supplier in the oil and gas exploration industry with revenues. In 2007 it had 23 billion operating revenue, 84,000 employees of 140 nationalities operating in approximately 80 countries. It now provides a range of information services. This case study describes the initial installation of an e-procurement system at its largest division, oilfield services. The aim of the new system was to replace existing systems, some paper-based and some computer-based, with a single system that would speed up purchasing. The system has resulted in lower transaction costs for placing orders and also reduced the cost of goods as the price of products has declined through greater competition and negotiation of lower prices for the electronic channel. With the new system, employees act as purchasing agents, ordering directly via their desktop PCs. The system runs on the Schlumberger intranet and enables staff to access a simplified catalogue of office supplies and technical equipment. For example, one of the suppliers is OfficeDepot. Although OfficeDepot can post its entire catalogue at an electronic marketplace, employees at Schlumberger only see a subset of relevant products for which special prices have been negotiated. Once the items have been selected, the system automatically produces a requisition that is electronically routed to the person who will approve it, and it is then converted into a purchase order without the intervention of purchasing staff. The technical solution is based on Commerce One Buysite procurement software for selection and approval and Marketsite from the same supplier for the transaction between Schlumberger and their suppliers. Schlumberger reports that Marketsite tends to give access to a wider range of suppliers than when it used one-to-one EDI transactions with suppliers. The solution was implemented gradually through introducing new items in stages. Source: Based on a summary of a dialogue between Alain-Michel Diamant-Berger and Andrea Ovans Ovans, 2000. E-procurement at Schlumberger In Paris Box 7.1 What is e-purchasing? E-purchasing is a synonym for e-procurement. This is how the Chartered Institute of Supply and Purchasing CIPS, www.cips.org.uk explains e-purchasing to its members: The combined use of information and communications technology through elec- tronic means to enhance external and internal purchasing and supply management processes. These tools and solutions deliver a range of options that will facilitate improved purchasing and supply management. The range of potential options for improving purchasing processes are indicated by these benefits that are described by CIPS: 1 Evaluation of end-to-end trading cycles, e.g. evaluation and possible re-engineering of trading cycles leading to reduced cycle times; improved workflow of the internal procurement process enabling end-user self-service and decentralization with centralized control through company-specific catalogues; new functionality such as on-line bidding in e-auctions and e-requests for quotations RFQs. 2 Use of more efficient and cheaper connectivity methods such as the Internet and XML a computer language for coding content and delivery. XML is not, however, a requirement for e-procurement as many solutions do not utilize it. 3 Connectivity to external sources of information, e.g. portals, e-hubs, e-marketplaces. 384 Understanding the procurement process Before the advent of e-procurement, organizational purchasing processes had remained sim- ilar for decades. Table 7.1 highlights the paper-based process. It can be seen that it involves the end-user of the item selecting an item by conducting a search and then filling in a paper requisition form that is sent to a buyer in the purchasing department often after authoriz- ation by a manager, which introduces further delay. The buyer then fills in an order form that is dispatched to the supplier. After the item is delivered, the item and a delivery note are usually reconciled with the order form and an invoice and then payment occurs. Procure- ment also includes the transport, storage and distribution of goods received within the business – this is referred to as ‘inbound logistics’. Activity 7.1 explains how the procurement process can be simplified through e-procurement. Table 7.1 Process flow analysis for traditional procurement typical cycle time, 5 1 ⁄ 2 days 4 Connectivity to external supply chains, e.g. extranets, EDI, e-hubs, e-marketplaces – allowing shared real time information such as suppliers accessing real-time sales. 5 Sourcing, e.g. identifying new sources via the Internet, use of intelligent search engines. 6 Content management, e.g. private catalogues, public catalogues, internal inven- tory management, maintenance management. 7 Connectivity to internal systems and sources of information such as inventory management, maintenance management, materials resource planning MRP systems. 8 Payment systems, e.g. purchasing cards. 9 Multimedia although e-procurement does not necessarily contain multimedia elements. 10 Improvements in localized supply chain mechanisms and consortia etc. leading to mutual benefit. Source: CIPS 2008 Part 2 Strategy and applications Task description Chart symbols Time 1 Search for goods 1 hour 2 Fill in paper requisition 10 min 3 Send to buyer 1 day 4 In buyer’s in-tray 1 ⁄ 2 day 5 Buyer enters order number 10 min 6 Buyer authorizes order 10 min 7 Buyer prints order 10 min 8 Order copies to supplier and goods-in 1 day 9 Delivery from supplier 1 day 10 Order copy to accounts 1 day 11 Three-way invoice match 1 day 12 Cheque payment 10 min Types of procurement To understand the benefits of e-procurement, and also to highlight some of the practical considerations with introducing e-procurement, we need to briefly consider the different types of items that are obtained by procurement what is bought? and types of ordering how is it bought?. 385 Activity 7.1 Evaluating the benefits of the e-procurement process for a typical B2B company Purpose To highlight the tasks involved in organizational purchasing and to indicate the poten- tial time savings from e-procurement. Introduction Table 7.1 illustrates a typical traditional procurement process using the flow-process chart symbols that are explained in more detail in Chapter 11. It is based on the actual procurement process for Cambridge Consultants described in Case Study 7.1. Note that this process is for relatively low-value items that do not need authorization by senior managers. The timings are for a new item rather than a repeat buy for which searching would not be required. Table 7.2 summarizes the new procurement process. Key to flow process chart symbols Process Transport Inspection Delay Inbound goods Questions 1 Identify inefficiencies in the traditional procurement process Table 7.1. 2 Identify process benefits to Table 7.1 that would be possible through the automation of a system through an e-mail-based workflow system. 3 Summarize why the e-procurement process in Table 7.2 is more efficient. Answers to activities can be found at www.pearsoned.co.ukchaffey Table 7.2 Task description Chart symbols Time 1 Search for goods 20 min 2 Order on web 10 min 3 Delivery from supplier 1 day 4 Generate invoice 10 min 5 Cheque payment 10 min Process flow analysis for new procurement typical cycle time, 1 1 ⁄ 2 days

Chapter 7 E-procurement