Future of Purchasing in the Next Decade - Essay Example

Table of Contents Introduction 2. E-purchasing 3. Organizing e-purchase in an organization.5 4. Contribution of e-purchasing in the next decade..7 5. Real business cases9 a. Xerox Corporations.9 b. Canadian National Railway Company10 6. Conclusion..10 References..11 Future of Purchasing in the next decade Introduction Business Organizations has to perform various functions to carry out their business operations effectively. One of such function to be carried out by the business is purchasing. The term purchasing is defined as an act of buying goods and services by the business organizations for the purpose to operate and/or manufacture products. To perform this function the business organizations had to follow certain series of steps, which included requisition, soliciting bids, purchase order, shipping advice, invoice, and finally payment. Due to this the process was considered to be unacceptably slow, expensive, and labor intensive. But the situation changed with the introduction of Information technology, which brought significant changes in the dealings of business operations. The package it provided to an organization to overcome the limitations of traditional purchasing is 'e-purchasing'. Viewing the importance of E-Purchasing the paper tries to bring about some information on e-purchasing but specifically focusing on what an E-Purchasing actually means, how it is carried out and its overall contribution to the business in the next decade. E-purchasing The introduction of information technology has brought dramatic changes in the business operations. In spite of the huge investments were fabricated by the business organizations in the action ability planning arrangement implementations they could not get appropriate advice for authoritative able business decisions. But the placing of 'e' in front of any process or function proved to be the magic formula for the untold success and the rapid returns for the organizations. One such example to give is E-Purchasing. E-Purchasing is considered as the basic component of an e- procurement capability. Through e-purchasing the business organization can automate and extend the manual buying processes right from the creation of the requisition through to payment of the suppliers (Biechler, 1997). Thus the process of using of internet facility by the business organizations for purchasing goods and services is referred to as e-purchasing. E-purchasing essentially involves the buying of goods and services via internet. In other words it can be told as a system using information technology to streamline the purchase of goods and services in order to reduce costs. The internet can perform all the steps required manually for performing the purchasing function including ordering, payment and delivery. To avail this so many online banking services have been introduced by the financial institutions such as electronic bill payment, and funds transfer, so that the business can improve its operational efficiency. In accession to this the business alignment can use e-mail as a accelerated and reliable way to acquaint with suppliers or to acquire and acknowledge to chump queries like quotations, information, acquire orders, assassinate deliveries, and aggregate ante from the customers. The e-business can also make the operations of business effective through the greater use of electronic bookkeeping and records management. Thus the supplies received through internet helps to reduce the storage cost and the space required for the goods in the business organizations and thereby serving the customers faster and more effectively (Chia, 1998). E-purchasing is usually referred to as a user-friendly, Internet-based purchasing arrangement that offers e-purchase adjustment processing and added authoritative functions to the buyers that after-effects in added operational efficiencies and abeyant amount accumulation to the business organizations (Breite, 2001). The e-purchasing ability provides the Business organizations to abode orders with suppliers on the website. And there is an e-marketplace which is an online barter area the amount of vendors and buyers accommodated at one website for ambidextrous in appurtenances and materials. It is apparent that amount of websites which accept been alien in assorted industries are traveling beneath an action of accustomed alternative with some businesses either due to abandoning from e-marketplace operation or amalgamation with added businesses (Jacobs, 2000). E-purchasing performs all purchasing activities such as requisitioning, acquirement adjustment transmission, and notification of internet banking query, requests, acknowledgment to pre-bidding and cancellation of appurtenances and processing thereon. E-purchasing involves purchasing of all types of products, including books, music CDs, toys, domiciliary appliances, clothing, foods and added groceries, adornment which are accessible for auction on the Internet (Quinn, 1998). Despite of all these there is a wrong notion among many people about the e-purchasing. The people feel that the facility of e-purchasing system can be implemented only by the large organizations and multinational companies who have very huge investments in the market and only they can enjoy the benefits of e-purchasing as they can afford to meet such heavy expenses. But actually this is not true. The facility of e-purchasing can be applied to any business or industry irrespective of their size. Organizing E-purchasing in an enterprise (Source: Radstaak, 1998, p. 62) The high power procurement committee, with strong representation from various groups, makes decisions that are binding all divisions of the organization and the heads of respective divisions are responsible for implementing those decisions in their respective areas. The committee avoids any conflicts and ensures coordination and uniform implementation in all sections. The committee broadly plans for target planning, requirement pooling, purchasing processes, IT technology and tools and resources. Each purchasing department is responsible for a wide range of purchasing tasks. E-procurement not only procures materials but also enhances the strategic functions. To share the responsibility, the heads of the purchasing departments are made to represent in the high power committee. Security of the network is the breadth wherein abundant accent has to be given. It can be done by creating security at the interfaces of arrangement such as connected cipher for identification of abstracts and services (Neef, 2001). The responsibilities cover initiating and active cantankerous action enhancement programs in purchasing and logistics; developing compatible conventions aural the company; authoritative cantankerous action purchasing activities and accouterment key abstracts and ensuring acquiescence with acknowledged and centralized requirements (Claver, 2001). The websites of the aggregation accept to accept in accession to added admission options, options such as annals suppliers to participate in the exchange of the aggregation which may added accept altered options such as free allotment and non-free allotment of suppliers (Chia, 2002). This free allotment action meets the basal requirements that are prerequisites for all business relationships. Once the allotment is made, the suppliers become the registered suppliers of the aggregation and they can be accustomed for added communication. The allotment provides the suppliers to admission advice about the anatomy of purchasing; supplier profiles; IT tools, download abstracts and so on (Ivancevich, 2002). The allotment as well allows them to access the bazaar allotment or acquirement aggregate in the actual fields accordant to suppliers and the supplier allocation appraisal compared with competitors; common communication; availability of advice of accomplished and approaching e-bidding and e-auctions (Johnson, 2002). Security of the network is an area wherein much emphasis has to be given. It can be done by creating security at the interfaces of network such as standardized code for identification of materials and services. The responsibilities include initiating and executing cross enterprise optimization programs in purchasing and logistics; developing uniform conventions within the company; controlling cross enterprise purchasing activities and providing key figures and ensuring compliance with legal and internal requirements. The websites of the company must have in addition to other access options, options such as register suppliers to participate in the marketplace of the company which may further have different options such as free registration and non-free registration of suppliers. This free registration process meets the basic requirements that are prerequisites for all business relationships. Once the registration is made, the suppliers become the registered suppliers of the company and they can be allowed for further communication. The registration provides the suppliers to access information about the structure of purchasing; supplier profiles; IT tools, download documents and so on. The registration also allows them to obtain the market share or purchase volume in the material fields relevant to suppliers and the supplier grading evaluation compared with competitors; worldwide communication; availability of information of past and future e-bidding and e-auctions. The success of the system depends on the strategy and execution. This can be broadly classified as lead buyers or group buyers who buy restricted materials and are authorized to finalize the contracts. The purchasing committee members draw the strategic planning and finalize the agreements and negotiate optimum terms and conditions (Kapsinow, 1999). Contribution of E-purchasing in the next decade E-procurement helps organizations to keep the relevant information neatly organized and time-stamped. This helps in effective decision-making on various issues and transactions especially on the strategy a firm has to adopt to improve the relationship with its clients. E-procurement has all the information about number of transactions made by the clients, the logistics information, number of bids its partners has made, prices of the products and different types of contracts it had with a particular client. This information is stored in the databases for analysis and interpretation which can later be used to build strategic relationships with suppliers and to strengthen buyer/supplier relationships. The major benefit of e-procurement is the Return on Investment (ROI). A study conducted by Deloitte Research concludes that on an average the return on investment can top 300% in the first three years (Bayles, 2001). Such high ROI is generally dependent on a number of factors, including the amount of external spend addressed, the number of users using the system, and the extent to which the companies go to improve their old business processes and procedures. E-procurement helps to reduce operating costs by supplying information about product availability, shipment status, and inventory levels electronically. In a research conducted, it was observed that most of the firms who had implemented e-procurement felt that it had moderate impact on cost reduction, supplier performance and user satisfaction. However, majority of the firms feel that it has no impact on improvement of quality of the product. For the purchasing industry, e-procurement is an IT-enabler; a tremendously powerful tool that revolutionizes the purchasing climate and improves the organization's profit margin. E-procurement revolutionized the purchasing function by automating and streamlining the laborious routine through Internet. There is a reduction of time on laborious routine like sorting and maintaining inventory, placing order manually and sorting through the complaints and general queries. This leads the purchasing professionals to focus on more strategic purchases. E-procurement also helps to reduce the inventory level and thus save cost that would incur with inventory storage and its security (UNCTAD, 2002). However, organizations face an uphill task of adopting the structured procedures of e-procurement. Initially, it required more work and time to execute. It was also observed that many organizations failed to understand the fundamental changes that were needed to maximize the benefit of their internal processes. It was also pointed out that the two critical success factors that most organizations overlooked are to cut down the number of routine tasks and to reduce the overall procurement cycle through the use of appropriate technology. Real Business Cases Xerox Corporation According to Aqua Porter, Commodity Team Manager of Xerox, the company is conducting major purchases online. Xerox has realized 15 to 20% in process savings on its $20 mn annual spending on domestic offset printing. This gives a lot added allusive abstracts and a bigger way to clue the decisions that they are making, accepting bigger amount for money. The amount of advisers amenable for purchasing food can be bargain by 20%, by application discounted prices from electronic catalogs, purchasing cost, streamlining of account staff, and by eliminating bohemian purchases or decentralized purchases (Lancioni, 2003). The Canadian National Railway Company The Canadian National Railway Company once had more than 75,000 items in its online catalogs that saved it $10 mn in procurement costs. For decrease in purchases, the buyers acclimated to seek cardboard records which did not accept the appropriate advice and also other processes were done through phone, fax and mail casework before (Min, 2003). The antecedent teething problems such as arising assorted application orders were bound and anon the arrangement went reside for all suppliers. E-procurement helped in accepting bigger prices from suppliers. After a balloon of six months, the railroad aggregation was able to abate the amount of processing from an boilerplate $50 per adjustment to $4 electronically (Poirier, 2003). The aggregation got beyond discounts for bulk-buying and other purchases. The acceptance of online catalogs can advice the advisers to analysis the items which are purchased often. Conclusion The benefits obtained by the e-procurement system should not be lost due to maverick purchasing. Since in e-purchase, the transactions conducted are more transparent both within the organization and with the suppliers. However, some of the suppliers are not actually well equipped with it. E-procurement involves announcing the archives and other data such as account and supplier mark up, are collective with others which few suppliers are afraid to do so. The allowances should not alone be for the buyer. It should be counterbalanced with the client and the supplier. The purchasing should not be confused from old to new suppliers. Reliability and the akin of account have to be enhanced. References Bayles, D. (2001), E-commerce Logistics and Fulfillment; Delivering the Goods, Upper Saddle River, NJ, USA, Printice Hall PRT Biechler, M and H Hansen (1997), Electronic Catalogs on the World Wide Web, Information Management, 8: 2-8 Breite, R. and H. Vanharanta (2001), The Supply Chain in the New Economy: How to Manage IT Proceeding of the 10th Annual International (IPSERA) Conference, Jonkoping, Sweden Chia, C.N. (1998), Increase of Profit Margin through Electronic Procurement, Journal of Internet Purchasing, 2(1) Chia, B.K. and S Al-Hawamdeh (2002), The Adoption of Electronic Procurement in Singapore, Electronic Commerce Research, 2(1-2): 61-73 Claver, E. J. Llopis et al. (2001), The Performance of Information Systems through Organizational Culture, Information Technology and People, 14(247-260) Ivancevich, J.M. and M.T. Matteson (2002), Organizational Behavior and Management, McGraw Hill Jacobs, F.R. and E. Bendoly (2000), Enterprise resource planning: Developments and Directions for Operations Management Research, European Journal of Operational Research, 146(2): 233-240 Johnson, M.E. and S. Whang (2002, winter), E-business and Supply Chain Management: An Overview and Framework, Production and Operations Management, Muncie 11(2): 413 (11 pages) Kapsinow, S. (1999), Using Fulfillments Services for Ecommerce, E-commerce Guide, accessed on 16th November, 2009, from < http//www.internet.com> Lancioni, R. and H. Jea Schau (2003), Internet impacts on supply chain management, Industrial Marketing management 32: 173-175 Min, H. and W.P. Galle (2003), E-purchasing: Profiles of Adopters and Nonadopters, Industrial Marketing Management, 32(3): 227-233 Neef, D. (2001), E-Procurement: From Strategy to Implementation, Upper Saddle River, NJ, prentice Hall Poirier, C.C. and F.J. 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