Chapter Ten Chapter Ten Demystifying e-Procurement: Buy- Side, Sell-Side, Net Markets, and Trading Exchanges www.ebstrategy. com 2 - © e-Business Strategies, Inc. Introduction Introduction More than 5-10% revenues spent on non- production goods annually – Office equipment, supplies, software, computers – Top 2000 U.S. corporations = $500 billion annually Purchase detail for negotiating better supplier contracts not available – Most POs worth less than $500 – Large percentage of that is off contract, outside preferred channels www.ebstrategy. com 3 - © e-Business Strategies, Inc. Introduction Introduction B2B transactions comprise significant market – Several trillion dollars – Big Three automakers do $500 billion/yr worth transactions related to buying and selling car components – Non-discretionary spending, required for business – Both buyers and seller see importance of an efficient marketplace, to streamline processes and reduce costs www.ebstrategy. com 4 - © e-Business Strategies, Inc. Introduction Introduction Procurement not just support function; a valuable weapon – Lower procurement costs, reduce order-cycle times and ensure smooth delivery of materials B2B strategies now a top mgmt focus – Not so much a technological revolution as a business revolution enabled by technology – Driven by CEO or CFO, reflecting management’s awareness of key challenges facing corporate procurement functions • Reducing order-processing cost and cycle times • Providing enterprise-wide access to corporate procurement capabilities • Empowering desktop requisitioning through employee self- service • Achieving procurement s/w integration with back office systems • Elevating procurement function to strategic importance within organization – Dollar-for-dollar bottomline impact of e-procurement is startling www.ebstrategy. com 5 - © e-Business Strategies, Inc. Introduction Introduction B2B strategies now a top mgmt focus – Driven by CEO or CFO, reflecting management’s awareness of key challenges facing corporate procurement functions • Reducing order-processing cost and cycle times • Providing enterprise-wide access to corporate procurement capabilities • Empowering desktop requisitioning through employee self-service • Achieving procurement s/w integration with back office systems • Elevating procurement function to strategic importance within organization – Dollar-for-dollar bottomline impact of e-procurement is startling www.ebstrategy. com 6 - © e-Business Strategies, Inc. Evolution of e-Procurement Models Evolution of e-Procurement Models Industry Consortiums Industry Consortiums Third-Gen Trading Xchanges Third-Gen Trading Xchanges Second-Gen Trading Xchanges Second-Gen Trading Xchanges First-Gen Trading Xchanges First-Gen Trading Xchanges Corporate Procurement Portals Corporate Procurement Portals B2E Requisition Apps B2E Requisition Apps EDI EDI www.ebstrategy. com 7 - © e-Business Strategies, Inc. Pre-Internet Era: EDI Networks Pre-Internet Era: EDI Networks Private and limited to large businesses – Linked with major suppliers – Require large capital outlays Automate procurement process; support automatic inventory replenishment; and tighten the relationship between buyers and primary suppliers Perform best in strategic partnerships, specialized relationships, and rigid performance contracts – Don’t do well in open sourcing and flexible supply chain world www.ebstrategy. com 8 - © e-Business Strategies, Inc. B2E: Purchasing and Requisitioning Apps B2E: Purchasing and Requisitioning Apps Next gen procurement apps taking hold in corporations – Purchase of goods and services the single largest cost item – For $1 earned on sale of product, $0.50-$0.60 spent on goods and services – Inefficient procurement practices wasting billions of dollars Desktop requisitioning enables employees to purchase products and services online – Hook up corporate intranet to suppliers’ Web-based commerce sites to eliminate paper-intense and costly purchasing process of traditional business Consolidating purchasing process with few key suppliers capable of providing volume discounts can generate tremendous cost savings – Ford www.ebstrategy. com 9 - © e-Business Strategies, Inc. Corporate Procurement Portals Corporate Procurement Portals For buying both prodn and non- prodn related goods Procurement portals do more than basic purchasing – Purchasing: the buying of materials and all activities related to the buying process – Procurement: includes requisitioning, purchasing, transportation, warehousing and in-bound receiving processes Early strategies reengineered, even dismantled hierarchical structures Recent strategies restructure entire order-to-delivery process www.ebstrategy. com 10 - © e-Business Strategies, Inc. Trading Exchanges – First Gen Trading Exchanges – First Gen Communities, Store Fronts, & RFP/RFQ Facilitators Information and content hubs – Content communities attracting purchasing professionals – Revenue: Advertisement, Subscription – VerticalNet RFP and RFQ facilitator exchanges – Centralized online marketplace with preapproved group of suppliers – Fixed-price, sealed bids – Revenue: subscription fees, fees for bids to be read, transaction fees for bids submitted and/or successfully chosen – WellBid in the energy sector [...]... before building first product – Transformed into a technology platform provider • For building and powering Internet trading exchanges © e-Business Strategies, Marketplace Enablers Freemarkets: Auction Enabler – Runs buyer-centric auction exchange – Focused on procurement for industrial parts, raw materials, and commodities • $ 4-5 trillion market – Major opportunity • Direct materials often custom-made... bid for products/services from an individual seller – Reverse auctions allow several prequalified sellers to bid for fulfilling an individual buyer’s need © e-Business Strategies, Trading Exchanges – Third Gen Collaboration hubs Provide more than transaction functionality, help with end-to-end mgmt of supply chains Create common platform for all participants in an industry supply chain – Share information;... Channel Fragmentation Symptoms of channel fragmentation – Maverick buying, inefficient processes, and non-strategic sourcing Most procurement processes are paperintensive – Overhead: $7 0-3 00 per purchase © e-Business Strategies, Hands-Free Procurement: Managed by Exception © e-Business Strategies, E-Procurement: Integrating Ordering, Fulfillment and Payment Order Flow Search & Select Requisition Approval... needs and promote efficiency – Identify critical success factors and performance indicators – Also assess problem areas and areas of vulnerability – Determine proper direction for the design phase © e-Business Strategies, Step 3: Create a Business Case for eProcurement Return on assets business case forces you to systematically analyze your business Analysis forces to understand context – Without understanding... custom-made with no std price • Current procurement process inefficient • Current asset-disposal methods plagued by imperfect product and pricing info – Offers service to create customer market for direct matls its client purchases • Industrial auctions • Surplus asset auctions © e-Business Strategies, Roadmap for e-Procurement Managers Chief procurement officers looking to deliver maximum business impact... CPOs realizing that e-procurement applications can be powerful when applied to large number of products and services that companies buy © e-Business Strategies, Step 1: Clarify Your Goals • What is your company’s specific e-procurement goal? • Is the goal a comprehensive and consolidated business solution? – Integrated e-procurement mgmt necessary • What are you trying to improve? © e-Business Strategies,... Invoicing © e-Business Strategies, Payment Reporting Pick, Pack & Ship Ordering: Self-Service Requisitioning Traditional purchasing process – – – – Fill requisition form Submit Wait for approval & PO Send PO to supplier Many procurement guidelines and rules to follow – Archaic given technological options today Little help available from purchasing dept and POs can take weeks to fulfill © e-Business Strategies,... inch deep and a mile wide” Transaction necessary for success Revenue: from every transaction within the exchange Virtual Distributors – One-stop shopping for buyers and sellers – Product information from multiple catalogs, multiple suppliers and manufacturers into a megacatalog – Do not carry inventory or distribute products; assist buyers in arranging for 3rd party carriers to transport other goods... drive down prices – Covisint © e-Business Strategies, Industry Consortiums: Joint-Venture Procurement Hubs Supplier consortium – Forming in industries with few high concentration market players – Difference compared to buyer consortium: sponsors get to promote and differentiate suppliers’ products – Not new: Sabre Major issues: governance, technology and antitrust © e-Business Strategies, Evolution... Processes Reengineering procurement process key to deployment of e-procurement solution E-procurement models all attempting to solve similar business process problems – Fragmentation of channels – Managing by exception rather than by transaction – Controlling maverick buying by automating requisitioning process – Integration of end-to-end process © e-Business Strategies, Reducing Channel Fragmentation Symptoms . Chapter Ten Chapter Ten Demystifying e-Procurement: Buy- Side, Sell-Side, Net Markets, and Trading Exchanges www.ebstrategy. com 2 - © e-Business. Dollar -for- dollar bottomline impact of e-procurement is startling www.ebstrategy. com 5 - © e-Business Strategies, Inc. Introduction Introduction B2B strategies