Cost Through E Procurement System example essay topic

Topic 4 - E-Procurement Hypothesis: Organizations can reduce cost through e-procurement system. Impacts on Business Process Gebauer, et all (1998) describes procurement as one of the most important functions for both governmental and private sector business processes. Procurement is more than just purchasing goods and services. It includes all activities involved in obtaining, transporting and moving material towards the production process. Electronic procurement makes use of electronic commerce technologies, such as Electronic Data Interchange (EDI), e-mail, and electronic catalogues. Zenz and Thompson (1994) stated that most organizations spend at least one third of their overall budget on purchasing goods and services, procurement holds significant business value.

Zenz and Thompson (1994) divided purchasing into 3 basic steps, Information, Negotiation, and Settlement. Emerging internet technologies are raising hopes of changing the picture of costly, time-consuming, and inefficient procurement processes by enabling major improvements in term of lower administrative overhead, better service quality, more timely location, and receiving of products, and increased flexibility (Gebauer, et all 1998) Internet can do a lot of savings from informational perspective. The use of search engines allowed very cheap search of potential suppliers. It also allows supplier to have cheap access to a very wide global customer base. Internet based catalogue allows buying organization to browse, search, and / or place orders online (Gebauer 1998).

Purchasing through internet can be done at any time 24/7 as long as the server was on and running. This eases the process of global purchasing and reduces cost of sales expenses significantly. From the buyer perspective, they can get a faster reply and easier way of tracking orders, provided that such tracks are available from the website. In case of problems, there are generally direct contacts provided. Although most Web purchasing operates as a fixed price, a number of online auctions and bidding systems have helped the negotiation process by confining to price alone. Though it is not as effective as the other roles, but it do reduce cost in term of global purchases.

It saves time and efforts for buyer to come to auction and make a purchase. It also allows buyer to attend multiple auctions from various place and site without any significant cost. Settlements methods used in internet are generally done by credit cards. This saves a lot of time and effort for companies to verify payments as it is guaranteed by Visa / Master Card / Pay Pal. Suppliers will be able to make a contract through websites 24/7 at a very low automated cost. Delivery would then be arranged.

Availability of goods should not be a problem, as it is generally linked to the site for availability of goods. However, big purchases are generally directed to customer service for direct contact. Justification The use of Internet has allowed end users to search for products sold everywhere. A lot of companies benefited from having access to a very wide customer base through internet at a very low cost. The use of internet catalog help such as being used by web has helped it to sell virtually anything through internet.

People come to the site and search for their needs and sales are made electronically through internet, at the cost of only maintaining servers. Delivery then made according to the orders once payment been verified. Once again, verification is done automatically through internet. Internet auction system as done by web has proven to be very successful, especially in USA. It helps suppliers to auction goods at a very low cost through internet, and allows them to access a very wide customer base. EBay as the auction provider will host the site, and suppliers will pay a very low from 35 cents to 2.5% of transaction cost for fee compared to traditional auctions which could cost up to 5% of transaction cost.

The cost is further reduced to a maximum of $200 or 0.75-1.5% for payment through electronic check in USA. (web). As a matter of fact, Sydney Water has implemented an Electronic tendering system for its procurement system to help itself to reduces its costs for getting a better value supplies, and allows suppliers to access data when and where they need it rather than depending on intermediate. (web) Let's take Amazon for example. It uses electronic automated method to finalize transaction. It reduces the cost of maintaining much more sales staff to cater for a possibly millions of end users which either purchase or merely search for information at the cost of only maintaining a server which is very low fixed overhead costs compared to the sales costs it could have incurred. Verifying of payments through internet are using Visa / Pay Pal which is very fast and easy, thus reducing time to receive money and ease delivery of goods. A sophisticated software can also be used to arrange for priority and decision and which delivery to be made and condition about the availability of goods.

This has further improved internal control at very low costs. Future Direction Internet is booming. Home users are estimated to be 553 million home users on 2nd Quarter 2002 (web), and this figure continued to grow robustly and it is estimated to be 2 billion by 2010 (web). This provides opportunities for companies to develop a system to capture the wide and growing global market. With the realization of free trade agreements and lower trade barriers, it enhances internet business across countries. Electronic procurement is expected to grow robustly as for its efficiency and effectiveness.

E-procurement systems have proven to reduce procurement costs significantly. Small companies generally do not incorporate IT into their operations, while Medium sized companies are more likely to be prepared to utilize IT in their business process. However, we do see an increased willingness to adopt or become involved in e-procurement if the business is in IT or business equipment industry (Ridley). The type that most people use for e-procurement is currently catalog system, and the number is expected to grow robustly.

Although auction systems are only popular in certain countries, however it is expected to grow well in the future as well..