EProcurement, Trading Exchanges and Auctions

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E-Procurement,Trading Exchangesand Auctions

• Chapter 8

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Traditional Procurement Process
Supplier
Purchase Order
Requi- sition
Invoice
Accounts Payable
Reconcile
Approval Process
Acknow ledge
Payment
Receive
Input Order
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E-Procurement ChallengeMake things work Faster,
slicker, and more efficiently

• 1) Reduce order costs cycle times
• 2) Enterprise-wide access (Good ERP)
• 3) Desktop requisitioning no paper chase, saves
  time and money
• 4) Integrating back-office helps streamline
  internal processes, sales department and so on.
• 5) Strategic procurement coming up next slide
• 6) Stop maverick buying- purchase through
  non-routine, poorly controlled means (RRC has one
  list of items from one supplier)
• 7)Speed up slowwwwwww processes (what worked
  yesteryear no longer works today)

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Steps to better e-procurement
RFP Request For Proposal
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Procure What?some general procurement areas

• General Admin office supplies
• Computer related equipment
• Maintenance, Repairs and Operations
• Travel Services
• Production Items- direct spending

By controlling who can authorize procurement at
lower levels, approval can be farmed out and the
chain of command can be shortened, saving time
and money.
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What is MS Market?An example of e-procurement
software

• Microsoft procurement software
• Employees can order office supplies, business
  cards, manage benefits selection, book their own
  travel, etc.
• Increased efficiency, cost, employee satisfaction
• Control tracking of orders
• Automate 3 Billion annual spending

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MS Market Benefits

• An early e-procurement success from Microsoft

Microsoft's MS Market is the intranet-based,
corporate procurement application that Microsoft
employees use to order products and services
easily and efficiently from the convenience of
their desktops, usually in less than three
minutes. It streamlines order processing,
facilitates billing, and reduces administrative
overhead. MS Market has helped reduce per-order
processing costs from 60 to 5, which saves the
company over US 7.3 million each year.

• The MS E-procurement Suite
• MS Market
• MS Invoice On-line submission of invoices
• MS Inquire allows suppliers to look at PO
  status, invoice status, and payment info
• MS Expense Intranet tool for employee
  reimbursement
• MS Insight provides capability to retrieve
  supplier spend and supplier management info

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Trading Exchanges

• Internet-based sites in which businesses can sell
  or purchase products and services or share
  information to advertise products and services
• Sometimes called hubs, e-hubs, marketplaces or
  consortiums
• Usually hosted by a third party

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For Buyers

• Total integration from supply need to settlement
• Automates selection purchase from desktop
• Cuts admin overhead
• Integrates sourcing, ordering payment
• Sends receives requisition documents
• Reports quickly
• Controls number of suppliers

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For Suppliers

• Ranges from supplier/customer integration to
  whole trading communities
• Content can be wide in nature (like a mall)
• Can reach new customers across a range of
  industries (public exchange)
• Deal with repeat customers more efficiently and
  effectively (private exchange)

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Main Classes of Trading Exchanges

• Vertical Trading exchanges - have an industry or
  specific market focus
• eg) healthcare, energy products, financial
  services, Covisint
• Horizontal trading exchanges have a product or
  service focus
• eg) computer equipment or office equipment
• Do not target any specific industry

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Exchange Issues

• Who can join?
• Private exchange limits participation to
  specific buyers and sellers, may require
  accreditation
• Public exchange buyers and sellers register,
  there are few limitations to joining
• How is the exchange run?
• VerticalNet is an enabling exchange with little
  control
• Is Data owned by exchange or individual members?
• Do members have ability to access data?
• Collusion/regulatory controls
• Are there restrictions on joining or owning other
  exchanges?

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Example Covisint

• Automotive trading exchange formed in 2000 by GM,
  DaimlerChrysler, and Ford to create a business
  community of buyers, sellers, designers,
  engineers, etc within the global auto industry
• Focused on procurement and supply chain
• For Buyers
• Offers catalog or auction methods
• Supply chain optimization, integration of supply
  chain technologies, hosting of virtual workspace
• Reduce cost and become more effective
• For Sellers
• Huge market backed by leading players
• Accessing customers in cost-effective basis
• Become more closely involved with design process
• Use one major interface to conduct business
• Tracking and disclosure

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Auction Types English Auction

• ascending bid process when buyers gather at a
  common location (site) during specific time. eg)
  Ebay

Cost

Seller


Buyers

Price
Time
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Auction Types (2)

• Yankee auction multiple items are sold by
  price, quantity and earliest bid time. E.g. bulk
  selling
• Dutch auction uses a descending price format
  beginning with a high price and buyers can bid on
  specific quantities as the price falls used for
  perishable goods. Pressure is there to bid before
  someone else buys.

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Auction Types -Reverse Auction
Who can give me the best price on an airline
ticket?

• descending price format where the buyers create
  the auction to receive bids from potential
  suppliers. Bid must be lower than the most
  recent bid. eg) e-trading exchanges, EDS Canada

Buyer
Cost
Price
Sellers


Time
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Auction Types (4)

• Sealed bid often used where price is only one
  consideration to contract. Other considerations
  may be product quality, timelines, contractor
  reputation. eg) Merx.com
• Vickrey auction uses an ascending price format
  in which the highest bidder wins but pays the
  price of the 2nd place bidder. Encourages upward
  bidding because winner gets to pay one bid lower.

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Auctioning Requirements

• Full disclosure provide all relevant info
  related to purchase/sale
• Integration integrating ERP systems with
  auction system to capture pricing and shipping
  info.
• Notification all participants are up to date at
  all times
• Security against hackers, confidential info,
  create audit trails
• Payment systems

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Auctioning Process
Auction Configuration
Promotion Scheduling
Auction type, Timing, Min bid amounts Min
increments, closing rules
Advertising, Solicitating participants from
other exchanges
Settlement
Buyer/Seller Registration
Enter contract, Payment, Transfer of goods
Bid Evaluation
Sharing of keys, Contact info, Investigate
particpants
Bidding
Notify winner May be automatic Or sealed bids
need evaluation
Training, Standby mechanisms Controling
bids Notifying of changes in status
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Why Online Auctions?

• Reach and number of bidders
• Speed of transaction
• Removes travel barrier
• Use as a test market?
• Low-hassle selloffs