Budapest University of Technology and Economics

Economic Analysis of Technologies:

ELECTRONIC PROCUREMENT

Diana Trifan

Budapest 2017
 Electronic Procurement, also known as eProcurement, is a way of using the Internet to make it
easier, faster, and less expensive for businesses to purchase the goods and services they require and
need. So businesses can focus more time on earning revenue and serving customers.
This topic is very actual since global internet market is rising and underlying also the
importance of correct understanding of it. The scope of this paper is to define what is eProcurement and
to shortly describe main information related to it. Research methodology includes studying of literature
and articles on the topic.
eProcurement is the business-to-business or business-to-consumer or Business-to-government
purchase and sale of supplies, Work and services through the Internet as well as other information and
networking systems. eProcurement is more than just a system for making purchases online. A properly
implemented system can connect companies and their business processes directly with suppliers while
managing all interactions between them. This includes management of correspondence, bids, questions
and answers, previous pricing, and multiple emails sent to multiple participants. A good eProcurement
system helps a firm organize its interactions with its most crucial suppliers. It is helping in controlling
costs and assuring maximum supplier performance. It provides an organized way to keep an open line
of communication with potential suppliers during a business process. The system allows managers to
confirm pricing, and leverage previous agreements to assure each new price quote is more competitive
than the last.
There are seven main types of e-procurement:
 Web-based ERP (Enterprise Resource Planning): Creating and approving purchasing requisitions
and receiving goods and services by using a software system based on Internet technology.
 eMRO (Maintenance, Repair and Overhaul): The same as web-based ERP except that the goods
and services ordered are non-product related MRO supplies.
 eSourcing: Identifying new suppliers for a specific category of purchasing requirements using
Internet technology.
 eTendering: Sending requests for information and prices to suppliers and receiving the responses
of suppliers using Internet technology.
 eReverse auctioning: Using Internet technology to buy goods and services from a number of
known or unknown suppliers.
 eInforming: Gathering and distributing purchasing information from and to internal and external
parties using Internet technology.
 eMarket sites: Expands on Web-based ERP to open up value chains.
eProcurement helps with the decision-making process by keeping relevant information nearly
organized and time-stamped. Most are template-driven which makes all transactions standardized and
trackable. Keeping track of all bids means leveraging your knowledge to obtain better pricing.
Companies can focus on their most lucrative trading partners and contracts. Well-managed
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eprocurement helps reduce inventory levels. Knowing product numbers, bid prices and contact points
can help businesses close a deal while other suppliers are struggling to gather their relevant data.
eProcurement systems that allow multiple access levels and permissions help managers organize
administrative users by roles, groups, or tasks. Procurement managers do not need to be as highly
trained or paid because such systems are standardized and easy to learn. All purchases are easier to
track because they are done over the Internet and the company's managers can easily see who made
which purchases without having to wait to receive a monthly revolving credit statement. Also,
eProcurement saves time. Buyers do not need to leave their desks or make phone calls to suppliers in
order to place orders; they simply go through the Internet. And, because suppliers receive the order
almost immediately, they can also fulfill and ship it much faster than with the traditional procurement
methods.
In summary, the benefits are: Increased access to markets without additional marketing efforts,
Single point of access to government organizations, Increased order accuracy and reduced cycle times,
Standardization across organizations/agencies, Electronic solicitations - more efficient and accurate
quoting, Better access to information and purchasing entities, Improved compliance with contracts and
purchasing rules. As is said do not bite off more than you can chew. The parallel system approach
should only be used if you have the time and resources to do this. If not, stick to the incremental
approach. Do not expect an immediate return on investment. A short-term gain may be noticeable, but
it may be eaten up by the cost of staff training and equipment purchases. A year or two down the road,
a larger ROI should be evident. One other problem these companies have found is that employees
simply refuse to use the system. Implementing the system slowly and providing the necessary training
can help employees feel more comfortable with eprocurement and more inclined to make sure of the
system. Another common problem is that many companies do not have a plan in place to deal with
purchasing items that are not available through the online suppliers. Treating all areas of procurement
and all products the same is another pitfall. The reality is that what may work for one good or service
may simply not work for all of them, so successful eprocurement systems use a number of different
techniques.
Magazine articles and white papers are filled with optimistic estimates of how much money
organizations will save by migrating to electronic procurement systems for all of their purchasing.
However, many of these estimates fail to take into account the total cost of adapting these systems, the
difficulty of realizing savings during the development and deployment phase of the transition, and the
cost of training employees and getting suppliers to participate in the e-procurement system.
Procurement is a very broad term. There is, in general, a broad push for companies to adapt
eprocurement for all types of purchasing.
In most cases, the best place to apply electronic procurement is in circumstances where a very
close business relationship must be established and ongoing cooperation is needed with suppliers,
especially when developing new products or technologies. Critical items and systems are not the first
place to apply a new e-procurement system. Anything that will immediately impact profits or
bottleneck your operations is not a good place to experiment with a new electronic procurement
system. For this reason, some companies first integrate e-procurement in their maintenance, repair and

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operations (MRO) systems. Once they have the bumps ironed out of their system, they move on to their
manufacturing operations. It’s not a good idea to implement e-procurement first on systems that have a
high supply risk and low profit impact, especially if there are a very limited number of suppliers to
choose from. The company doing the purchasing will not see an immediate strategic advantage from
this kind of implementation.
Some firms have discovered that many of their transactions still take place on paper, and they
have run into problems ranging from content management to supplier participation in their systems.
Most companies who desire to make the switch fall into two camps.
The first are the slow step-by-step adopters. They implement one piece of their system at a time
and slowly bring trading partners on board. The others follow the total replacement model. They build
a totally parallel system, test it, then switch over to it when it works. There is usually some pain
involved and some mistakes are discovered, but by and large these are absorbed and the business
continues.
Another important implementation strategy is to determine beforehand the specifications for all
of the products and services required by the business. Generally, this process involves determining
what type of ink cartridges the printers require, what brand of ink pens are used, what style of desk
chairs are needed, etc. While this step may seem time-consuming, it prevents employees from using the
e-procurement system to make unnecessary purchases for items such as palm pilots, leather chairs, or
expensive writing instruments.
During the procurement process, most people are familiar with the acronym RFP, which stands
for Request for Proposal. As anyone in purchasing knows, RFPs are created by businesses and sent to
vendors in order to get a full quote on a project. Generally, the RFP contains the price, as well as any
other important details that the businesses might need to consider during the review process. The price
stated in the RFP is often considered to be the bid price for that project.
Another, perhaps less familiar, acronym used in procurement is RFQ. RFQ stands for Request for
Quote. When a buyer sends out an RFQ, he is generally getting a feel for prices about an upcoming
project. He is not opening the bidding on a project. Responses to RFQs are not considered formal bids
and, therefore, can be changed if the same buyer later sends out a more formal RFP.
RFQs do play an important role in the procurement process. They are usually the first step taken by
buyers, and the responses offer a wealth of data that can help them later on when they need to begin
taking formal bids. For example, if Buyer A sends out an RFQ to three companies and only two
respond to his inquiry, Buyer A automatically knows that the third person is either not interested in
doing business with him or is not a reliable vendor. Either way, he has narrowed down his pool of
potential suppliers, thus making less work for him. The RFQs can also help buyers determine their
budgets for a particular project.
As the current economic climate rebounds, more companies are starting to expand their
involvement with electronic purchasing systems. This continues a trend that was seen in the late 1990s
and 2000, but which has slowed considerably over the past three years as IT spending slowed to a
trickle. While producers of eProcurement software were waiting for new business, most did not stand

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idly by. Most were improving and integrating their products to make them more responsive to end-user
needs. One of the chief developments in eprocurement systems is the blending of several previously
separate applications. Companies used to separately invest in things like supplier relationship
management (SRM) software, auction software, and inventory tracking applications.
The most advanced eProcurement systems now combine these functions. As companies use an online
auction system to publicize their requests for proposals and monitor their auctions, they need to have
integrated access to their SRM systems to track correspondence with participants. They also need to
quickly track inventory and monitor payments. Thus, eProcurement systems have become integration
points, and control panels for using multiple systems. As of 2003, nine out of ten purchasing managers
reportedly used the Internet for at least some of their corporate buying. This shows a considerably
leveling off of the trend since well over 80 percent of purchasing managers have used the Internet for
the past several years. Barriers to participation include budget limits and spending priorities. Another
ongoing issue is training. Many companies do not budget training as part of their process of switching
to eprocurement. For this reason, some systems have gone unused as employees stick to their known
“older systems” in some cases even paper-based systems.
Those companies who use a Web interface for their e-procurement systems have some
advantage because most employees have used the Web and understand Web-based navigation.
The main benefit of adopting an eprocurement system is the ability to consolidate multiple
information systems in a single place, while establishing a standardized way to conduct purchases and
interface with suppliers. XML-based Web services have streamlined this process, making adaptation
cheaper than it was a few years ago. Those who make the switch to eprocurement often find that they
smooth out relationship glitches with preferred suppliers, often establishing a relationship which if
better long-term pricing. eProcurement establishes pricing controls and buying controls, often meeting
goals set by Chief Financial Officers for establishing who can authorize purchases and spend money.
The growth trend should resume sometime in 2006. The first area that’s likely to see an increase
in spending is online auction and reverse auction systems followed closely by applications that tie these
auction systems into SRM and inventory systems. One surprise is that the much-touted public online
marketplaces of the late 1990s failed to catch on, other than a few exceptions such as eBay and
comparison systems like Shopping.com. Most companies preferred to install their own private systems
allowing them to interface with approved suppliers.
A Start-up should begin with non-critical items. An initial e-procurement system should slim
the amount of paperwork needed for purchasing and reduce order complexity by standardizing the
exchange process between supplier and buyer. Use your intranet to bring all internal stake-holders on
board with your new procurement process and to establish internal customer behavior. Streamline,
map, test, troubleshoot and improve the process before expanding it to external suppliers. Work with a
favored supplier to test the system. Leverage your system once it’s running. Exploit your full
purchasing power by using reversed auctions. Invite new suppliers to participate once the system has
proven itself. Aggregate buyers within your organization to increase your purchasing power and gain
better pricing. Use a portfolio approach to expand your system. It is not possible to have uniform

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relationships with all suppliers nor are all purchasing requirements the same. Sort purchasing needs
into groups that can use a similar processes and a similar template.
Every company is looking to lower costs and increase profitability. Each year, company
management devises new initiatives to cut costs and boost productivity. However, one area that is often
overlooked by company management is the purchasing department. The purchasing department is
usually in charge of purchasing direct goods (fall into the cost of goods sold) and indirect goods (other
areas like office supplies, computers, etc). The efficiency and effectiveness of a purchasing department
is often difficult to quantify. However, it is worthwhile for companies to examine purchasing
departments since cost savings in the purchasing department translate directly to the bottom line. New
purchasing software equipped with advanced RFQ, automated bid submission and automated
negotiation has made it possible to realize significant cost savings from the purchasing department.
While eprocurement can offer companies a lot of tangible benefits, it takes specific knowledge of
software and the purchasing process to maximize these benefits for the company. Below we will
describe some areas where specific knowledge of the purchasing process can lead to cost savings and
efficiency gains when this knowledge is used in conjunction with software.
Spend Analysis: A knowledgeable partner will help you obtain detailed supply management
goals and objectives and provide detailed vies of current and projected spend. Once current spend has
been analyzed, a knowledgeable partner can help develop actionable strategies to support goals.
Technology can then be used to develop capabilities to manage and analyze spend going forward.
Market Analysis: If a company is going to purchase particular type goods in the open market,
the buyer / partner will need to understand the market dynamics. This means having knowledge of the
average prices, key suppliers, drivers of value. This will also determine which procurement
methodology will be used to purchase the goods. For example, if there is only one or two suppliers of a
particular item in the world, an auction event will not work.
Supplier Sourcing: One of the biggest problems that buyers face in setting up automated
procurement events is supplier participation. For large procurement events, the addition of an
additional supplier will enable the buyer to obtain a much better price. This calls for expertise in
supplier sourcing and requires the ability to locate new, qualified suppliers.
RFQ creation: The way that an RFQ is worded can often have a strong impact on how a
procurement event unfolds. Each RFQ should contain enough information for a supplier to make a bid.
Depending on the type of item, this will include delivery terms, payment terms, and specifications. An
experienced RFQ creator will know what suppliers are looking for and will understand the key drivers
of price.
Supplier Invitation: The decision of which suppliers to invite has a profound impact on the
way a procurement event progresses. Generally, the more suppliers participate, the better that the event
will work.
Event Structuring: To maximize the value of powerful, feature rich purchasing software,
knowledge of how to structure the procurement event will be necessary. This includes knowing what
information to show suppliers during the event, the type of logic to use for the event.
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 The bottom line is that eProcurement systems can be effective at reducing waste and saving
money, but special steps must be taken to effectively implement the system and to avoid the types of
problems that can hinder the successful adoption of eProcurement systems.
Bibliography
 Wikipedia, article E-procurement, available at https://en.wikipedia.org/wiki/E-
procurement 16.04.17
 Eprocurement domains, available at http://www.eprocurement.com 01.04.17
 EPIQ, smart procurement, available at http://www.epiqtech.com 01.04.17
 North Carolina Eprocurement, article available at http://eprocurement.nc.gov 01.04.17

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