New character of procurement in the on-line era

Written by Alexandra Lykova

New character of procurement in the on-line era

Introduction

Development of the internet affected Business-to-Business relations. Since the beginning of the millennium, scholars had started to discuss electronic marketplaces (or, e-marketplaces). (Feldman, 2000; Miller, 2000; Hamill & Prashantham, 2001) In 2007, based on literature review Wang and Archer tried to define and classify different e-marketplaces.  They named electronic marketplaces a place “where buyers and sellers conduct transactions by electronic means”, and gave examples such as e-hubs, exchanges, market-makers, portals, electronic markets, electronic platforms, meeting places, virtual locations, etc.

As a result of these electronic innovations, the phenomenon of e-procurement has appeared. This term is generally defined as utilization of internet systems in purchasing process, partly or in the whole process.

Many researchers made attempts to analyze advantages and disadvantages that adoption of the e-procurement brings to the companies, to name a few: Farzin & Nezhad, 2010; Croom & Brandon-Jones, 2007; Sitar, 2011. However, it is mentioned only indirectly that procurement departments can change their characters as a result of this adoption.

This paper is an attempt to illustrate how the development of the on-line marketing in B-2-B sector changed the role of purchasing departments. The analysis is made based on secondary data surveys of the procurement in different industries and countries, such as the public sector in the UK, the construction industry in Chile, and the coal industry in India.

Theoretical background

The work with suppliers plays significant role in the organizations’ everyday business. This activity includes different aspects from the search for vendors, negations with them as well as following relationship maintenance to placing and conducting the purchase orders (PO). Dobler and Burt give a summary of the purchasing department functions in their book. 

Figure 1: Definitions of Dobler & Burt (1996)

Figure 1: Definitions of Dobler & Burt (1996)

Their definition includes operational and strategic aspects of the material management function in the companies. However, for many years sourcing was mostly associated with operational activities carried out by purchasing departments.

(Kaufmann, 1999)

Farzin and Nezhad mention in their article that the usage of internet technologies in procurement aims at reduction and acceleration of operational work that allows to devote more time and efforts on the strategic issues. (Farzin & Nezhad, 2010)

Figure 2: Effects of e-procurement, Farzin and Nezhad (2010)

Figure 2: Effects of e-procurement, Farzin and Nezhad (2010)

In this paper, the idea of the growing role of the long-term tactical questions over the operational routine in procurement management will be supported by evidence from practical cases. This will underline the new look of such departments stemming from the e-procurement adoption.

Practical evidence and analysis

Different organizations nowadays start using e-procurement services. Such novelties contribute to the changes in the portrait of the procurement team, i.e. transfer of the emphasis from the operational work towards solving strategic issues.

To illustrate this idea, results from three researches on advantages of the e-procurement as well as a study regarding security issues associated with the electronic form of procurement will be used. The first three cases are the UK public sector organizations , the construction companies in Chile (Alarcón, Maturana, & Schonherr, 2009)(Mahalik, 2012)

Studies done by scholars in order to demonstrate e-procurement attractiveness indirectly mention changes that took places in the organization and which are of the interest for the current paper. Having conducted 18-month study of e-procurement deployment across nine UK public sector organizations, Croom and Brandon-Jones mark out increased access and availability of suppliers, simplification of control of spending and easier and quicker access to management information. Order placement supported by the e-procurement systems gave a possibility to increase compliance of the approved processes and contracts. The second case, the qualitative and quantitative studies of the clients of the e-Marketplace platform for construction companies in Chile reveals reduction of cycle time (i.e. time between entering the PO and sending it to the supplier) and paperwork, increased speed of the commercial transaction and enhanced consolidation of orders. The example of the coal industry in India mentions that managers of the company that had started to conduct procurement via internet services, noted better reporting and management, ease of operations and speeded up process. Going back to the Dobler and Burt framework, given changes demonstrate lessening of the operational work for the procurement, which leaves room for more “future-aiming” matters.

Further, respondents in the studies in Chile and India told about reduced process costs and greater concentration on sourcing due to the e-procurement. Participants of the study in the UK reported that the use of electronic systems did not only mean the introduction of catalogue or ordering systems, but also lead to greater knowledge sharing and communication with their vendors. Another effect was decreased number of suppliers and closer interaction with those who remained. These facts support an assumption about starting to prevail strategic role, since cutting down the supplier base and intensification of the relations with small number of vendors obviously demands some forward-looking analysis. In the new situation, a company should, on the one hand, build up trustful relations with its remaining partners, while on the other hand, it should measure risks of having these certain suppliers and constantly assess if the existing partners’ base is still the most advantageous.

 The last study used in this paper as supporting evidence is the survey about the impact of security on e-procurement performance. The mentioned research finds out that more investment into secured e-procurement processes increases e-procurement performance. This study leads to the thought that, since security and risk management start to attract attention, it signals growing strategic planning importance. Simultaneously, the fact that secure e-procurement increases performance illustrates a decreasing role of the operational work.

Conclusion

The online era has brought changes to people’s lives as well as companies’ processes. Many organizations started to use internet platforms for their purchases and supply management. This meant many advantages as well as barriers for them.  Moreover, this meant changes in the role procurement departments assumed. Many operational tasks such as supplier search, placement and control of the purchasing orders and reporting were simplified, accelerated and made more efficient. This brought more strategically oriented issues to the scene such as partnering with suppliers, monitoring of the supply environment and risk management.

This work has its limitation. Conclusions are based on secondary data research and indirect mentions of the facts that was used as the supporting arguments. The survey of the procurement management regarding their perception of the functional changes could give more solid confirmation of the idea.

References

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