E-PROCUREMENT: THE FUTURE OF PURCHASING MANAGEMENT

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1 E-PROCUREMENT: THE FUTURE OF PURCHASING MANAGEMENT CORINA POP SITAR Fellow of Romanian Academy, Iasi Subsidiary Abstract Nowadays, IT has a major influence on commercial activities, accelerating the adoption of e-procurement and e-marketplace participation in many industries. E-procurement is becoming popular in business practice and its benefits encourage its adoption. This article aims to outline the important role of the E-procurement for the future of purchasing management. In the first part of the paper we made a literature review about the impact of the new discoveries on purchasing. Next, we present the main benefits that E-procurement can provide to organizations structured in a matrix according to their recipients. The paper ends with conclusions and recommendations for managers. Keywords: E-procurement, purchasing management, benefits Introduction Many studies show that IT industry has become lately a fundamental part of modern economies (Arbin, 2002; Croom, 2005). Electronic business has changed the way organizations communicate and interact with each other. Lederer et. al (2001) suggested that an organization can use E-procurement to create strategic advantage through improved customer relationships resulting from greater business efficiency and better information access and flexibility. As the information society evolves, the need to understand E-procurement practices becomes more important. This article aims to present the important role of the E-procurement for the future of purchasing management. The paper starts with a literature review about the impact of the new discoveries on purchasing. Next, we define E-procurement. Furthermore we present the main benefits that E-procurement can provide to organizations. We structure the benefits of E-procurement in a matrix according to the recipient of the benefits. At the end of the paper we draw conclusions and we elaborate guidelines for managers. Literature review The new discoveries from the international business environment have a strong impact on the purchasing. Globalization of trade, changing consumer requirements and the advent of information technologies are some of the most important changes that affect purchasing. Globalization of trade and increased international competition are considered to be consequences of the following factors: cross-cultural mixing, improving transport, 542

2 revolutionary discoveries in the field of IT. An important consequence of these findings is not only increasing the number of potential customers, but also increase the number of potential suppliers. Because of increasing diversity of products, consumers become more sophisticated and their needs are changing. This translates into a continuous pressure for organizations to create competitive products. As a result, organizations will transfer the pressure faced by consumers to their suppliers. Therefore, choosing the best supplier is becoming increasingly important, but also more difficult because many factors have to be taken into account. Nowadays, the advent of information technologies has a major influence on commercial activities, accelerating the adoption of E-procurement and E-marketplace participation in many industries. Croom (2005) considers that E-business development in the supply chain management follows five stages of evolution: 1. In the first stage firms use s and website to gain improved access to customers and markets 2. In the second phase, the emphasis is on the management of customer relationship 3. Next stage represents the utilization of e-business systems to support operations process management 4. The fourth stage includes a move to integrated e-supply chain management and greater management of total costs of purchasing 5. The last stage emphasis integrated e-supply chain management such as global Cousins and Lamming (1997) consider that the evolution of purchasing to a strategic function of the organization has been driven by improvements in information technology, globalization of businesses and the need for organizations to become truly lean in order to remain competitive. E-procurement: the future of purchasing management E-procurement is defined in many ways by researchers and practitioners. For example, Croom and Brandon-Jones (2007) define E-procurement as: the use of integrated (commonly web-based) communication systems for the conduct of part or all of the purchasing process; a process that may incorporate stages from the initial need identification by users, through search, sourcing, negotiation, ordering, receipt and post-purchase review. Morris et al. (2000) considers that e-procurement is a series of steps from the formulation of the purchasing corporate strategy to the actual implementation of an Internet-based purchasing system. No matter how is defined, E-procurement can offer many potential benefits to organizations. The main benefit of E-procurement reported by several researchers (Croom and Brandon-Jones, 2007; Arbin, 2002) is reduced costs through various ways, including the followings: improved internal efficiency, cut supplier costs, reduce order error rate, minimized maverick buying, etc. Based on a literature review we tried to summarize the main benefits offered by E-procurement (see figure 1). 543

3 Management benefits - improved management information across all areas of purchasing - greater management influence and control over the purchasing process - better control of maverick spend and better use of corporate contracts Suppliers benefits - improved relationships with the buyers - cost savings - time savings - reduction in paperwork and duplicated records - bills are paid on time and more quickly Operational purchasing benefits - cost savings - time savings - reduced inventory level and inventory costs - reduction in paperwork and duplicated records Strategic purchasing benefits - increased purchasing power - increased profit margin - improved efficiency of the purchasing process - gaining competitive advantage Figure 1: The matrix of E-procurement benefits We classified the benefits of E-procurement according to their recipients and we obtained four main categories of benefits: Management benefits Suppliers benefits Operational purchasing benefits Strategic purchasing benefits The most important benefits for management offered by E-procurement are: greater management influence and control over the purchasing process and improved management information across all areas of purchasing. From the suppliers benefits we mentioned: improved relationships with the buyers, cost and time savings, reduction in paperwork and duplicated records. We included the following benefits in the category of operational purchasing benefits: costs and time savings, reduced inventory level, reduction in paperwork and duplicated records. From the strategic purchasing benefits we mentioned: increased purchasing power and profit margin, improved efficiency and gaining competitive advantage. 544

4 Conclusions This article wants to draw the attention of researchers and managers on the tremendous potential of E-procurement to provide benefits to the organizations. Based on a literature review we summarized the main benefits provided by E-procurement. The use of traditional procurement systems is recognized for their lack of prompt information and their excessive complexity, all of these factors leading to waste of time and money. E-procurement is promising to solve these problems by streamlining processes, providing timely information and improving coordination and collaboration, all these leading to cost savings and economies of time. Nowadays, managers should not ask themselves if they should adopt E-procurement, instead they should think how to implement it in order to obtain the maximum benefits. In spite of the many benefits of E-procurement mentioned, the extent of E-procurement adoption in European Union is below expectations. This low rate of adoption is due to the comprehensive list of barriers for E-procurement implementation. The list comprise: risk, uncertainty from suppliers, cultural differences, staff resistance to change, catalogue content readiness, etc. The identification of the main barriers of implementing E-procurement is fundamental for managers in order for them to be able to facilitate the implementation process. ACKNOWLEDGEMENT: This paper was made within The Knowledge Based Society Project supported by the Sectoral Operational Programme Human Resources Development (SOP HRD), financed from the European Social Fund and by the Romanian Government under the contract number POSDRU ID " References: Arbin, K. (2002), E-procurement maturity in industry. Proceeding of the 11 th IPSERA Conference, University of Twente, Enschede, Boer, L., Harink, J. and Heijboer, G. (2002), A conceptual model for assessing the impact of electronic procurement, European Journal of Purchasing and Supply Management, vol.8, no.1: p Burt, D. and Dobler, D. W., (1996), Purchasing and supply management, The McGraw-Hill Companies, Inc. Carter, P.; Monczka, R.M. et al., (1998), The future of purchasing and supply: a five and ten year forecast, CAPS report, NAPM. Croom, S., (2005), The impact of e-business on supply chain management an empirical study of key developments. International Journal of Operations & Production Management 25, Croom, S. and Brandon-Jones, A. (2007), Impact of e-procurement: experience from implementation in the UK public sector, Journal of Purchasing and Supply Management 13, Dumond, E.J., (1994), Moving toward value-based purchasing, International Journal of Purchasing and Materials Management, Spring,

5 Lamming, R.; Cousins, P; Frewer, R., (1997), Competency development for strategic Purchasing, Proceedings 7th IPSERA Conference, Italy, T6/1-1 T6/1-17. Leenders, M.; Schiele, J.J., (1999), Meaningful involvement of a public sector purchasing department: the case of consulting services, Proceedings 9th IPSERA Conference, London, Ontario, Canada, Lederer, A. et al., The search for strategic advantage from the world wide web, International Journal of Electronic Commerce, 5(4): p , 2001 Morris A. et al. (2000), E-Procurement: streamlining processes to maximize effectiveness, Luminant Worldwide Corporation SUA. Monczka, R.M., et al. (2009), Purchasing &Supply Chain management, Cengage Learning, South Western. Porter, M. A., (1990), Competitive advantage of Nations, The Mac Millan Press Ltd., London Weele, A. van. (2010), Purchasing Supply Chain management, 5 th revised edition, Cengage Learning, London. Wong, C.H. and Sloan, B. (2004) Use of ICT for E-procurement in UK Construction Industry: A survey of SMES Readiness, Proceedings of ARCOM Twentieth Annual conference, Heriot Watt University, vol.1: