Technology-Driven Efficiency and Effectiveness

Technology-Driven Efficiency and Effectiveness

 

The primary benefits of technology are improvements in the efficiency of the supply process, and achieving more process effectiveness.  Technology enables efficiency and effectiveness in two ways: (1) they make data more transparent, accurate, and accessible to decision makers and (2) they relieve supply decision makers of lower value-adding tasks.  Tools that will be addressed are e-procurement systems, online catalogs, commodity coding schemas, EDI, e-marketplaces, radio frequency identification (RFID) technology, and online reverse auctions.

 

 

  • Electronic Procurement Systems – An e-procurement system is an applications software package that allows the requisitioning, authorizing, ordering, receiving, invoicing, and paying for goods and services over the Internet.  The adoption of an e-procurement systems is often driven by existing process inefficiency, low internal compliance, high transaction cost, low spend visibility, and low control over organizational spend.  From the internal user/customer perspective, a successful e-procurement system is one that allows for faster ordering, faster fulfillment, and a broader range of choices.  Depending on the policies and procedures implemented, it may be possible to satisfy internal users as well as meet the requirements for internal control, cost savings, and supplier base management.

 

    • Streamlining the Receiving, Invoicing, and Payment Process – technology helps to create seamless connection between receiving, invoicing, and payment, which helps to manage the procure to pay (P2P) process. 
    • Commodity Coding Schema – Commodity managers need commodity codes to source, track, and manage spend by category.  Users want robust item descriptions that are easily searched, and commodity coding helps in this process.  The value of a hierarchical commodity coding schema is the ability to evaluate expenditures according to any level of the hierarchy.

 

  • Electronic or Online Catalogs – An e-catalog or online catalog is a digitized version of a supplier’s catalog.  It allows buyers to use a Web browser to view detailed buying and specifying information about a supplier’s products and/or services
  • Electronic Data Interchange (EDI) – EDI allows computer-to-computer exchange of business documents between two organizations using agreed standards to structure the message data.  Documents exchanged via EDI include POs, shipping schedule and notifications (ASNs), and invoices.  The are four types of EDI:
    • Value-Added Network – a private network for secure information exchange between companies.
    • Internet EDI or AS2 (Applicability Statement 2) – Two Computers, a client and a server, communicate with each other securely and reliably via the Internet.
    • Web EDI – allows for document exchange through an easy to use Web interface.
    • Outsourced EDI Services – The benefits are expert people, processes, and technology to operate a full featured EDI program.
  • E-Marketplaces – Electronic marketplaces are virtual shopping malls.  B2B e-marketplaces are network services on which member companies buy and sell the goods and exchange information.  The benefits of participation in an e-marketplace are the ability to aggregate spend to benefit from economies of scale, have visibility up and down the supply/value chain, to automate and facilitate transactions, and to eliminate elements of the existing value chain (disintermediation).
  • Online Reserve Auctions – Auctions have been used for commercial transactions for centuries.  Generally, auctions are classified on the basis of competition, between sellers or buyers, and forward or descending prices.  For example, the Dutch flower auctions are declining price auctions with competition between buyers, while a traditional English-style auction, involving the sale of equipment and furniture, is a rising-price auction with multiple buyers.  These models and the Internet provide new techniques for determining price, quantity, volume allocations, and delivery schedules with suppliers.  Internet auction events can be open offer, private offer, posted prices, and reverse auctions.
    • Open Offer Auctions – Suppliers select items, see the most competitive offers from other suppliers, and enter as many offers they want up until a specified closing time.
    • Private Offer Auctions – The buyer offers a target price and quantity.  Suppliers enter offer(s) on select item(s) by a specific time.  The buyer evaluates and posts a “status.”  The status levels are:
      • Accepted:  The supplier is awarded the contract, contingent on final qualification.
      • Closed:  the supplier may no longer submit offers on the item.
      • BAFO (best and final offer):  The supplier may submit one more offer for the item.
      • Open:  Bidding may be continued for as many rounds as necessary to accept or close all items.
    • Posted Price Auctions – The buyer posts the acceptable price; the first supplier to meet it gets the award.
    • Reverse Auctions – A reverse auction is an online, real-time, dynamic, declining-price auction for goods or services between one buying organization and a group of prequalified suppliers.  Suppliers compete by bidding against each other online using specialized software.  Suppliers see the status of their bids in real time.  The supplier with the lowest bid or lowest total cost bid is usually awarded the business.
      • When to Use Reverse Auctions – A reverse auction is an alternative sourcing method to RFPs/RFQs, sealed bids, face-to-face negotiations, and spot buys from the commodity markets.
    • Conducting Reserve Auction Events – The following are three stages in conducting reverse auction events:
      • Preparation – Examples include indentifying suppliers, length of the contract, and setting quality, quantity, and delivery requirements.
      • Auction Event – Examples include setting auction rules, communication mode, show rank order, percentage, or proportional differences.
      • Implementation Follow-up – the purchaser announces the results to participants and responds to questions.
    • Issues with Reserve Auctions
      • Potential ethical issues on behalf of buyers include:
        • Buyer knowingly accepts bids from suppliers with unreasonably low prices.
        • Buying firm submits phantom bids during the event to create artificial competition.
        • Buyer includes unqualified suppliers to increase competition
      • Potential ethical issues involving suppliers are:
        • Supplier collusion.
        • Suppliers bid unrealistically low prices and attempt to renegotiate afterwards.
        • Suppliers “bird watch” or participate in the event but do not bid to collect market intelligence.  A rule requiring bids before entering the auction may preclude this behavior.
        • Suppliers submit bids after the auction event in an attempt to secure the business.

 

    • Potential Problems with Using Online Auctions – The problems which could arise include:
      • The risk of interrupting good supplier relationships.
      • The risk of developing a reputation for aggressive price-buying over other considerations.
      • The costs of running the auction versus expected savings
      • The cost savings potential of auctions versus sourcing processes such as RFP/RFQ and negotiation.
      • Significant up-front preparation and cost required compared to determining price through an RFP/RFQ.
      • Actual price when unforeseen costs are factored in versus bid price.

 

  • Radio Frequency Identification (RFID) – Implementation of RFID is challenging and costly and will take years.