Lecture 03 e Pro

ELECTRONIC COMMERCE
BEC 231
E-PROCUREMENT
Olivier Angel Kevin ISHIMWE
kishimwe@uok.ac.rw
Electronic commerce bec231 1 1

procurement
is the process of finding, agreeing terms and acquiring goods,
services or works from an external source, often via a tendering
or competitive bidding process.
The process is used to ensure the buyer receives goods, services or
works at the best possible price, when aspects such as quality,
quantity, time, and location are compared
Labor for the future Lecturer : Olivier Angel Kevin 2

What is E-Procurement
Electronic procurement (e-procurement) is those parts of the
procurement sourcing process which use the Internet or other electronic
medium to acquire or purchase particular goods or services

Objectives of E-Procurement
To act as the catalyst for procurement reform
To enhance transparency, monitoring and control in procurement
process
To bring in economies of scale through aggregation of demand
To reduce cost of doing business for both government and
suppliers
To establish leveled playing field and “fair” competitive
platform for the suppliers

The 10 Steps of the Procurement Cycle
Management in any company must understand the art of
obtaining products and services. The procurement cycle
follows specific steps for identifying a requirement or need
of the company through the final step of the award of the
product or contract.
Responsible management of public and corporate funds is
vital when handling this necessary process, whether in strong
or weak economic markets. Following a proven step-by-step
technique will help management successfully achieve its
goals.
Step 1: Need Recognition
The business must know it needs a new product, whether from
internal or external sources. The product may be one that needs
to be reordered, or it may be a new item for the company.
Step 2: Specific Need
The right product is critical for the company. Some industries
have standards to help determine specifications. Part numbers
help identify these for some businesses. Other industries have no
point of reference. The company may have ordered the product
in the past. If not, then the business must specify the necessary
product by using identifiers such as color or weight.

Step 3: Source Options
The business needs to determine where to obtain the product. The
company might have an approved vendor list. If not, the business
will need to search for a supplier using purchase orders or research
a variety of other sources such as magazines, the Internet or sales
representatives. The company will qualify the suppliers to
determine the best product for the business.
Step 4: Price and Terms
The business will investigate all relevant information to determine
the best price and terms for the product. This will depend on if the
company needs commodities (readily available products) or
specialized materials. Usually the business will look into three
suppliers before it makes a final decision.
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Olivier Angel Kevin 7
Step 5: Purchase Order
The purchase order is used to buy materials between a buyer and
seller. It specifically defines the price, specifications and terms and
conditions of the product or service and any additional obligations.
Step 6: Delivery
The purchase order must be delivered, usually by fax, mail,
personally, email or other electronic means. Sometimes the
specific delivery method is specified in the purchasing documents.
The recipient then acknowledges receipt of the purchase order.
Both parties keep a copy on file.

Step 7: Expediting
Expedition of the purchase order addresses the
timeliness of the service or materials delivered. It
becomes especially important if there are any delays.
The issues most often noted include payment dates,
delivery times and work completion.
Step 8: Receipt and Inspection of Purchases
Once the sending company delivers the product, the
recipient accepts or rejects the items. Acceptance of the
items obligates the company to pay for them.

Step 9: Invoice Approval and Payment
Three documents must match when an invoice requests
payment –
the invoice itself, the receiving document and the original
purchase order.
The agreement of these documents provides confirmation
from both the receiver and supplier. Any discrepancies must
be resolved before the recipient pays the bill. Usually,
payment is made in the form of cash, check, bank transfers,
credit letters or other types of electronic transfers.

Step 10: Record Maintenance
In the case of audits, the company must maintain proper
records. These include purchase records to verify any tax
information and purchase orders to confirm warranty
information. Purchase records reference future purchases
as well.

What is E-Procurement?
The network systems that include the use of enterprise resource
planning (ERP) and electronic data interchange.(EDI). That helps the to
acquire relevant and pertinent services or goods need by an enterprise
We now need to understand better the B2B E-Commerce business model

and connect it to the concepts of ERP and EDI

E-Procurement - Background
Supply Chain – Push based & Pull based supply chain
With a push-based B2B supply chain, products are
pushed through the channel, from the production side
down to the retailer.
The manufacturer sets production at a level in
accordance with historical ordering patterns from
retailers.

It takes longer for a push-based supply chain to respond to
changes in demand, which can result in overstocking or
bottlenecks and delays, unacceptable service levels (in terms of
long customer some times).

In a pull-based supply chain, procurement, production and distribution
are demand driven so that they are coordinated with actual customer
orders, rather than forecasted demand.
A supply chain is almost always a combination of push and pull, where

the interface between the push-based stages and the pull-based stages is
known as the push-pull boundary.

Supply Chain – Push based approach
Each supply-chain member PUSHES to the next link in the chain

This approach is associated with;
• Manufacturer lead new product development
• Manufacture for inventory (sales delivered from inventory)
• High level of inventory at each point in the supply chain

Supply Chain – Push based approach
• Inflexibility of product design

• Poor data integration through out the supply chain because of
independence of data
• The main aim is to optimize the product process, i.e maximize
manufacturing facilities and assets for cost and efficiency

Supply Chain – Pull based approach
Each supply chain member PULLS from the next link in the chain. This
approach is associated with;
• Market research driven – the market concept (i.e customer has
“sovereignty”)
• Internet information technology is used to achieve market research
• Demand-pull integrated data systems reducing inventory levels
throughout the supply chain

Supply Chain – Pull based approach
• Extensive use of e-procurement often through B2B exchange and

intermediaries
• Information/knowledge sharing between supply chain members
(value networking)
• Main aim is to enhance customer value

An example of this would be Dell's build-to-order supply chain.
Inventory levels of individual components are determined by

forecasting general demand, but final assembly is in response to a
specific customer request.

E-Procurement discussion
Our discussion will revolve around electronic procurement (e-
procurement) as a link in the supply chain.
We do not enter the ‘push’ versus ‘pull’ debate other than to point out
the fact that e-procurement, and the techniques involved by both buyer
and seller when using e-procurement, better facilitate ‘pull’ supply.

Steps in a
procurement strategic
sourcing process

Main Objectives
Objectives will always differ in priority between different companies, but
all companies aim to accomplish certain goals through their strategic
sourcing strategies.
These are the main objectives of the sourcing process steps.
Driving efficiency.
Solving business problems.
Boosting speed to market.
Promoting constructive competition.
Risk mitigation.
Ensuring industry compliance.
Limiting purchasing costs.
Step One: Understand the Spend Category
The first step in the sourcing process is to understand the
spend category. There are five major questions purchasing
managers must answer when defining their spend category. It’s
vital to consider the following in as much detail as possible:
What is the Sourcing Category?
What are the Characteristics of that Category?
What are the Outcomes of Our Process Review?
Have We Inspected and Reviewed the Marketplace?
What is the Key Cost Driver?

Step Two: Supply Market Assessment
Purchasing managers must be aware of the vendor’s market and
the challenges they face. Understanding representation and the
major market players will help you to understand the power of
different suppliers, and therefore how much competition there is.
Shrinking markets, more vendors, industry intensity, and
general competitiveness all determine bargaining power.
Through understanding the vendor’s market environment,
buyers are better positioned to negotiate the best deal on their
purchases.

Step Three: Collect Supplier Information
The next step involves looking into specific vendors. Understand
how they operate and whether they can meet your needs.
It’s strongly recommended that companies organize in-person visits
to ensure industry compliance.
Step Four: Develop the Sourcing Strategy
The most common option for sourcing strategies is the Request for
Proposal (RFP), which actively solicits bids. It’s also wise to
implement a Request for Information (RFI) to narrow down
existing shortlists.
RFPs should be extremely well-defined and come with strict
specifications. Cloud-based procurement solutions can speed up the
sourcing process.
Step Five: Negotiate and Select Suppliers
The fifth step in the 7 step sourcing process involves negotiating
with different suppliers. Larger companies will typically host
multiple rounds of negotiations.
To facilitate the signing of a contract that specifies buyer and seller
expectations, contract management software should be deployed to
automate the process.
Step Six: Communicate and Implement

Ensure that everyone involved in the delivery process has the
means to communicate and collaborate. Smooth implementation
can only occur when everyone understands their role in the process.
This is where strong communicators demonstrate their worth.

Step Seven: Benchmarking
Benchmarking is the final step in the 7 step strategic sourcing
process and involves ensuring that the vendor meets the specifications
set out in the contract.
Companies must implement full monitoring of purchases and delivery
to ensure there are no lost savings or overspending.
Much of this can be automated through innovative, cloud-based
dashboards. If there are any signs that key milestones will be missed,
it’s important to communicate with the vendor immediately.
This final step is where many companies burst their budgets and
compromise their key goals.

Conclusion
The 7 step sourcing process plays a vital role in helping
organizations meet their overall business goals. A flawed
sourcing plan can derail a company and turn a profitable
brand into an unprofitable brand,
Much of the strategic sourcing process can be automated
and streamlined using specialist cloud-based software.

Why? E-Procurement
In general terms, e-procurement supports various and plays a huge role
on all E-Commerce models a part from C2C; all below and more others
can’t do with out e-procurement.
1. Business-to-business (B2B)
2. Business-to-consumer (B2C)
3. Business-to-government (B2G)
These models involve the purchase of supplies, and services through the
Internet as well as other information and networking systems

E-Commerce in Supply Chain

How to Improve E-Commerce Through Efficient Supply Chain
Strategies - Business 2 Community

Web Auctions
Web auctions are a recent trend in e-commerce. They are similar to
traditional auctions but buyers and sellers do not meet face-to-face.
Sellers post descriptions of products at a web site and buyers submit

bids electronically.
There are two basic types of web auction sites:

1. Auction house sites
2. Person-to-person sites

Web Auctions
Auction house sites
Auction house owners present merchandise typically from
companies’ surplus stocks. Auction house sites operate in a similar
way to a traditional auction. Bargain prices are common on this
type of site and are generally considered safe places to shop.

Web Auctions
Person-to-person sites
The owner of site provides a forum for buyers and
sellers to gather. The owner of the site typically
facilitates rather than being involved in transactions.
Buyers and sellers on this type of site must be
cautious.

Forward auction
Items are commonly placed at a special site for auction (e.g.
eBay.com or marketdojo.com). Buyers can continuously bid for
the items they are interested in. Eventually the highest bidder
wins the item.
Two types of forward auctions are common. The first is
a liquidate auction. Here buyers seek to obtain the lowest price
for an item they are interested in. The second type is a marketing
efficiency auction. Buyers wish to obtain a unique item. the
forward auction only for actual user. it is for own consumption
not for traders.
Forward and Reverse auctions
A reverse auction is a type of auction in which the roles of buyer

and seller are reversed. In an ordinary auction (also known as a
forward auction), buyers compete to obtain a good or service by
offering increasingly higher prices. In a reverse auction, the sellers
compete to obtain business from the buyer and prices will typically
decrease as the sellers undercut each other.

Forward and Reverse auctions

Business To Business (B2B)
Sell-Side Marketplaces: organizations attempt to sell their products
or services to other organizations electronically, from their own
private e-marketplace. This model is similar to the B2C model in
which the buyer is expected to come to the seller’s site and place an
order.
Buy-Side Marketplaces: organizations attempt to buy needed
products or services from other organizations electronically, usually
from their own private e-marketplace. One buy-side model is a reverse
auction. Here, a company that wants to buy items places a request for
quotation (RFQ) on its Web site, or in a third-party bidding
marketplace

Inaddition to reverse auctions e-procurement uses other

mechanism. Two popular ones are group purchasing and desktop
purchasing.

Group purchasing the requirements of many buyers are
aggregated so that they total a large volume, and thus merit more
seller attention. Once buyers’ orders are aggregated, they can be
placed on a reverse auction, and a volume discount can be
negotiated.

Desktop purchasing. In this variation of e-procurement, suppliers’
catalogs are aggregated into an internal master catalog on the buyer’s
server, so that the company’s purchasing agents can shop more
conveniently. Desktop purchasing is most suitable for maintenance,
replacement, and operations (MRO) indirect items, such as office
supplies.

Enterprise Resource Planner (ERP)
An ERP is a business process management software that allows

an organisation to use a system of integrated applications to
manage the business and automate back office functions.
ERP software integrates all sides of an operation, including

product planning, development, manufacturing processes, sales
and marketing.

Enterprise Resource Planner
ERP software typically consists of multiple enterprise software

application modules that are individually purchased, based on
what best meets the specific needs and technical capabilities of
each application and the organisation.
Each ERP module is focused on one area of business processes,

such as product development or marketing.

A business can use ERP software to manage back-office

activities and tasks including the following:
 Supply chain management,
 Services knowledge base,
 Improve accuracy of financial data,
 Reduce redundant tasks
 Assess business needs,

A business can use ERP software to manage back-office
activities and tasks including the following:
 Facilitate better project planning, automate employee life-
cycle,
 Standardize critical business procedures,
 Accounting and financial applications,
 Lower purchasing costs
 Manage human resources and payroll.

We see from this that an ERP system integrates

separate application software modules and
facilitates the smooth flow of common
functional information and practices across the
entire organisation.
In addition, it improves the performance of the
supply chain and reduces the cycle times.

Electronic Data Interchange
EDI is an electronic means for transmitting business
transactions between organizations/departments.
The transmissions use standard formats such as specific

record types and field definitions.
EDI has been in use for 20 years, but has received significant
attention within recent years as organisations seek ways to
reduce costs and be more responsive..

The EDI process is a hybrid process of systems software and
application software. EDI system software can provide utility
services used by all application systems.
These services include transmission, translation and storage of
transactions initialized by or destined for application
processing.
EDI is an application software in that the functions it performs
are based on business needs and activities.

The applications, transactions and trading partners supported
will change over time and the co-mingling of transactions,
purchase orders, shipping notices, invoices and payments in the
EDI process makes it necessary to include application
processing procedures and controls in the EDI process.
EDI promotes a more efficient paperless environment. EDI
transmissions may replace the use of standard documents
including invoices or purchase orders

Transparency through E-Procurement
1. WHAT is being procured ?

2. WHO is eligible to bid?
3. HOW to bid ?
4. WHAT are the evaluation criteria ?
5. WHO has got the tender?
6. At WHAT cost ?
7. WHAT is the quality of work/ product/ service ?

Challenges of E-Procurement
E-Procurement with its many stakeholders is not without its
difficulties.
Some of these problems arise due to poor integration

modalities with pre-existing systems and the business fails to
generate value for investment.
Management needs to carry out adequate due diligence prior

to commissioning an e-procurement systems

Challenges of E-Procurement –
Stakeholders involved

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ELECTRONIC COMMERCE

Electronic commerce bec231 1 1

Labor for the future Lecturer : Olivier Angel Kevin 2

Labor for the future Lecturer : Olivier Angel Kevin 3

Labor for the future Lecturer : Olivier Angel Kevin 4

Labor for the future Lecturer : Olivier Angel Kevin 6

Labor for the future Lecturer : Olivier Angel Kevin 8

Labor for the future Lecturer : Olivier Angel Kevin 9

Labor for the future Lecturer : Olivier Angel Kevin 10

Labor for the future Lecturer : Olivier Angel Kevin 11

We now need to understand better the B2B E-Commerce business model

Labor for the future Lecturer : Olivier Angel Kevin 12

Labor for the future Lecturer : Olivier Angel Kevin 13

Labor for the future Lecturer : Olivier Angel Kevin 14

A supply chain is almost always a combination of push and pull, where

Labor for the future Lecturer : Olivier Angel Kevin 15

Each supply-chain member PUSHES to the next link in the chain

Labor for the future Lecturer : Olivier Angel Kevin 16

• Inflexibility of product design

Labor for the future Lecturer : Olivier Angel Kevin 17

Labor for the future Lecturer : Olivier Angel Kevin 18

• Extensive use of e-procurement often through B2B exchange and

Labor for the future Lecturer : Olivier Angel Kevin 19

Inventory levels of individual components are determined by

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Step Six: Communicate and Implement

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Sellers post descriptions of products at a web site and buyers submit

There are two basic types of web auction sites:

Labor for the future Lecturer : Olivier Angel Kevin 34

Labor for the future Lecturer : Olivier Angel Kevin 35

Labor for the future Lecturer : Olivier Angel Kevin 36

A reverse auction is a type of auction in which the roles of buyer

Labor for the future Lecturer : Olivier Angel Kevin 38

Labor for the future Lecturer : Olivier Angel Kevin 39

Labor for the future Lecturer : Olivier Angel Kevin 40

Inaddition to reverse auctions e-procurement uses other

Labor for the future Lecturer :

Labor for the future Lecturer : Olivier Angel Kevin 42

Labor for the future Lecturer : Olivier Angel Kevin 43

An ERP is a business process management software that allows

ERP software integrates all sides of an operation, including

Labor for the future Lecturer : Olivier Angel Kevin 44

ERP software typically consists of multiple enterprise software

Each ERP module is focused on one area of business processes,

Labor for the future Lecturer : Olivier Angel Kevin 45

A business can use ERP software to manage back-office

Labor for the future Lecturer :

Labor for the future Lecturer : Olivier Angel Kevin 47

We see from this that an ERP system integrates

Labor for the future Lecturer : Olivier Angel Kevin 48

The transmissions use standard formats such as specific

Labor for the future Lecturer : Olivier Angel Kevin 49

Labor for the future Lecturer : Olivier Angel Kevin 50