In today’s competitive business world, corporations continually seek IT solutions to improve the efficiency of their business processes and reduce operating costs to improve their margins. Companies are under constant pressure to improve their results, regardless of revenue growth. They have no choice but to embrace the new e-procurement solutions to improve time to market, reduce transaction costs, avoid costly mistakes to stay on top of the competition, and avoid the risk of extinction.

To improve procurement efficiency and achieve maximum potential savings, the entire supply chain needs to be highly efficient. Suppliers and trading partners, such as shipping agents, clearing and forwarding agents, and financial agents, must be equally efficient in providing the right materials at the right time, in the right place, at the right price, and with the right quality. adequate. This is only possible through a collaborative solution between buyers, suppliers and business partners. It is important that the eProcurement solution focuses on collaborative supply chain practices to achieve maximum savings.

There are various types of acquisition activities in an organization based on direct and indirect materials. Direct materials are items that are purchased for production, and indirect materials (MRO items) are purchased to support production activities. The features and specifications of e-procurement solutions vary for direct and indirect materials, depending on the purchasing process of different vertical industries. Due to these varying e-procurement requirements, different e-procurement providers focus on different industry verticals or horizontal processes based on their knowledge and experience in the field.

E-procurement solutions come in different flavors and colors to meet the variety of industry requirements.

Vertical and Horizontal Exchanges

Public exchanges for various vertical markets

Private exchanges sponsored by corporations

ASP Solutions

The above technologies can provide efficient e-procurement solutions, but are limited in their effectiveness. Vertical exchanges focus on the transaction of goods in a single industry, product, or material. They typically exist in industries where buyers and sellers are fragmented and inefficient. Horizontal exchanges focus on leveraging expertise in a particular business process across various industries. Service industries lend themselves well to horizontal exchange. The most active horizontal exchanges currently compete in the field of electronic contracting.

There are different market making mechanisms used in vertical and horizontal exchanges. They are:

Auctions One seller, many buyers
Reverse auctions One buyer, many sellers
Bid/ask exchange buyers and sellers interact

However, none of the above market solutions fully satisfy the requirements for electronic procurement of direct materials. The following business concerns need to be addressed in the direct materials procurement solution:

1. Customized and unique direct materials procurement and approval processes, which have been developed over years of experience.
2. Protect intellectual property and secrecy of design, drawings, purchase and contract prices and supplier details
3. Collaboratively perform procurement functions such as RFQs, purchase orders, shipping, and payments between buyers, suppliers, and business partners.
4. Adopt Procurement Best Practices

Why focus on direct materials:

Research has shown that direct materials present the greatest potential for savings in a manufacturing setting. The following table shows the average savings potential for direct and indirect material in a typical manufacturing organization.

Businesses can reap a variety of savings by implementing eProcurement solutions.

The direct cost savings are as follows:

A. Lower communication costs – Fax and telephone costs
b. Lower procurement operating costs – by reducing cycle time and improving RFQ/PO efficiencies

processes
vs Lower follow-up costs: through automatic reminders and tracking of RFQ/PO status
d. Lower inventory costs – Due to shorter supply chain time
my. Lower product costs – by improving supplier and trading partner efficiencies

The indirect cost savings are:

A. Improved procurement efficiency – through higher levels of collaboration and paperless transactions
b. Avoid Cost Mistakes: Through Checks and Balances in the E-Shopping App
against Lower cost of obsolescence

Electronic purchase of direct materials:

Manufacturing companies can automate their direct materials procurement by collaborating with their existing suppliers and business partners such as shipping agents, clearing agents, and financial agents to improve operational efficiencies and increase margins. Direct materials that go to the Bill of Materials represent 70 to 80% of company purchases. Most B2B exchanges and procurement solutions address only MRO purchasing, which accounts for only the remaining 20% ​​to 30% of purchases. To significantly improve the results of any manufacturing company, it is imperative to improve the efficiency of direct materials procurement.

For direct materials, the companies would already have their suppliers approved and their business relationship established over the years. Furthermore, prices for direct materials are already negotiated pre-wire and further price reduction is only possible by improving operational efficiency. Switching suppliers from direct materials is a lengthy and costly process, as it involves extensive part/supplier qualification and often requires elaborate reliability and product testing. Businesses are unwilling to sever longstanding relationships with existing vendors and take a chance on unknown new vendors unless absolutely essential. E-procurement solutions should automate the procurement of direct materials with existing vendors and trading partners without having to change existing trading/procurement processes with vendors and trading partners, thereby reducing operational costs and improving time to market.

The e-procurement solution for direct materials should be based on the Collaborative Private Market Place model. Direct materials procurement is a very complex collaborative process involving many departments within the buying organization (such as R&D, Purchasing, Quality, Materials, Accounting, Finance, Legal, Manufacturing, etc.), suppliers and partners. commercial, such as shipping agents. , clearing agents, banks and financial agents. The right information must be available to the right people at the right time to make the right decision in the procurement process. This customized procurement process is developed in a company over the years of experience. The design specifications and drawings that are exchanged in the design/RFQ/PO processes are highly proprietary and intellectual property of the company. The Public Marketplace is limited in scope to provide custom business processes and may not satisfy security requirements. On the other hand, Private Market Places can easily lend itself to customization due to its limited private membership and security is less of an issue as it is sponsored and managed by the buying organization.

To summarize, the following are the main advantages of Collaborative Private Market Place solutions for electronic procurement of direct materials:

1. Get the most savings potential from direct materials
2. Enables collaboration between buyers, suppliers, and trading partners through hosting on corporate intranet/virtual private network (VPN)
3. Protect the intellectual property and the secrecy of the designs and drawings by the very nature of being a private market
4. Allows for custom procurement and approval processes to be implemented through easy customization to meet dynamic business needs.
5. Helps improve the efficiency of suppliers and business partners through a better system of monitoring and management of suppliers.