November 05© Nov 2005 E-Procurement Tools Training Module Developed By: Benjamin Maughan Operations...

November 05 © Nov 2005

E-Procurement ToolsE-Procurement ToolsTraining ModuleTraining Module

Developed By:Developed By:

Benjamin MaughanBenjamin Maughan

Operations 361Operations 361

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PurposePurpose

Define E-ProcurementDefine E-Procurement Explain its role as an E-Business ToolExplain its role as an E-Business Tool Identify E-Procurement in Your Identify E-Procurement in Your

OrganizationOrganization Create E-Procurement Flow ChartCreate E-Procurement Flow Chart Summarize Learning PointsSummarize Learning Points Identify Next StepIdentify Next Step

2Overview


ExercisesExercises

Process Flow DiagramProcess Flow Diagram Process Flow E-Procurement AnalysisProcess Flow E-Procurement Analysis Streamlined Process Flow using E-Streamlined Process Flow using E-

ProcurementProcurement Cost AnalysisCost Analysis

Overview


E-ProcurementE-Procurement

Using internet or intranet based Using internet or intranet based information systems software to information systems software to coordinate the buying, shipping, inventory coordinate the buying, shipping, inventory management, supplier selection, and management, supplier selection, and approval process of vital business approval process of vital business acquisitions within the organizations core acquisitions within the organizations core competency.competency.

4Define E-Procurement



Purchasing Process - Preliminary ActionsPurchasing Process - Preliminary Actions Need/Specification IdentificationNeed/Specification Identification Supplier SelectionSupplier Selection Terms NegotiationTerms Negotiation RegulationsRegulations

Define E-Procurement

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Purchasing Process - Buying ProcessPurchasing Process - Buying Process Purchase Order Delivery ProcessPurchase Order Delivery Process Purchase Order Receipt ProcessPurchase Order Receipt Process Order Fill TimingOrder Fill Timing Order AccuracyOrder Accuracy Order Receipt Order Receipt Order InspectionOrder Inspection Order Payment ProcessOrder Payment Process




Purchasing Process - Concluding ActionsPurchasing Process - Concluding Actions Order Record Storage & OrganizationOrder Record Storage & Organization Order ReviewsOrder Reviews BenchmarkingBenchmarking Comparative AnalysisComparative Analysis




Purchasing ProcessPurchasing Process

Needs Identification

Specifications

Supplier Selection

Supplier Evaluation

Purchase Order Prep


Follow-up

Receipt/Inspection

Payment

Records Management



Software ToolSoftware Tool Encompasses:Encompasses:

Preliminary ActionsPreliminary Actions Coordinates inventory management systems with Coordinates inventory management systems with

purchasing systems. purchasing systems. Coordinates new business ventures with Coordinates new business ventures with

purchasing systems.purchasing systems. Creates List of Needed Items (Inputs)Creates List of Needed Items (Inputs) Archives that ListArchives that List

E-Procurement’s Role

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Encompasses:Encompasses: Preliminary ActionsPreliminary Actions

Maintains Record of SuppliersMaintains Record of Suppliers Maintains Record of Supplier ProfilesMaintains Record of Supplier Profiles Maintains Record of Supplier CapabilitiesMaintains Record of Supplier Capabilities Maintains Record of Negotiated PricesMaintains Record of Negotiated Prices Maintains Record of Negotiated TermsMaintains Record of Negotiated Terms Maintains Record of Contracted LimitationsMaintains Record of Contracted Limitations


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Encompasses:Encompasses: Buying ActionsBuying Actions

Sends Purchase Order Delivery directly to SupplierSends Purchase Order Delivery directly to Supplier Maintains Real-time Order StatusMaintains Real-time Order Status Records Order Delivery timingRecords Order Delivery timing Records Order AccuracyRecords Order Accuracy Records Order Inspection DataRecords Order Inspection Data Submits Payment RequestSubmits Payment Request Coordinates Payment Approval ProcessCoordinates Payment Approval Process


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Encompasses:Encompasses: Concluding Actions:Concluding Actions:

Sends Electronic Receipts to suppliers, archives, Sends Electronic Receipts to suppliers, archives, managersmanagers

Maintains on-demand records for order reviewsMaintains on-demand records for order reviews Allows reports and analyses for benchmarkingAllows reports and analyses for benchmarking Facilitates comparative and costs analysesFacilitates comparative and costs analyses


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BenefitsBenefits Streamlines procurement processStreamlines procurement process Increases communicationIncreases communication Increases procurement speedIncreases procurement speed Eliminates non-value added personnelEliminates non-value added personnel Reduces DEAD timeReduces DEAD time


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BenefitsBenefits Provides recordsProvides records Produces reportsProduces reports Facilitates improvementsFacilitates improvements


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DetrimentsDetriments Limits flexibility for extensive notationsLimits flexibility for extensive notations Poor performance for exception itemsPoor performance for exception items


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In your organization:In your organization: Understanding Process FlowUnderstanding Process Flow

Beginning PointsBeginning Points End PointsEnd Points Inputs/OutputsInputs/Outputs Gray BoxesGray Boxes Black HolesBlack Holes MiraclesMiracles Transformation ActivitiesTransformation Activities

E-Procurement in Your Organization

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In your organization:In your organization: Mapping SymbolsMapping Symbols

Start Point/Finish Point SymbolStart Point/Finish Point Symbol

Process Activity/Step SymbolProcess Activity/Step Symbol

Decision Point SymbolDecision Point Symbol

Input/Output SymbolInput/Output Symbol


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In your organization:In your organization: More Mapping SymbolsMore Mapping Symbols

Document Created SymbolDocument Created Symbol

Delay SymbolDelay Symbol

Inspection SymbolInspection Symbol

Move Activity SymbolMove Activity Symbol


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Identify Buying Steps as Flow SymbolsIdentify Buying Steps as Flow Symbols Engineer requests four computers using ERP. Engineer requests four computers using ERP.

(A procurement software program)(A procurement software program)

What symbol is this request?What symbol is this request?


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Identifying Buying Steps as Flow SymbolsIdentifying Buying Steps as Flow Symbols Manager approves request for four Manager approves request for four

computers.computers.

What two symbols would result for this action?What two symbols would result for this action?


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Identifying Buying Steps as Flow SymbolsIdentifying Buying Steps as Flow Symbols With manager approval Procurement sends With manager approval Procurement sends

purchase order to Computer Provider Inc.purchase order to Computer Provider Inc.

What symbol would result from this action?What symbol would result from this action?


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Identifying Buying Steps as Flow SymbolsIdentifying Buying Steps as Flow Symbols Purchase Order sits in suppliers bottleneck Purchase Order sits in suppliers bottleneck

instead of going straight to suppliers pack and instead of going straight to suppliers pack and ship department.ship department.

What symbol would result from this action?What symbol would result from this action?


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Example - Customer Request Five ServersExample - Customer Request Five Servers What are some of the possible process What are some of the possible process

components? Be Creative!components? Be Creative!


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Example - Customer Requests Five ServersExample - Customer Requests Five Servers Input: Salesperson fills out specification form 10WInput: Salesperson fills out specification form 10W Delay: 10W sits in ‘new order’ pileDelay: 10W sits in ‘new order’ pile Activity: 10W is faxed to assembly.Activity: 10W is faxed to assembly. Activity: Assembly manually collects the inventory Activity: Assembly manually collects the inventory

items.items. Document: Assembly creates order form 10A for ‘out of Document: Assembly creates order form 10A for ‘out of

stock’ items.stock’ items. Activity: Assembly delivers 10A to supervisor for Activity: Assembly delivers 10A to supervisor for

approvalapproval


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Example - Customer Requests Five ServersExample - Customer Requests Five Servers Delay: 10A sits in supervisor ‘to do’ pile. Delay: 10A sits in supervisor ‘to do’ pile. Activity: Supervisor approves request.Activity: Supervisor approves request. Activity: Supervisor gives 10A to secretaryActivity: Supervisor gives 10A to secretary Activity: Secretary gives 10A to assemblyActivity: Secretary gives 10A to assembly Activity: Assembly faxes 10A to approved supplierActivity: Assembly faxes 10A to approved supplier Activity: Supplier has E-Procurement Software and Activity: Supplier has E-Procurement Software and

ships items in 4 hours.ships items in 4 hours.


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Example - Customer Requests Five ServersExample - Customer Requests Five Servers Inspection: Assembly inspects shipmentInspection: Assembly inspects shipment Activity: Assembly puts items in the five serversActivity: Assembly puts items in the five servers Inspection: Quality Assurance inspects serversInspection: Quality Assurance inspects servers Document: Quality Assurance creates 10C - InspectionDocument: Quality Assurance creates 10C - Inspection Activity: Assembly moves servers to shippingActivity: Assembly moves servers to shipping Activity: Shipping sends servers to CustomerActivity: Shipping sends servers to Customer Document: Shipping records shipment items and dateDocument: Shipping records shipment items and date

Even simple requests require many componentsEven simple requests require many components


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Creating a List of Flow Chart Components Creating a List of Flow Chart Components in your Procurement Processin your Procurement Process Remember to include:Remember to include:

ApprovalsApprovals Documents created and archivedDocuments created and archived DelaysDelays InspectionsInspections Any other item that is part of the processAny other item that is part of the process

This can be extensive - Take 15 minutes.This can be extensive - Take 15 minutes.


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Procurement Process StreamliningProcurement Process Streamlining Non-Value Added ActionsNon-Value Added Actions

InspectionsInspections RecordsRecords BenchmarkingBenchmarking

DelaysDelays Dead TimeDead Time Wait TimeWait Time Ship TimeShip Time

E-Procurement Flow Chart

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Procurement Process StreamliningProcurement Process Streamlining Unnecessary approvalsUnnecessary approvals

Direct SupervisorsDirect Supervisors Accounting Process impedimentsAccounting Process impediments

Unnecessary stepsUnnecessary steps Secretary HandlingSecretary Handling Shifting products around FactoryShifting products around Factory


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Procurement Process StreamliningProcurement Process Streamlining Identify unnecessary steps:Identify unnecessary steps:

Input: Salesperson fills out specification form 10WInput: Salesperson fills out specification form 10W Delay: 10W sits in ‘new order’ pileDelay: 10W sits in ‘new order’ pile Activity: 10W is faxed to assembly.Activity: 10W is faxed to assembly. Activity: Assembly manually collects the inventory Activity: Assembly manually collects the inventory

items.items. Document: Assembly creates order form 10A for Document: Assembly creates order form 10A for

‘out of stock’ items.‘out of stock’ items. Activity: Assembly delivers 10A to supervisor for Activity: Assembly delivers 10A to supervisor for

approvalapproval


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Delay: 10A sits in supervisor ‘to do’ pile. Delay: 10A sits in supervisor ‘to do’ pile. Activity: Supervisor approves request.Activity: Supervisor approves request. Activity: Supervisor gives 10A to secretaryActivity: Supervisor gives 10A to secretary Activity: Secretary gives 10A to assemblyActivity: Secretary gives 10A to assembly Activity: Assembly faxes 10A to approved supplierActivity: Assembly faxes 10A to approved supplier Activity: Supplier has E-Procurement Software and Activity: Supplier has E-Procurement Software and

ships items in 4 hours.ships items in 4 hours.


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Inspection: Assembly inspects shipmentInspection: Assembly inspects shipment Activity: Assembly puts items in the five serversActivity: Assembly puts items in the five servers Inspection: Quality Assurance inspects serversInspection: Quality Assurance inspects servers Document: Quality Assurance creates 10C - Document: Quality Assurance creates 10C -

InspectionInspection Activity: Assembly moves servers to shippingActivity: Assembly moves servers to shipping Activity: Shipping sends servers to CustomerActivity: Shipping sends servers to Customer Document: Shipping records shipment items and Document: Shipping records shipment items and

datedate


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Identify your procurement process Identify your procurement process unnecessary steps:unnecessary steps: Be Creative!Be Creative! Try to take out ALL steps that a computer can Try to take out ALL steps that a computer can

do.do.


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Steps 1 - 6 with E-ProcurementSteps 1 - 6 with E-Procurement Input: Salesperson assists customer to customize Input: Salesperson assists customer to customize

servers using an online POSservers using an online POS Delay: Fax delay time eliminatedDelay: Fax delay time eliminated Activity: Online POS system sends the order Activity: Online POS system sends the order

specifications directly to assembly.specifications directly to assembly. Activity: Identifying ‘out of stock’ eliminatedActivity: Identifying ‘out of stock’ eliminated Document: Order form for ‘out of stock’ items Document: Order form for ‘out of stock’ items

eliminatedeliminated Activity: Supervisor approval for ‘out of stock’ order Activity: Supervisor approval for ‘out of stock’ order

form eliminatedform eliminated


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Steps 7 - 12 with E-ProcurementSteps 7 - 12 with E-Procurement Delay: Supervisor approval time delay eliminatedDelay: Supervisor approval time delay eliminated Activity: Supervisor approval is not required because Activity: Supervisor approval is not required because

of JIT inventory based on sales data.of JIT inventory based on sales data. Activity: Transfer time to secretary eliminatedActivity: Transfer time to secretary eliminated Activity: Transfer time to assembly eliminatedActivity: Transfer time to assembly eliminated Activity: Order to Approved Supplier will come directly Activity: Order to Approved Supplier will come directly

from the E-Procurement system integrated with the from the E-Procurement system integrated with the POS system. Emails sent to all pertinent parties.POS system. Emails sent to all pertinent parties.

Activity: The supplier with E-Procurement will Activity: The supplier with E-Procurement will continue to have their items shipped in 4 hours.continue to have their items shipped in 4 hours.


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Steps 13 - 19 with E-ProcurementSteps 13 - 19 with E-Procurement Inspection: E-Procurement will log inspection results.Inspection: E-Procurement will log inspection results. Activity: Assembly will not change.Activity: Assembly will not change. Inspection: Q&A will not change.Inspection: Q&A will not change. Document: An extended E-procurement tool can Document: An extended E-procurement tool can

produce the inspection approval records.produce the inspection approval records. Activity: Assembly to Shipping move will not changeActivity: Assembly to Shipping move will not change Activity: Shipping to Customer will not changeActivity: Shipping to Customer will not change Document: An extended E-procurement tool can Document: An extended E-procurement tool can

record shipment items and dates.record shipment items and dates.


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Create/Renovate your current Create/Renovate your current procurement process with E-Procurementprocurement process with E-Procurement Remember Remember

A computer program can do all repetitive, limited A computer program can do all repetitive, limited thinking tasks.thinking tasks.


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Cost AnalysisCost Analysis Cost SavingsCost Savings

Excess personnel eliminatedExcess personnel eliminated Inventory costs eliminatedInventory costs eliminated Supervisor’s approval time requirements decreasedSupervisor’s approval time requirements decreased Customer dissatisfaction decreased.Customer dissatisfaction decreased. Competitive advantageCompetitive advantage


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Cost AnalysisCost Analysis CostsCosts

Custom E-Procurement tools can be expensiveCustom E-Procurement tools can be expensive ‘‘Off-the-shelf’ E-Procurement tools are cheap, but Off-the-shelf’ E-Procurement tools are cheap, but

not very robustnot very robust


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Cost Analysis ExampleCost Analysis Example E-Procurement rough estimate costsE-Procurement rough estimate costs

Customized 35 supplier profiles, 3500 product E-Customized 35 supplier profiles, 3500 product E-Procurement tool with 125 available reports and Procurement tool with 125 available reports and expansion capabilities: $150,000expansion capabilities: $150,000

Requires 10 dedicated servers: $50,000Requires 10 dedicated servers: $50,000 Integration costs: $25,000Integration costs: $25,000 Training costs: $25,000Training costs: $25,000 Maintenance costs: $10,000Maintenance costs: $10,000

Total Cost: $260,000Total Cost: $260,000E-Procurement Flow Chart

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Cost Analysis ExampleCost Analysis Example E-Procurement rough estimate savingsE-Procurement rough estimate savings

Eliminates 3 assembly jobs: $120,000Eliminates 3 assembly jobs: $120,000 Eliminates related payroll expenses: $120,000Eliminates related payroll expenses: $120,000 Eliminates inventory costs: $60,000Eliminates inventory costs: $60,000 Eliminates order error costs: $10,000Eliminates order error costs: $10,000 Reduction wait time increases sales by: $100,000Reduction wait time increases sales by: $100,000

Total E-Procurement Savings: $410,000Total E-Procurement Savings: $410,000


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Cost Reduction = Savings - CostsCost Reduction = Savings - Costs Cost Reduction = $410,000 - $260,000Cost Reduction = $410,000 - $260,000 Cost Reduction = $150,000Cost Reduction = $150,000


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Using your new E-Procurement Process:Using your new E-Procurement Process: Identify your:Identify your:

Eliminated personnelEliminated personnel Comparable RPEComparable RPE Order error costsOrder error costs Increase in salesIncrease in sales

Your company should be willing to pay up Your company should be willing to pay up to this amount for the E-Procurement Tool to this amount for the E-Procurement Tool


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Learning PointsLearning Points E-Procurement Tools are internet/intranet E-Procurement Tools are internet/intranet

basedbased Coordinate buying, inventory, supplier Coordinate buying, inventory, supplier

selection, and approval process of a companyselection, and approval process of a company

Learning Points

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Learning PointsLearning Points Diagnosing the need for E-Procurement ToolsDiagnosing the need for E-Procurement Tools

Step 1: Identify current procurement processStep 1: Identify current procurement process Step 2: Identify unnecessary componentsStep 2: Identify unnecessary components Step 3: Recreate procurement process with an E-Step 3: Recreate procurement process with an E-

Procurement tool in mind.Procurement tool in mind. Step 4: Create a cost analysis of savingsStep 4: Create a cost analysis of savings Step 5: Buy or Develop an E-Procurement ToolStep 5: Buy or Develop an E-Procurement Tool

Learning Points

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Next Step: Get E-Procurement SoftwareNext Step: Get E-Procurement Software Some SuggestionsSome Suggestions

Choose a company that has experienceChoose a company that has experience Choose a company with exceptional customer serviceChoose a company with exceptional customer service Choose a company that wants your company to succeedChoose a company that wants your company to succeed Identify your needs first then listen to their suggestionsIdentify your needs first then listen to their suggestions Ensure that your team lead understands basic software coding Ensure that your team lead understands basic software coding

principlesprinciples Ensure that your team lead understands process flow diagramsEnsure that your team lead understands process flow diagrams Ensure that this effort is in parallel to your companies core Ensure that this effort is in parallel to your companies core

competencycompetency

Next Step

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Questions??Questions??

Contact:Contact:

Benjamin MaughanBenjamin Maughan

[email protected]@byu.edu

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ReadingsReadings E-Procurement: From Strategy to Implementation. Dale Neef - E-Procurement: From Strategy to Implementation. Dale Neef -

Business & Economics. 2001Business & Economics. 2001 E-Government: Towards Electronic Democracy. Michael Bohlen, E-Government: Towards Electronic Democracy. Michael Bohlen,

Johann Gamper, Wolfgang Polasek. March 2005Johann Gamper, Wolfgang Polasek. March 2005 Successful Global Account Management: Key Strategies and Tools Successful Global Account Management: Key Strategies and Tools

for Managing Global Customers. Nick Speare, Kevin Wilson - for Managing Global Customers. Nick Speare, Kevin Wilson - Business & Economics - 2001Business & Economics - 2001

Cyber Commerce Reframing: The End of Business Process Cyber Commerce Reframing: The End of Business Process Reengineering? Uwe G Seebacher - Computers - 2002.Reengineering? Uwe G Seebacher - Computers - 2002.

E-Business 2.0: Roadmap for Success. Ravi Kalakota, Marcia E-Business 2.0: Roadmap for Success. Ravi Kalakota, Marcia Robinson - Business & Economics - 2000.Robinson - Business & Economics - 2000.

Introduction to E-Supply Chain Management. David Frederick Ross Introduction to E-Supply Chain Management. David Frederick Ross - Business & Economics - 2002.- Business & Economics - 2002.

E-Business: Key Issues, Applications and Technologies. Brian E-Business: Key Issues, Applications and Technologies. Brian Stanford-Smith, Paul T. Kidd - Computers - 2000.Stanford-Smith, Paul T. Kidd - Computers - 2000.

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