The advent of e-business through Web-based trading creates new opportunities for those businesses with the ability and vision to recognise them. For supplying organisations, a key benefit is that they can focus more on maintaining and nurturing their relationships with buyers, as procurement processes are automated, and in due course, suppliers can increase their customers' loyalty.
Lizette McIntosh, supplier activation manager of MarketSite Africa, takes a look at the impact and potential that an e-procurement system can have on business today, from a supplier perspective, as e-business projects transform all parts of the source-to-pay cycle.
As more companies engage in the business-to-business world it is not unusual that a greater number of employees become involved in the purchasing process. This is the outcome of a buying organisation's strategy to empower its employees and decentralise the purchasing activity. Despite the fact that such an organisation may have multiple buyers instead of a dedicated purchasing division, an e-procurement solution allows a company to control its orders and spending limits more tightly than it would be able to in a traditional paper-based system.
E-procurement, typically a browser-based system that employees can use for directly ordering goods and services with built-in workflow and approval process automation, also enables a buyer to interact more effectively with the vendors (suppliers) that supply goods and services to their company. This includes system-based rules and privileges, forcing all buyers to use only selected suppliers for specific commodities.
An e-procurement system enables a company to carefully manage and monitor the buying process using stricter business rules built into the electronic business logic.
Lizette McIntosh. Supplier activation manager, MarketSite Africa
In most traditional paper-based organisations, multiple order books are given to various centralised divisional employees. However, in these manual-based systems inefficiencies are usually encountered in terms of spend. This means that there is no control over the price of the commodity and a buyer will buy goods or services from his preferred supplier at whatever price because of the relationship or convenience -- whereas in the e-procurement environment the supplier is selected and the price of the commodity fixed.
In addition, buyers may have a relationship with numerous suppliers of the same commodity, resulting in multiple vendors of similar products supplying to the same organisation while working off different agreements, or outside of commercial arrangements. This encourages off contract spending, or maverick spend, and the loss of business for the preferred supplier organisation. In an e-procurement system this maverick spend is eliminated, and other benefits such as faster payment and reconciliation start to benefit the supplying organisation. In addition, both buyer and supplier processes become more visible and measurable giving greater planning and control to both, as well as bringing suppliers and buyers closer together.
Strategic sourcing
Increasingly large corporations are looking to strategic sourcing to ensure a reduction in costs and administration around suppliers. A strategic sourcing activity can be a sensitive and uncertain process for suppliers as they may be measured on criteria such as the period of their relationship with the buyer, the importance of the product to the organisation, pricing, location and distribution capacity amongst others. Strategic sourcing is the selection of a supplier and commodity at a preferred price on a contracted basis. Strategic sourcing includes supplier discovery, evaluation, negotiation, contracting and management.
It's true to say that at the implementation stage of an e-procurement solution, all suppliers become vulnerable as they may not be selected to continue supplying their goods and services. In many instances the buying organisations will engage with its suppliers to warn of the implementation of such a system and will go through a process of elimination of suppliers. This may not always be fair in the eyes of the supplier, as it does not always take cognisance of soft issues that may have contributed to the establishment of the relationship in the first place.
Proactivity the key
In a recent survey of e-marketplace participation by suppliers on MarketSite Africa, a Commerce One e-marketplace, 32% of the suppliers reported that their sales had improved through participating in the e-marketplace. In addition nearly half (43%) of these suppliers found an improvement in their customer relationships through use of the e-marketplace. A further 42% indicated that their sales were unaffected by their participation in the e-marketplace, while 37% said relationships with their customers are unaffected.
The key message here is that suppliers should take a proactive approach to e-commerce, and engage with new initiatives early on. There are number of things that suppliers can do to ready themselves for the e-commerce revolution, most importantly to focus on their customers' requirements. This includes a greater focus on CRM tools and techniques which we will cover in the next TechForum.
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