week 8: eprocurement and auctions mis 3537: internet and supply chains prof. sunil wattal
TRANSCRIPT
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Week 8:Week 8:eProcurement and eProcurement and AuctionsAuctions
MIS 3537: Internet and Supply Chains
Prof. Sunil Wattal
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Learning ObjectivesLearning ObjectiveseProcurement
Strategic Sourcing
eAuctions
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eProcurementeProcurementProcurement
◦ process to acquire raw materials, components, from suppliers to execute operations
eProcurement ◦ Use internet to facilitate, integrate, and
streamline procurement
Why is it important?◦ Procurement spending represents between
40% and 80% of the cost of goods sold◦ If done right, generates impressive results,
competitive contacts and sustained benefits
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What constitutes What constitutes eProcurement?eProcurement?eProcurement = eRequisitioning
+ eContracting + eIntelligence
eRequisitioning or eBuying◦Enables users within a firm to place
orders with suppliers◦Orders are made from an electronic
catalog of pre-negotiated items◦Mostly done using a Web browser
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eContractingeContractingAbility to identify sources of
supply online and contract with them directly over the Web
Significantly reduces cycle time and costs
Providers: LiveExchange, FreeMarkets Online
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Types of ContractsTypes of ContractsContracts for Product Availability
◦Buyback◦Revenue Sharing◦Quantity Flexibility
Contracts to coordinate supply chain costs
Contracts to increase agent effort
Contracts to induce performance improvements
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eIntelligence solutionseIntelligence solutionsIdentification, collection and use
of internal and external data to enable procurement to make smart sourcing decisions
Examples ◦intelligent web crawlers
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Extracting value from Extracting value from eProcurementeProcurementWhere is the value?
eRequisitioning eContracting eIntelligence
Reduce administrative costs
• Improve productivity by eliminating paper-based processing
• Allow procurement department to focus on value-added activities
• Improve productivity by eliminating paper-based processing
• Enable simultaneous multi-supplier negotiations
• Reduce time spent finding internal and external data
Enable better sourcing and supplier management
• Provide detailed spend data (item and user level) for fragmented categories
• Provide performance information through desktop receiving
• Deliver an up-front step-change benefit followed by incremental benefits through online bidding • Enable focus on value-added activities
• Reduce sourcing cycle time
• Improve quality of internal and external information
• Provide performance information to drive supplier development
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Extracting value (contd.)Extracting value (contd.)Where is the value?
eRequisitioning eContracting eIntelligence
Rollout and sustain sourcing deals
• Enable instant take-up of new contracts by making new terms available to entire organization
• Prevent supplier proliferation by embedding preferred suppliers in the system
• Increase take-up of spend outside of eRequisitioning through contract databases
• Report compliance to enable corrective action to be taken
Enable supplier benefits
• Improve productivity by eliminating paper-based processing
• Reduce errors
•Guarantee spend volumes
• Improve productivity by eliminating paper-based processing • Improve visibility of market information through online bidding
• Provide performance information to drive supplier development
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Learning ObjectivesLearning ObjectiveseProcurement
Strategic Sourcing
eAuctions
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Why companies outsourceWhy companies outsourceAggregation Benefits
◦Capacity◦Inventory◦Transportation◦Procurement◦Information◦Receivables◦Relationships
Cost / Quality Benefits
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Design CollaborationDesign Collaboration80 percent of the cost of a
purchased part is fixed in the design phase
Design collaboration with suppliers can result in reduced cost, improved quality, and decreased time to market
design for logistics, design for manufacturability
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Strategic sourcingStrategic sourcingIdentification of strategic mix of
suppliers to fulfill demandGoals: Improved cost & service
How does the Internet help?◦In the past, strategic sourcing could not
be sustained due to lack of compliance◦Now, strategic sourcing initiatives can
be linked to an eProcurement solution
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Supplier Assessment Supplier Assessment FactorsFactors
Replenishment Lead Time
On-Time PerformanceSupply FlexibilityDelivery Frequency /
Minimum Lot SizeSupply Quality Inbound Transportation
Cost
Pricing Terms Information
Coordination Capability
Design Collaboration Capability
Exchange Rates, Taxes, Duties
Supplier Viability
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Learning ObjectivesLearning ObjectiveseProcurement
Strategic Sourcing
eAuctions
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Common types of online Common types of online auctionsauctionsEnglish auction
◦Most common type; the auctioneer announces a price, and bidders quote increasing amounts till no higher bids are received
Dutch auction◦Reverse of the English auction; the
auctioneer announces a high price, which is lowered until a participant is willing to accept the bid
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Common types of online Common types of online auctionsauctionsSealed bid first-price auction
◦All bidders submit their bids separately, without revealing their bids. Highest bidder wins. Variation: sealed second-price auction
Reverse auction◦Sellers compete by pushing down their
prices progressively until no seller is willing to make a lower bid. Example: Priceline.com
Combinatorial Auctions
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Where auctions are usedWhere auctions are usedReverse Auctions – buying
materials
Auction off excess inventory
Auction off excess factory capacity
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When not to go for an When not to go for an auction?auction?High-technology procurements are
seldom purchased through an online auction
Auctions are generally useful in procuring MRO (maintenance, repair and operations) products, such as low-end electrical and mechanical goods, not requiring high degree of precision
Potentially damage buyer-seller relationships
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Questions!