E-procurement in global supply chain management Introduction From 1990s, due to the economic globalization and the increased competitive pressures, lots of firms increase their focus on integrated supply chain management to gain a competitive advantage. Effective supply chain can facilitate a firm to be more competitive not only by reducing the purchasing costs but also improving the competitive dimensions of quality, dependability, flexibility, and innovation.Nowadays with globalization, global supply chain management is becoming a very important issue for most of businesses.
The main reasons of this trend are procurement cost reduction, purchasing risks control, and revenues increasing. For instance, companies may set up overseas factories to benefit from tariff and trade concessions, lower labor cost, capital subsidies, and reduced logistics costs in foreign markets. Moreover, easy access to abroad markets and close proximity to customers result better organizational learning.On the other hand, improved reliability can be obtained as a consequence of closer relationship with supplier.
There are some issues that should be considered in managing a global supply chain. First of all, the company should decide about its general outsourcing plan. For whatever reason, businesses may prefer to keep some aspects of supply chain nearer to home. The second issue that must be incorporated into a global supply chain management strategy is supplier selection.
It can be very difficult to comparing bids from a range of global suppliers. Companies usually jump on the lowest price instead of taking time to consider all of the other elements. On the other hand, selecting the right suppliers is influenced by a variety of factors, and this there will be additional complexity in supplier selection due to the multi-criteria nature of this decision. Additionally, companies must make decisions about the number of suppliers to use.
Fewer suppliers may result reduced inventory costs, volume consolidation and quantity discounts, reduced logistical costs, coordinated replenishment, improved buyer-supplier product design relationship, and thus better customer service and market penetration. However, small number of suppliers could lead to potential problems if one vendor is unable to deliver as expected, especially in global sourcing strategy. Finally, companies who prefer to ship their manufacturing overseas may face some additional concerns.Questions about the number of plants as well as their locations can pose complex logistical problems.
Technology will be a very important role in managing the extended global supply chain, because technology can reduce costs and improve efficiency in supply chain. In fact, technology offers both sides of the global supply chain. For example, through technology companies get better insights into customer needs and behavior and may be able to cut the cost of acquiring customers.On the other hand, customers will get more information about supplier by technology, so they can realize clearly which are good suppliers and then they would continue to have business with them. Using technology can increase effectiveness in both sides.
If both sides have good interactions to create value, they could ensure that they have the right information and context. As companies learn to use technology tools, they will develop managerial innovations, smarter and faster ways for individuals and teams to create value through interactions.Therefore, using IT strategy in global SCM to create e-business is a trend in the business world. E-commerce There are several different or new things about e-business, such as create more competitive advantages, attract new customers with value-add service, enhance companies’ existing customer relationships, achieve cost savings through IT system to integrate supply chain management, realign business processes to maximize efficiency and extend core IT systems directly to customers, partners and employees.
In the article, “Winning the Last Mile of E-Commerce (2001, Lee and Seungjin),” the author states that some companies start to come up with innovative way to complete e-business strategies, and using e-commerce is better than before on trading partners communication, coordinate, share information and manage inventory. That is to say, using e-commerce not only can increase services level to keep customers, but also make profits more than before.Nowadays, there are many companies using e-logistics and e-procurement for customers, because those will be an optimal way to extend and increase business processes in supply chain management and also those are real value methods to attract more customers than before. Therefore, e-commerce can create a lot of additional values in the company in order to maximize its chances of success. There are three main things in e-commerce: information, Internet and technology. InformationImproving the use of information is the important thing in e-commerce because more-accurate, up-to-date information about customer demanded allows products to be delivered in the right way in order to decrease cost and increase efficiency (2001, Lee and Seungjin).
So, a company should prioritize internal system first, because the company should complete internal for controlling its information and business. Then, companies can start to use external system in order to increase service level for customer and to deliver information between suppliers and customers rapidly.Moreover, increasing the data quality in global supply chain is the most important thing in the generation, because more and more companies know that the company can make a good decision by using high quality data. In the global supply chain, the company may control the costs easily by high quality data, because it can supply high accurate information to the company. Additionally, to the supplier and the customers, high quality data can increase reliability between the company and its partners. Internet Internet is the other main role in e-commerce.
Normally, many information technologies are always used in connecting intranet in the company. Those are good systems to manage the company’s database and also to truly control the company’s business processes. Moreover, using the Internet in the company for global supply chain is the best way to improve business processes with its partners. The internet is not only to increase ability of connection, but also to increase customer’s expectations. The company not only can easily seek the information about supplier’s shipment, but also can interact immediately with its customers by efficient and convenient the Internet.
Therefore, using the Internet is going to increase competitive advantage to company for global supply chain firms. Technology Technology plays a main role to connect information and internet, such as EDI, ERP and DSS. For example, electronic data interchange (EDI) is a common used way for large corporations. The advantages are cost saving in paper, accuracy improvement and timeliness improvement. However, a company could have two problems in technology. One is some legacy systems and new systems in the company at the same time.
Although legacy system is an old computer system, it continues to be used in the company because its functions still are needed. Nowadays, more and more new technology in the world, but there are many reasons about why would companies still have legacy systems. First of all, switching cost is too expensive, such as time cost and redesign cost. Also, the company thinks that no reason for changing the system because its work satisfactory.
However, if the company doesn’t improve its computer system, it would be a real issue for supply chain firms.New technologies could support more and more things to deliver the information between the company and its suppliers or customers. However, sometimes legacy systems cannot be combined with new systems. Therefore, how to decrease cost for combining new and old systems and how to use those systems to promote the company’s business process are two issues in supply chain management.
The other is how to distinguish between intranets and extranet in the company. Internal system is to an individual company and external system is to transfer information between various companies and individuals.In this article, “Home. front: more than just internal Internets, intranets and extranets are tying companies together - and blurring the boundaries between them - Chief Executive Guide: Beyond the Internet (1999, Buxbaum),” the author states that the company has to use the intranet and extranet together as a part of technology strategy to the company. For example, because of increasing competitive advantage, PricewaterhouseCoopers creates a global intranet for keeping communication with each employee who may take the same project.
Therefore, its intranet not only helps internal communications, but also helps with client relationships. Also, Dialog's chief executive, Daniel Wagner, said, the intranet is the corporate portal for both internal and external information. Moreover, information will across network lines from intranet to extranet to intranet, because those steps will increase level of business process and then integrate other enterprises be supply chain partners. Benefit in E-procurement The benefits of procurement have been verified by many leading companies worldwide, and procurement is a significant tactic in most companies’ -business strategies. Ghazaly (2005) predicts that an enterprise engaging in electronic procurement could cut procurement costs by as much as 8 to 15%.
More and more companies are conscious of the need to introduce Internet-based technologies in their order process, due to the benefits of saving transaction cost, increasing competitive sourcing opportunities, and enhancing inter-organisational coordination (Yen and Ng 2003). According to the 2006 e-Business W@tch survey, more than half of the interviewed enterprises said that they intend to place orders through a Web-based procurement system (e-Business W@tch 2006).With the increasing availability of lower-cost public network infrastructures and the development of Web-based tools, most traditional e-procurement evolved into Web-based e-procurement. The emergence of Web-based e-procurement is not only expected to reduce the cost of the purchasing process but is also to alter the activities of purchasing, transforming the purchasing process from an operational into a strategic activity (Lawson et al. 2009). Business-to-business (B2B) e-commerce is rapidly transforming how organizations structure and coordinate their business relationships.
Thus evaluating investments on Web-based B2B systems becomes critical. Much of the attention on the value of Web based procurement systems has focused on indirect materials for a single company through case studies (Subramaniam and Shaw 2002). Successful Examples in E-procurement Dell is the first company to establish direct business-to-customer model and also the model is successful across the US and the Europe. The Direct model can integrate the company with its customers and suppliers and also provide some competitive advantages on pricing power, market knowledge, and responsiveness to customer demand.The direct sale model is the important type of supply chain management for Dell in the US. In the US, most of the customers don’t want to spend much time to buy the computer in a retail store, because the stores may far away from their house.
In addition, debit card and credit card are extensively used on purchase everything in the customers’ life. Therefore, when Dell supplied the customer the direct model for buying the computer directly, they thought that the direct model is the efficient way to purchase the product. In fact, the successful irect model should combine with the Internet, because the customers can realize the product and price lists and also order their own computer on Dell’s website through the Internet (2000, Chopra and Meighem). There are three golden rules, which are zero inventory, always listen to the customer and never sell indirectly, to be included in the Dell’s direct model. First of all, zero inventory, called eschewing inventory, is made by high visibility of customer demand, which is one of the competitive advantage of the direct model for procurement.
The customer orders the product at first, Dell will supply second.Next, if the company always listens to the customer, the customer will satisfy with its own product. The stage of the model is based on actual customer demand. Dell can be high efficiency between suppliers and customers in the supply chain. Then, if the company sells indirectly, the middlemen will offer obstruction to information flow and also Dell isn’t going to understand the customers wanted. Based on these three ideas, Dell can understand the customers’ needs and then provide the most effective computing solutions to meet their needs, because Dell is direct contact the customers (2000, Chopra and Meighem).
The other example is that Third-party logistics (3PL) has developed since the emergence of global market and the Internet, in e-commerce. The goal of procurement is to use 3PL to improve their delivery performance of products and services to customers. It also enhances efforts to improve the quality of delivery service by transferring it to companies, whose core competencies are outsourcing logistics services, including: packing, inventory management and shipping of goods to customers.E-Commerce Logistics (ecL), which established on 2002, located in Hong Kong and has service centers in North America and Europe. In its logistics operations, the applications of IT plays an important role in communication, such as Internet and web-based information systems.
By electronic data interchange (EDI), the Internet, WWW and e-commerce to improve communication with partners in the procurement and logistics chain’s efficiency. Real-time information and quality data help to improve procurements utilization of 3PL services (2007, Gunasekaran, Ngai and Cheng).Figure 2 illustrates a conceptual model for the development of an e-logistics system. Figure 2. A framework for the development of e-logistics.
(2007, P6) Moreover, ecL has five components of e-logistics, including order management, reverse logistics, deliveries, warehousing and distribution, and other services. The company’s goal is to deliver goods on time while maintaining the lowest level of inventory possible. The procurement management team can help reduce delays anywhere and also control the costs (2007, Gunasekaran, Ngai and Cheng).Procurements use of technology reduces information differences in transactions.
This is one of the most powerful and important aspects in the extended global supply chain. To the company, declining the information asymmetry can increase competitive advantage, because the company can deliver the more information correctly and rapidly. The company can use the information to make a good negotiation with its suppliers and customers, because the company will get the correct pricing for products or services immediately and then making the fair trade to decrease the company’s loss.Conclusion Due to the globalization, firms are facing more competitive environments. In order to survive and succeed in this environment, firms need to find other opportunities and strategies to enhance their competitive advantages and win the consumer’s heart. E-procurement helps firms increase their value-added capabilities when combined information, Internet and technology.
Information flow fluency is a good way to integrate the company and its partners. The information makes sure supplier and customers are involved in the decision making process.Technology enables effective procurement management because it can collect real-time information and perform analysis of that information in a more effective efficient manner. Moreover, procurement’s main role is to communicate with partners rapidly, even if partners are far away from the company. Via Internet, the firm can send information by technology at right time to right place.
Thus, E-procurement strategy is a good way to increase the firms’ competitive advantages, including reducing costs, controlling purchasing risks and increasing revenue. ReferenceBuxbam Peter (1999). Home. front: more than just internal Internets, intranets and extranets are tying companies together - and blurring the boundaries between them - Chief Executive Guide: Beyond the Internet.
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