How can internet technology be used to improve procurement operations …?

Innumerable technologies are emerging everyday. These have led to many advances in Supply Chain Automation, particularly in procurement. Such advances are implemented to achieve significant cost cutting and to contribute towards effective Supply Chain Management.

Internet has brought about a sea change in the way we buy. Gone are the days of isolated purchasing decisions. Today, customers have access to loads of information at the click of the mouse. This revolutionary change in buying process offers some respite to companies that have been wrestling with bottlenecks in the procurement process. In an attempt to streamline planning, coordination and control across organizations, increasing attention is being paid to procurement and sourcing functions. Above all, Internet has brought together manufacturers, customers, and suppliers.

E-procurement emphasizes direct procurement. To enable this, the raw material required to make the products of a company are bought through the installed software. Though the risks associated with direct procurement are higher than the manual procurement, the potential rewards more than compensate the apprehensions.

Automating direct procurement enhances visibility throughout the supply chain, thereby, helping manufacturers carry fewer inventories with reduced time-to-market. Though direct procurement is in the nascent stages of adoption, it is just a matter of time before it is comprehensively incorporated in organizational systems.

Internet-Enabled Electronic Data Interchange (EDI)

One of the drawbacks of traditional EDI is that it is expensive and does not provide real time information. Numerous software packages are required to perform various functions like collecting and organizing data and then transforming it into EDI standards. Moreover, traditional EDI systems are more beneficial for those who have value-added networks (VANs).

However, with the advent of Internet in Supply Chain Management, Internet EDI has taken over the traditional EDI. The web browser has replaced numerous software packages that collected, transformed and communicated data. For instance, customers of Owens Corning use internet-enabled EDI to describe their orders. With the aid of secured order-processing tool, customers decide the size of orders. However, this depends on the kind of shipment, whether they want a full truckload or less-than-truckload (LTL). The order-processing tool also permits online pricing, status checking and order entry and invoicing.

Like Owens, many other companies are exploiting the internet to manage their supply chain and to communicate with supply chain partners. This apart, web-enabled communications have also helped companies improve customer service, reduce supply chain costs, decrease cycle times for order fulfillment and improve delivery date accuracy.

Another step further…

US-based cement and concrete company Cemex uses internet to track its delivery orders. The company has equipped all its carriers with Global Positioning Satellites (GPS) and linked them to internet via satellite. Inaccurate delivery time was the prime reason for opting for GPS. The company was constantly facing problems on the delivery front and this annoyed customers. As a result, they cancelled or rescheduled their orders.

Thanks to the central tracking system GPS, customers can now determine the status of their orders. On the other hand, the company immediately identifies the cause behind delays and rectifies them. Cemex also ensures timely delivery with minor variations in extreme cases. This has resulted in decrease of cancelled or rescheduled orders.

Other benefits accrued with the aid of central tracking system:

• Improved delivery time accuracy
• Improved fleet productivity
• Savings on fuel
• Savings on maintenance and payroll

Maintenance, repair and operation (MRO) e-procurement

MRO purchases include office equipments like nuts, bolts and the like. In many companies, employees undertake purchases of these items from suppliers of their choice. This is expensive. To avert such excessive costs, the company implemented internet-enabled technology called MRO e-procurement. The new technology has enabled the company to control purchases despite the fact that employees still make their own purchases.

This has been possible by automating the process. The system gives real-time information about the inventory and only those orders are approved that are not stocked. Also, all orders are consolidated. This helps in negotiating better volume discounts with suppliers. Since the system provides real-time information, only orders that are not stocked are approved.

Online exchanges

Another advantage of internet-enabled technology is the use of online exchanges and auctions for purchasing and selling. For instance, E-Steel is an online exchange where buyers navigate through a series of screens to finalize their purchase orders. Buyers can choose from a number of suppliers, finalize the sales terms, confirm the order and also track the order delivery.

Online auctions are another way of bringing together suppliers and buyers. This will hopefully soon account for more than 50 percent of online business transactions.

Conclusion

E-based procurement solutions do not offer anything new or different from the manual procurement process. E-based solutions do not do different things. However, they do things faster, better and cheaper. It is for the organizations to optimize technology to ease supply chain management.

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