In today’s competitive business world, the corporations are continuously searching for this methods to improve the efficiency of their business processes and there by cut cost of operation to enhance their margins. The companies they are under constant pressure to enhance their main point here irrespective of the growth in top line. Other product choice but to consider the new e-procurement solutions, to enhance time-to-market, reduce operations cost, avoid pricey mistakes to remain on the top of competition and avoid risk of extinction. For more information on procurement strategy, visit our website.
In to improve the procurement efficiency and realize maximum potential savings, it’s important that the entire supply chain should be extremely powerful. The suppliers and the buying and selling partners, for example shipping agents, clearing and forwarding agents and finance agents should be as efficient in to provide the right materials at the proper time at the right place at the right cost at the right quality. This really is only possible with a collaborative solution between buyers, suppliers and buying and selling partners. It is crucial that the e-procurement solution must concentrate on collaborative supply chain practices in to realize the maximum savings.
There are numerous types of procurement activities in a company according to direct and indirect materials. The direct materials are products which are purchased for the production and the indirect materials (MRO products) are ordered for support of production activities. The features and the specifications of the e-procurement solutions vary for direct and indirect materials, based on the procurement process of different vertical industries. Because of these varied needs of e-procurement, different e-procurement providers concentrate on either different vertical industries or horizontal processes according to their domain understanding and expertise.
E-procurement solutions come in different flavors and colors to focus on variety of industry needs.
Vertical and Horizontal Exchanges
Public exchanges for a number of vertical markets
Private exchanges backed by corporations
The above technologies can offer efficient e-procurement solutions, but have limited scope in their effectiveness. Vertical exchanges concentrate on transacting goods in just one industry, product or material. They sometimes exist in industries where buyers and sellers are fragmented and inefficient. Horizontal exchanges concentrate on leveraging expertise in a specific business process across number of industries. Service industries lend themselves well to some horizontal exchange. The most active horizontal exchanges today are competing in the realm of e-procurement.
There are various market making mechanisms employed in vertical and horizontal exchanges. They’re:
Auctions One Seller, Many buyers
Reverse auctions One buyer, Many sellers
Bid/Ask exchange Buyers and Sellers interact
However, none of the above marketplace solutions completely satisfy the needs e-procurement of direct materials. Following concerns of the companies should be addressed in the procurement solution of direct materials:
1. Custom and unique procurement and approval processes of direct materials, that have been developed over years of experience
2. Protecting the ip and secrecy of design, sketches, purchase and contract prices and supplier details
3. Collaboratively perform procurement functions for example RFQ, Purchase Orders, Shipping and Payments between buyers, suppliers, and buying and selling partners
4. Adopt best procurement practices
Why concentrate on direct materials:
Studies have proven that direct materials present the maximum savings potential in a producing setup. Following table shows the average savings possibility of direct and indirect material in an average manufacturing organization.
Companies can derive variety of savings by applying e-procurement solutions.
The direct financial savings are listed below:
a. Lower communication costs – Fax and telephone costs
b. Lower procurement operating costs – By reduction of cycle time and improving efficiency of RFQ/PO
c. Lower follow-up costs – By auto reminders and tracking RFQ/PO status
d. Lower inventory costs – By lower supply chain time
e. Lower Product costs – By improving supplier and buying and selling partner’s efficiency
The indirect financial savings are:
a. Improved procurement efficiency – By greater levels of collaboration and no-paper transactions
b. Avoid cost mistakes – By checks and balances in e-procurement application
c. Lower obsolescence cost
E-procurement of direct materials:
Companies can automate their procurement of direct materials by collaborating using their existing suppliers and buying and selling partners, for example shipping agents, clearing agents and finance agents to enhance the operating efficiency and increase the margins. The direct materials which go into the Bill of materials, take into account 70 to 80% of the purchases of companies. Most of the Business to business exchanges and procurement solutions address only the MRO purchase, which take into account only remaining 20% to 30% of purchases. In to improve the main point here of any manufacturing company considerably, it’s important to improve the procurement efficiency of direct materials.
For direct materials, the companies would curently have their approved suppliers and get their business relationship established over the years. Furthermore, the prices of direct materials happen to be pre-negotiated to the wire and only scope of further reduction in prices can be done by improving operating efficiencies. Altering suppliers of direct materials is really a lengthy attracted costly process because it involves extensive part/ vendor qualification and frequently requires elaborate reliability and product testing. The companies will not break-up lengthy standing relationship with existing suppliers and risk with unknown new suppliers, unless of course it’s essential. E-procurement solutions must automate the procurement of direct materials with existing suppliers and buying and selling partners without having getting to alter the existing business/ procurement processes with suppliers and buying and selling partners, there by reduction of the operating costs and improves time-to-market.
e-procurement solution for direct materials should be according to the Collaborative Private Marketplace model. The procurement of direct materials is an extremely complex collaborative process involving the many departments within the buyer organization (for example R&D, Purchase, Quality, Materials, Accounts, Finance, Legal, Manufacturing etc.), the suppliers and buying and selling partners for example shipping agents, clearing agents, Banks and finance agents. Right information ought to be open to the right people at the proper time to create the right decision in the procurement process. This practice procurement process is evolved in a business over the years of experience The design specifications and sketches which are being exchanged in the design/ RFQ/ PO processes are extremely proprietary and the Ip of the company. The Public Marketplace have limited scope for supplying customized business processes and might not focus on the security needs. On the other hands, Private Market Places can lend itself for personalization easily because of its limited private membership and security is less of a problem because it is being backed and managed by the buyer organization. Want to know more about government procurement? Visit our website today for more information.
In summary, following are the key advantages of Collaborative Private Marketplace solutions for e-procurement of direct materials:
1. Realize the maximum savings potential of direct materials
2. Enables collaboration between buyers, suppliers and buying and selling partners by hosting in corporate intranet/ Virtual Private Network (Virtual private network)
3. Safeguard the ip and secrecy of design and sketches by the very nature of as being a private marketplace
4. Enables custom procurement and approval ways to be implemented by easy personalization to satisfy the dynamic business needs
5. Helps you to improve the efficiency of suppliers and buying and selling partners by means of better vendor tracking and vendor management system