Module - 5

Identifying potential suppliers in the present scenario:

You can find suppliers through a variety of channels. It's best to build up a shortlist of
possible suppliers through a combination of sources to give you a broader base to choose
from.

Recommendations
Ask friends and business acquaintances. You're more likely to get an honest assessment of a
business' strengths and weaknesses from someone who has used its services.

Directories
If you're looking for a supplier in your local area, it's worth trying directories such as Yellow
Pages and Thomson.

Trade associations
If your needs are specific to a particular trade or industry, there will probably be a trade
association that can match you with suitable suppliers.

Business advisors
Local business-support organisations, such as chambers of commerce, can often point you in
the direction of potential suppliers. You can also contact our Strategic Information Centre.

Exhibitions
Exhibitions offer a great opportunity to talk with a number of potential suppliers in the same
place at the same time. Before you go to an exhibition, it's a good idea to check that the
exhibitors are relevant and suitable for your business.

Trade press
Trade magazines feature advertisements from potential suppliers. You can contact
our Strategic Information Centre for a list of specialist trade magazines.

Functions of e-Procurement
The primary functions of eProcurement are far-reaching, offering a range of benefits for a
company’s day-to-day operation and supply chain activities. Below, we list the main
functions of eProcurement for business:

1. Automates processes to free up resources and reduce errors.

2. Improves communication between stakeholders and partners to streamline the

procurement cycle.

3. Provides a single platform for all procurement activity, giving stakeholders and
managers a centralized platform for managing and auditing.

4. Offers real-time updates for vendors, management, stakeholders, and partners, as well
as the chance to curate and store procurement data.

5. Allows for streamlined negotiation between multiple partners and stakeholders.

Challenges of e-procurement
Implementing an e-procurement application comes with potential challenges, particularly
around installing and integrating the software with other enterprise back-end systems.

Training employees to use it is another challenge. Additionally, companies must work with
suppliers to ensure a smooth transition to the new online system.

Benefits of e-procurement
E-procurement helps automate the procurement process. Centralized transaction tracking,
simplified reporting and contract compliance helps reduce delivery times and
shorten procurement cycles.

Automated systems and built-in monitoring tools reduce the overhead for procurement teams,
optimize performance, increase process efficiency and achieve cost savings. They also help
limit maverick spending, which happens when employees procure products "off contract,"
i.e., when they make purchases outside the parameters set in negotiated and in-force
contracts.

With e-procurement, companies have access to a larger selection of products and services to
meet their specific needs. The ability to quickly locate products from their preferred
suppliers or vendors helps control inventory size and costs.

Since the procurement department is freed from manual, repetitive or low-value tasks, it can
redirect resources to higher value activities, such as contract negotiations.

E-procurement also delivers better reporting of procurement trends and metrics, and increases

visibility into enterprise procurement spending. Since all information is centralized, company
management or stakeholders can easily access it to improve decision-making. It thus
increases process transparency and accountability and enables better control over the
procurement function.

How does e-procurement work?

E-procurement eliminates the need to manually carry out laborious, procurement-related
tasks such as eAuctions and eTenders, exchanging supplier contracts and filling out supplier
onboarding questionnaires.

The process works by connecting various entities and processes through a centralized
platform. Vendor management/supplier management is one of the most important aspects of
e-procurement. It involves both supplier relationship management and supplier information
management.

Other key components in e-procurement include the following:

 e-sourcing: requirements definition and pre-qualifying potential suppliers;
 e-tendering: request for information, proposals and quotations;
 e-auctioning: evaluating suppliers, negotiation and contract management;
 e-ordering and payment: creating requisitions and purchase orders, and receiving
ordered items; and
 analytics: view spends and take corrective measures as required.
Finally, e-informing is vital in the e-procurement process. It involves a two-way exchange of
information between all parties involved in the process to generate mutually beneficial
outcomes.

What is e-procurement? What is its purpose?

Electronic procurement, also known as e-procurement or supplier exchange, is the process
of requisitioning, ordering and purchasing goods and services online. It is a business-to-
business process.

Unlike e-commerce, e-procurement utilizes a supplier's closed system and is only available to

registered users. E-procurement facilitates interactions between preferred suppliers and
customers through bids, purchase orders and invoices.

E-procurement started in the 1980s, following the development of Electronic Data

Interchange (EDI). A decade later, improvements in EDI allowed organizations to develop
online catalogs for vendors. Today, e-procurement involves everything from supplier
evaluation and selection to contract management, electronic orders and payments.

E-procurement uses a web interface or some other kind of networked system that connects

suppliers and customers. In the enterprise, a chief procurement officer or procurement
department usually sets the policies governing the e-procurement of materials for the
organization.

The goal of using an e-procurement system is to acquire products or services at the best
possible price and at the best possible time. To meet this objective, it's important for
businesses to establish relationships with suppliers. This enables procurement personnel to
negotiate contracts with suppliers. They can also set guidelines or limits around budgets and
spending within the e-procurement platform.

How Internet makes Smart Pricing Possible? And what are they?
Low Menu Cost Low Buyer Search Cost Visibility – To the back-end of the supply chain allows to
coordinate pricing, production and distribution Customer Segmentation – Difficult in conventional
stores and easier on the Internet Testing Capability.

Customized pricing and Dynamic pricing

Customized Pricing –
Distinguish between customers according to their price sensitivity – Influence retailer pricing
strategies – Move supply chain partners toward global optimization.
Dynamic Pricing –
Changing prices over time without necessarily distinguishing between different customers –
Find the optimal trade-off between high price and low demand versus low price and high
demand

A note on revenue management in SCM

Revenue management has a significant impact on supply chain profitability when one or
more of the following conditions exist:

 The value of the product varies in different market segments

 The product is highly perishable or product wastage occurs
  Demand has seasonal and other peaks
 The product is sold both in bulk and the spot market

Sourcing strategy in supply chain

Having a current, flexible sourcing strategy can not only reduce costs and increase efficiency,
but also serve as a competitive advantage to help organizations increase the top line.

Supply chain costs, primarily procurement and transportation, can range from 50 to 70
percent of sales, depending on industry. So it is critical to spend considerable time on
developing your organization's strategy. Periodically reviewing your sourcing strategy
ensures you will achieve desired results and continue to align with business objectives.

Successful sourcing requires a thorough understanding of a company's business strategy, the

resources required to deliver that strategy, and the market forces and unique risks within the
company associated with implementing specific approaches.

Some sourcing strategies to consider:

Outsourcing. Having suppliers provide goods and services that were previously provided
internally.

Insourcing. Delegating a job to someone within the company.

Nearsourcing. A business places some operations close to where its end products are sold to
save time and money.

Vertical integration. Merging companies at different stages of production and/or distribution

in the same industry. When a company acquires its input supplier it is called backward
integration; when it acquires companies in its distribution chain it is called forward
integration.

Few or many suppliers. A many-supplier strategy is commonly used for commodity

products and purchasing is typically based on price. Single-source purchasing refers to
purchases from one selected supplier, even though other suppliers provide similar products.
Sole-source procurement refers to purchases with only one supplier. Single- or sole-supplier
relationships can be high risk, but reap big rewards.

Joint ventures. A business entity created by two or more parties, generally characterized by
shared ownership, shared returns and risks, and shared governance.

Virtual enterprise. A network of independent companies (i.e., suppliers, customers,

competitors) linked by information technology to share skills, costs, and access to one
another's markets.

In many organizations, procurement focuses primarily on cost reduction, which perhaps

should be one focus if the company has a cost reduction strategy. In today's competitive
world, however, where most companies don't focus only on cost as a strategy, there tends to
be more emphasis on creating value, while not ignoring cost and waste reduction.

FINDING VALUE AREAS

In general, moving toward lean procurement will help you increase total value. While
concepts such as just-in-time are lean tools that focus on inventory waste, many other areas in
procurement can benefit by:

Improving the procurement process itself as well as workflows; thereby reducing time and
eliminating waste.

Reducing or lowering costs while improving both product and service quality.

Improving supplier performance and responsiveness.

Increasing focus on activities that add value to the firm.

Enhancing procurement's strategic rather than transactional focus.

Implementing an agile sourcing strategy provides a competitive advantage to help companies

lower costs and improve efficiency.

What you should look for in a supplier for selecting?

Reliability

Remember - if they let you down, you may let your customer down.

Quality

The quality of your supplies needs to be consistent - your customers associate poor quality
with you, not your suppliers.

Value for money

The lowest price is not always the best value for money. If you want reliability and quality
from your suppliers, you'll have to decide how much you're willing to pay for your supplies
and the balance you want to strike between cost, reliability, quality and service.

Strong service and clear communication

You need your suppliers to deliver on time, or to be honest and give you plenty of warning if
they can't. The best suppliers will want to talk with you regularly to find out what needs you
have and how they can serve you better.

Financial security

It's always worth making sure your supplier has sufficiently strong cash flow to deliver what
you want, when you need it. A credit check will help reassure you that they won't go out of
business when you need them most.

A partnership approach

A strong relationship will benefit both sides. You want your suppliers to acknowledge how
important your business is to them, so they make every effort to provide the best service
possible. And you're more likely to create this response by showing your supplier how
important they are to your business.