Effect of e-Procurement on Purchasing Role and Supplier Relationships
Date: 16/11/2019
Prepared by: Majed Abdeen
Introduction
Whereas organisations used to make/develop necessary resources in-house, now, it is no longer possible to "go-it-alone" in the increasingly complex marketplace (Johnsen et al., 2014, p.166). External purchasing requires strong relationships with suppliers and involves several risks. e-Procurement, using software to allow purchasing processes to become digital/take place through the internet (Gardenal & Marco, 2016), is becoming more commonly used; it allows for automation of the purchasing process, and has various impacts on the purchasing process and supplier relationships.
Approaches and Purchasing Role
Procurement must be aligned with the overall business strategy; an integral part of the purchasing role is to do so, and to develop strategic options for purchasing (Johnson & Flynn, 2015, pp.76-77). The diagram below illustrates a typical purchasing process, from initiation to contract; prior to e-Procurement, the majority of these steps took place by hand, via traditional methods of communication, both of which added significant time to the process. Importantly, the volume of work prior to automation could have adverse effects on staff ability to focus on the "big picture" -the overall strategy- as they must focus on the daily minutia (Puschmann & Alt, 2005, p.126).
Use of e-Procurement is often due to internal inefficiencies or high costs (Johnson & Flynn, 2015, p.99). e-Procurement provides greater efficiency and can improve an organisation's performance (Quesada et al., 2010, p.516) by enabling more complex decision-making (Johnson & Flynn, 2015, p.96). Benefits of e-Procurement include improved efficiency/reduced costs through automated process, greater access to (real-time) data supports the decision-making process, facilitating both identification of problems with supply, and supplier-negotiations (Johnson & Flynn, 2015, p.96). Speed is essential; communications are faster, and staff time is now available, enabling them to focus on strategic issues. e-Procurement also allows for integration of the purchasing process across all departments. These benefits all enhance the role of purchasing through enabling greater attention to be paid to strategy, alignment of purchasing with goals, integration/coordination of all buying within purchasing, and thus providing purchasing with greater overall power and authority through becoming the decision-maker on purchasing issues. Previously, this had not been the case (Puschmann & Alt, 2005, p.126).
Relationships
The aforementioned power/authority extends into relationships with suppliers; with improved knowledge and increased number of choices, the power-balance has shifted from supplier to purchaser (Morris & Morris, 2002, p.98), with the latter having increased negotiating power (Puschmann & Alt, 2005, p.126). e-Procurement reduces the number of intermediaries in the purchasing process, and enables suppliers to be more responsive to buyers, thus ensuring closer/stronger working relationships (Morris & Morris, 2002). Relationships are strengthened in several ways; improved coordination and ability to identify problems enables suppliers to be integrated into buyers' systems (Quesada et al., 2010, p.517). Rapidly-changing markets require suppliers/buyers to work together from early on in the process to account for future changes (Johnson & Flynn, 2015, p.82); this too promotes strengthened relationships. Thus, although there is now a more extensive choice for purchasers, in practice, buyer/supplier relationships, once established, may last for significant lengths of time (Johnson & Flynn, 2015, p.372), as suppliers must now adapt to fit buyer demand (Morris & Morris, 2002, p.97), establishing a symbiotic relationship, in which both buyer and seller are "locked-in", as a result of e-Procurement.
e-Procurement and Software
In the software sector, e-procurement is critical, as it provides for the flexibility necessary. Use of Agile methodology means that project activities are planned on an ad-hoc basis, during development (Gardenal & Marco, 2016, p.7); e-procurement enables adjustments and changes to be made quickly, through improved coordination and cooperation with suppliers. The Agile manifesto recommends buyers/suppliers work together as a team from the outset, prioritising a strong working relationship overall (Layton & Ostermiller, 2017, p.194). e-Procurement enables this: both parties can easily collaborate throughout the project, which is supported by the agile approach to relationships: maintaining cooperative and positive relationships from the very beginning of procurement (Layton & Ostermiller, 2017, p.195).
References
Gardenal, F. & Marco, F. D., 2016. Applying Agile Methodologies and Lean Thinking to Improve How the Public Sector Manages E-Procurement. Bali, Indonesia, International Public Procurement Conference - IPPC 7.
Johnsen, T. E., Howard, M. & Miemczyk, J., 2014. Purchasing and Supply Chain Management: A sustainability perspective. 1st ed. New York: Routledge.
Johnson, P. F. & Flynn, A. E., 2015. Purchasing and Supply Management. 15th ed. New York: McGraw-Hill Education.
Layton, M. C. & Ostermiller, S. J., 2017. Agile Project Management For Dummies. 2nd ed. Hoboken, New Jersey: John Wiley & Sons, Inc.
Morris, L. J. & Morris, J. S., 2002. The changing role of middlemen in the distribution of personal computers. Journal of Retailing and Consumer Services, 9(2), pp. 97-105.
PMI, 2017. A Guide to the Project Management Body of Knowledge. 6th ed. Pennsylvania: Project Management Institute, Inc.
Puschmann, T. & Alt, R., 2005. Successful use of e-procurement in supply chains. Supply Chain Management: An International Journal, 10(2), pp. 122-133.
Quesada, G., Gonzalez, M. E., Mueller, J. & Mueller, R., 2010. Impact of e-procurement on procurement practices and performance. Benchmarking: An International Journal, 17(4), pp. 516-538.