E-Procurement - Pros And Cons

PROS AND CONS

No matter what method is used, there are many advantages to using e-procurement systems as opposed to those involving paper-based forms or oral communications. The main benefits are increased efficiency and cost savings. For example, EDI allows business transactions to occur in less time and with fewer errors than do traditional, paper-based means. It reduces the amount of inventory companies must invest in by closely tying manufacturing to actual demand, allowing for just-in-time delivery. By doing away with paper forms, EDI also reduces postage costs and the expenses and space considerations surrounding paper-based record storage.

Online marketplaces provide similar benefits. As Commerce One explains, they "make the entire business-to-business marketplace more efficient by expanding the range of sellers and buyers and by making the entire market mechanism more transparent. They reduce procurement and sales costs and improve the efficiency of the process. For buyers, these e-marketplaces aggregate content so it's easier to find new sources and pricing. For sellers, the e-marketplaces break down geographic barriers and make product catalogs available to a wider market of buyers."

In some large organizations, purchasing responsibilities are distributed over several different areas of the company. E-procurement systems may enable a company to consolidate orders for similar items with one supplier, resulting in deeper volume discounts and cost savings. Additionally, e-procurement may allow a company to simplify purchasing by reducing the number of variables (available products) involved. Instead of having to sort through large volumes of paper or electronic catalogs, purchasing professionals are able to build custom catalogs that include only the items the company is interested in. Besides simplifying matters, this approach also drives up volumes of smaller numbers of items, which is another possible way of generating volume discounts.

Along with all of the positives, there also are disadvantages to e-procurement. Some EDI users have experienced snags. In Planet IT, Proctor & Gamble, a leading packaged goods manufacturer, reported that it found errors in more than 30 percent of its electronic orders, although they were mainly due to human error. Additionally, some companies have been disappointed by e-procurement software applications that don't meet their needs. InformationWeek revealed that two of the leading obstacles to successful e-procurement are enabling suppliers to support e-transactions and generating and maintaining electronic product information.

Additionally, InformationWeek, explains that numerous firms "sign on for E-procurement without anticipating the long road ahead. They dive into projects only to learn that E-procurement applications are limited in the types and scope of purchasing activity they address. Managing electronic catalogs with thousands of products, providing employees with the right mix of products and adequate information about them, and making it easy to search for items can also be tricky, requiring additional tools and threatening the efficiencies promised by moving purchasing to the Web."