The Opportunities and Challenges of Implementing E-Procurement

AUTHOR

Noor Raihan Ab Hamid and Zaifuddin Majid (Malaysia)

ABSTRACT

The advent of Internet technology has spurred various innovative applications that business organizations could take advantage of. Among the crucial business application using the Internet technology is Electronic Procurement (E-Procurement), which is a method of procurement using the electronic catalog and automated workflow processes. The processes involved are Product Requisition, Selection Of Order, Issuance Of RFQ, Purchase Order Acknowledgement, Evaluation Of Proposal, Negotiation /Award Of Contract, Issuance Of Purchase Order, Fulfillment of Orders and Payment Of Order, all of which are conducted electronically via a low cost technology, the Internet. Although E-Procurement is still at its infancy stage in Malaysia, projection has indicated that sales of products and services via the Internet in Malaysia have the potential to grow from RM 46 Million to RM 1 Billion by 2003.

Motivated by low investment in the enabling technology and potential annual savings, companies are moved to explore the promises that this new application has to offer. The participating companies in E-Procurement would be that of buy-side and sell-side in a trading community. The sellers and buyers communities need a computer, modem and online Internet services. A service provider connects the communities’ via a web technology. Therefore transactions done using a standard format file are transmitted electronically to the sellers simply via the services provider’s web portal. The seller using a web browser can later access the file to then respond on line or change the requirement in accordance to the standard of procurement procedure. The service provider will send the purchase order for evaluation and publish the award of contract using a web browser, in which at a later time, a seller can check for the payment status. All of these electronic processes enable buyers and sellers to access accurate information instantaneously, eliminating the delays to wait for faxes and multiple telephone calls during price negotiations. These makes E- Procurement a cost effective solution to businesses.

This research aims to study the impact of E-Procurement adoption on Malaysia industries. This paper presents empirical data on how companies are reaping substantial benefits from E-Procurement. Various organizational objectives of implementing E-Procurement are also highlighted. In addition, this study discusses the opportunities and challenges of introducing new technology into an organization where researchers cited experiences and lessons to be learnt from a few local business cases. In collecting the data, face-to-face opinion survey with 32 respondents each representing a company was conducted. Industries selected ranges from industrial to services sector. In analyzing the data, descriptive analysis using mean and frequency were applied.

The results indicated that firms realized significant cost savings where in general a company is able to have at average of 10% reduction on the current material and services cost. However there is a slight difference on cost reduction in the manufacturing sector. This may be due to the implementation lag as manufacturers are still using the old method in some of the procurement processes. It is also found that buyers are able to speed up the Purchase Order process to 2 days, compared to the traditional process where the cycle time needed was 6 to 10 working days. Thus enabling them to increase the frequency of orders at a given time. In addition, reduction in processing time allows buyers spend more time on added value activities such as analyzing the inventory movement or supplier relationship management. The analysis indicated that telecommunication and manufacturing sectors marked the highest mean (4.43) in reducing purchase order cycle time.

Besides that, respondents index score indicates that the average cost for a traditional procurement is RM380 to RM400. On the other hand, 68% of the respondents agreed that E-procurement helps reduce administration cost around RM80 per purchase transaction. Furthermore, from the survey response E-Procurement also facilitates in reducing the inventory cost on the average of 25%. Results showed that trading and services industry score the highest mean (4.30) while manufacturing sector scored the lowest. Respondents suggested that E-Procurement helps to reduce the cost by lowering the manpower cost, storage system cost, and shipping arrangement cost. They also agree that as a result of adopting E-Procurement, they can better manage their supply chain activities.

In spite of all the benefits that E-Procurement produces, the challenges of implementing this application do exist. Lessons learnt from a few local service provider companies that have embarked on the E-Procurement endeavor indicated that factors such as incompetent infrastructure, global competition, human resistance to change and conflicting policies and standards pose immense pressure for the companies to move forward. According to an E-Procurement service provider, Malaysians are not ready for the Multimedia Super Corridor (an advanced local cyberspace project), because of the lack of technical expert competency, especially in highly technical skills in the area of Computer Networking System and ATM technology. Thus when dealing with technical issues in the discussion with International vendors, the local engineers may be lacking in support of arguments, losing control in the implementation and contributing less to solve the problem. Lastly, the vendors may bring more external expert to support them and as a result there will be an increase in cost.

Besides that, the biggest challenge among other challenges facing the buy-side community is when suppliers are not willing to share the information openly with all the members of the supply chain by providing all information into the E-Catalog. A buyer may be trapped in a situation when he compares the products costs without knowing the details in the quality specification as well as a good delivery time option.

In conclusion, while the effort still remains costly to some, businesses try to improve their E-Procurement processes. They adopted a long-term plan, as they believe that E-Procurement will appear to be a strategic approach of purchasing activity, particularly in the reducing transactional costs and pricing for their products. This research concluded that E-Procurement allows firms to expedite the purchasing process, and thus resulted in a more efficient supply chain management.

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