Procurement today is typically a low-tech affair. In most companies, it involves paper catalogs, paper forms, fax machines, FedExes, snail mail and lots and lots of phone calls to check price and availability or to collect information about prospective suppliers. Few companies involved in business-to- business (B2B) purchasing have software systems to support procurement specialists in making the process strategic.
But the Internet changes everything, even procurement. A "New Procurement" is slowly arising that brings the process online to speed it up, make it consistent and enlighten it with complete and up-to-date information.
THE HURWITZ TAKE: Following are some trends and attributes that define the New Procurement.
- Plug-and-play partners for procurement. For companies embroiled in a supply chain, one of the goals of bringing procurement online is to more fluidly take advantage of commodity pricing for some kinds of supplies. This means "plugging and playing" suppliers (many previously unknown) into your procurement information system as they produce the lowest bid.
- Negotiations versus catalogs. Plug-and-play procurement only works for goods and services that can be commoditized. In the New Procurement, commoditization usually means that the product can be expressed in an online catalog. For sourcing that is too complex, mission critical, legally liable or simply new to the company, an online collaborative environment for negotiating replaces the catalog.
- Information standards for procurement. Dun & Bradstreet's D-U-N-S Numbers serve as a de facto standard for uniquely identifying a supplier's business. The United Nations' Supplier Product and Services Classification (UN/SPSC) codes categorize each supplier according to the type of product or service provided and industries served. The D-U-N-S and UN/SPSC codes enable procurement specialists to compare similar suppliers to see which is best for price, dependability or quality. Without these information standards, you may be comparing apples to oranges.
- Cost of online procurement. Enabling technologies for online procurement today include electronic document interchange (EDI) and extensible markup language (XML). EDI has been very pricey in the past, which has prevented many small to mid-size suppliers and manufacturers from implementing it. As EDI adapts to the Internet (and no longer demands an expensive dedicated network), the price of EDI will come down. XML-based systems, which are simpler to implement and maintain than EDI, are already offering a low-cost alternative to EDI. As these enabling technologies bring down the cost of online procurement, more suppliers and corporate consumers will come online.
- Internet trade exchanges (ITEs). EDI and XML-based systems are good for direct B2B purchasing. ITEs have arisen as an intermediary for corporate purchasing that helps manage the process, dictate information exchange standards, and bring potential partners together in an online business community.
- Optimizing procurement with analysis. Data analysis is the only way to evaluate the supplier landscape, assess risks with particular suppliers, quantify corporate spend, and rank suppliers by their performance. Organizations bringing procurement online should demand an analytic component to optimize it.
Hurwitz Group notes that many forward-looking companies are already conducting the New Procurement by purchasing online and analyzing procurement data to optimize the process. Other companies need to embrace online procurement to prepare for the "B2B frenzy" that's coming in 12 to 18 months as plug-and-play partnering becomes common.
NOTE: For a live discussion of the New Procurement, attend the web cast "Learn the Secrets of Successful Supplier Relationship Management" on August 30, 2000 at 12:30pm EDT. Register online at: http://www.sas.com/news/events/webcast/suppliers/webcast3.html
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