E-Procurement

At the present time, developments in information technologies, the changing world economy, the rapid commercialization of the internet, the globalization of business life, the importance of customer value and the increasing need to create a customer database are important factors that drive radical changes in business functions.

Procurement, with the most general state of it, can be defined as the process to obtain quality in the right time and the right price from the right resource.

Procurement and supply are generally considered as synonymous concepts. Supply is much more comprehensive than procurement that expresses purchasing goods and service in exchange of money or any payment. The concept of supply is a process including the concepts of power and loot, in which there are different ways of obtaining something.

E-procurement has become one of the most important functions of business activities. Particularly, fast communication enables the required materials to be immediately supplied, production process to shorten, and products to be introduced to market in the shortest time.

E-procurement process supports supply and resource activities through internet technologies and provides an effective negotiation between purchasers and suppliers.

The largest effect of the internet on the supply process is information sharing, because this process includes collecting, sharing, and storing a large amount of information and data. In this process, information sharing becomes a key issue. Businesses, thanks to e-procurement applications, readily and quickly reaching the previous data, can obtain important information to make better decisions

In order to meet their material requirements, businesses use two different ways. One of them is supplying materials as raw materials which means the materials are unprocessed and all production processes are realized by the organization. In the second way, suppliers send raw materials to businesses as semi-products which means the material is processed but not finished.

A typical procurement process begins with the definition of procurement needs according to the demand of the final consumer of business (Presutti, 2003: 220) and it ends with the report of receiving the good in a satisfied way by the procurement department

In industrial procurements and e-procurement, the process is executed as follows (Zenz, 1994: 10-13; Dobler and Burt, 1996: 62). • Needs Recognition • Needs Identification • Source Selection • Price Comparison • Placing an Order • Order Follow-up • Keeping Records • Professional Supplier Relationship

Source Selection

The next step in the procurement process is to select resource/s (for the element demanded). For most procurements, there are many comparable alternatives. In inventory selection, the main criteria are price, service, delivery, and quality (Zenz, 1994: 11). While identifying and evaluating user needs, it is important to distinguish between demand and desires. Demand for goods and services are critical features for users. Desires are uncritical, therefore, discussible areas. In this stage, it is important to select supplier resources which meet user demands

Procurement department, reduces business activities, increases savings, establishes sustainable relationships, and encourages innovation. It increases quality and prestige, plays a role in product design and introduction to the market, and makes contribution to competitive advantage. Although there are many activities provided advantage to business, the most remarkable one of these is reduction in costs. The remarkable point here is how such a function reduces millions of dollars and costs

In order to be successful in quality management, there are four functions: identifying standards, assessment, control, and security.

The benefits of procurement functions can be given as follows (Nair et al., 2015: 6263; Carr and Smeltzer, 2000: 41; Fiesel vd., 2003: 9). • It has a direct effect on inter-business competitive advantage. • It makes it possible to provide advantages about reducing cost • It presents an opportunity to increase profitability. • Cost limiting provides large benefits about quality, delivery, flexibility, and innovation • Increasing purchasing skills provides an important advantage for the effectiveness of businesses. • Raising qualified staff about procurement makes contribution to organizational performance.

E-procurement strategies come into existence as a strong instrument in reaching the target of cost reduction and increased effectiveness. Facilitating offers and order processes, while helping new product introduction accelerate for increasing the product incomes of producers and enhancing customer satisfaction, also reduce direct material costs which in turn leads to an increase in profit

Wait and See Strategy:

Most businesses adopt wait and see strategy. Businesses that adopt this strategy are aware of the developments but do not commit resources or invest selectively until the best e-procurement model is identified. These kinds of strategies reflect active experimentation; however, until identifying the best e-procurement model, there is no considerable investment.

In the existing market, there are generally seven basic e-procurement models. Before putting an e-procurement solution into use, restructuring procurement processes of business are considerably important and necessary. All e-procurement models try to solve similar business problems. E-procurement models were categorized by Kalakota and Robinson (2000a: 362) as follows: 1. EDI (electronic data interchange) Networks 2. Demand Applications from Businesses to Employee (B2E) 3. Institutional Supply Portal 4. First Generation Commodity Exchanges (communities and offer demand facilitators) 5. Second Generation Commodity Exchanges (virtual distributors and open bidding centers) 6. Third Generation Commodity Exchanges (Commodity Cooperation Centers) 7. Industrial consortiums (Joint Enterprise Supply Centers

Virtual distributors, arranging a single procurement order and directly dividing the product into each supplier related to the sender, help supply chain facilitation and transaction cost reduction. Most of them begin to add richer services from receiving order to follow up inventory such as forming a network with software performing back end processes of a company.

Inter-business open biddings: Inter-business open biddings through the internet are the activities more than one purchasers give offer to purchase goods and services on an internet site. There are various e-open bidding formats. The two most popular open bidding forms are Dutch open bidding (in which purchasers control minimum offer and prices upwardly move from minimum offer) and opposite open bidding (in which purchasers publish “offer demands” and sellers reduce price).

Attaran and Attaran (2002: 18) divide advantages of e-procurement into three different categories. These are institutional changes and strategic advantages that are related to market advantages; opportunity advantages, developed with the existing and even new suppliers and related to discovered relationships; and operational advantages meaning cheaper and more effective procurement processes.

Disadvantages of e-procurement can be generally put in order as follows (Rankin et al., 2006: 83); • In this system, data are obtained from internal catalogues that are often updated. Provided that there is no effective follow up system, disadvantageous cases can be led to. • Data taking place in e-procurement systems include prices of materials, and these prices and even discounts should be regularly updated. In case that system is not continuously updated, problems for business can arise. • Prices, discounts, wages, and values continue to vary, and all of these should be often controlled. Due to lack of control, problems can occur in the system. • That main service providers are not operating for a time or, due to interruptions in internet, system is not supported, and work stops. • Long repayment times may form a disadvantage. • Due to technological troubles, technical problems can occur. • In unexpected cases such as costs, time, and etc., some confusion can occur in business. • Due to communication difficulty between potential purchasers and suppliers, impediments can be met.