Procurement by Akhtar Khan

A logistics and supply chain management project on,

PROCUREMENT

by,AKHTAR KHAN

This is

A logistics andSupply Chain Management

project based on,

PROCUREMENTSubmitted By,

Akhtar Khan

“Knowledge is the food of the soul.”-Plato

PROLOGUELogisitcs and supply chain management one of the very important aspect of current management principles which has lately gained more and more importance. There are varied steps involved in Logistics and supply chain Management one of them is Procurement. In this project we are focusing on the procurement aspect of Supply chain management

The project covers all the topics related to business procurement. Procurement or purchasing activity encompasses all spending activity, excluding payroll, and often represents more than 50 percent of all expenditures. Thus it is a crucial component in every business organization.

The process of gathering information and studying the topic was more than interesting it is undertaken by Akhtar Khan, belonging to T.Y.B.M.S./B. presented to our Esteemed Prof. Mr. Chougule

I put my best foot forward in-order to make this project a very interesting one. The systematic flow of information and the comprehensiveness of the topics are my selling points to demand maximum marks.

Martin H. Fischer stated “Knowledge is a process of piling up facts; wisdom lies in their simplification.” this is the guiding line for the construction and completion of this project.

Finally a heartfelt gratitude to our Prof. for giving us such an important topic to study and providing timely guidance whenever I sought it.

-Author

AN OVERVIEWPROCUREMENT: IN A NUTSHELLEvery organization that purchases goods or services has standard procurement procedures, the methods they use to acquire those things. These procedures cover all aspects of the procurement cycle, including the selection of the supplier, contract negotiations, order placement and payment. All firms have procurement procedures, and they are used to control spending activity, ensure appropriate approvals are in place and reduce the risk of overpayment. Procurement or purchasing activity encompasses all spending activity, excluding payroll, and often represents more than 50 percent of all expenditures.The primary driving force for the development of procurement procedures is to control all spending. The actual procedures used can vary slightly but will be similar. An appropriate approval process usually involves a separation of tasks and the involvement of senior managers for transactions that will cost more than a specific price. Another standard procurement procedure is to limit access to the purchase order forms and require signed authorization from a manager other than the person using the goods. This separation of the goods recipient and the approval is designed to ensure that a senior staff member is aware of the order and can confirm that the materials are required and will be used for the proper purpose.Another common procurement procedure is to create a short list of pre-approved vendors for specific commodities. Vendors are added to the list through a bidding process that is conducted on a scheduled basis. This process is designed to be transparent and to provide the firm an opportunity to obtain discounts in price, to meet quality standards and to ensure timeliness of delivery.The risks for a company without proper procurement procedures are overspending and the failure to achieve good value and purchasing fraud. Many people who do not have any accounting or procurement training resent the steps involved in a purchasing request. These processes, however, are designed to save both time and money.Other common procurement procedures include setting value thresholds that trigger different procurement activity. For example, purchases that cost more than a certain amount might require a purchase order to be approved by two levels of management. A purchase order for a much higher price might require a proposal to be issued.

CONTENTS

1. Introduction 1

2. Logistics and Supply Chain Management 2

3. Procurement 9

4. E- Procurement 17

5.Industry information 33

6. Green Procurement 39

7. IT Procurement 46

8. Conclusion 50

2.1 Logistics2.2 Supply Chain Management2.3 Supply Chain Management components

3.1 Procurement Department3.2 Procurement Process3.3 Procurement Planning3.4 Procurement Policy3.5 Procurement Procedures3.6 Purchase order3.7 Purchase order Financing

4.1 ARIBA: The pioneer in E-procurement4.2 Types4.3 E-Procurement Value chain4.4 Advantages4.5 Disadvantages4.6 Vendor Managed Inventory4.7 E-Procurement Trends4.8 Why E-Procurement

5.1 Chugoku Electric power5.2 NTT Docomo5.3 SEAM

6.1 Challenges to Green Procurement6.2 Implementing Green Procuremnt6.3 Case Examles6.4 Sharp’s way of doing it

7.1 development of the framework7.2 The IT Procurement processes

Logistics and supply chain management is a very recent terminology. Earlier companies did not pay much attention to its logistics management thought it being a very crucial part in a firm’s success. It was some 20 years ago that the business organizations and management gurus realized its importance. Since then logistics has gained a widespread importance in the business world. The subject is interesting and plays an important part in a firm’s functioning. There are a wide range of topics in the subject of Logistics management. This study focuses on one of the most important step i.e. Procurement.

Procurement is nothing but The range of activities associated with the buying of goods and services to support business operations. When talking about procurement, planning is the first and most important step in the whole process. Planning involves selecting missions and objectives and the actions to achieve them; it requires managers to choose among alternative future courses of action. Plans thus provide a rational approach to preselected objectives.Planning bridges the gap from where we are to where we want to go. It makes it possible for things to occur which would not otherwise happen. Although we can never be sure what will happen in the future, and factors beyond our control may interfere with even the best-laid plans, if we don't plan we are leaving events to chance. And that is quite risky when talking about business operations. One wrong step and your business is history.

This study guides you on what Logistics management is, takes u through the various steps involved in the procurement procedures and updates you about the recent development in the field of procurement like e-procurement and outsourcing.

CHAPTER 1

INTRODUCTION

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A project study on Procurement by Akhtar Khan

2.1 LOGISTICSLogistics is a very integral of every business organization. earlier this aspect of management was sidelined. Business organizations did not payed much attention towards it. However today it is considered as a very crucial part of a firm’s smooth functioning. Logistics and supply chain management has made its way into almost all books of management and business functioning. It involves various steps, and Procurement is one of them. This project mainly deals with only that aspect of Logistics management. Before getting into the details of procurement let us study what Logistics and supply chain management actually means.

Definitions:“Logistics is defined as a business planning framework for the management of material, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment.”

-Logistix Partners Oy, Helsinki, FI, 1996

“The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements." Note that this definition includes inbound, outbound, internal, and external movements, and return of materials for environmental purposes.

-Council of Logistics Management

CHAPTER 2

LOGISTICS ANDSUPPLY CHAIN MANAGEMENT

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“The procurement, maintenance, distribution, and replacement of personnel and materiel.”

-Webster Dictionary

Thus from the above given explanations we get a glimpse of what Logistics management is. Webster’s definition is very comprehensive whereas the definition given by The Council of logistics management is complete and covers everything.

Logistics systems are often described as a network of nodes and links describing an interconnected web. Wandel and Ruijgrok (1995) establish the basic notion of networks and the correlation between the descriptions of the transport industry as a network. The correlation between the infrastructure, the resources that move on the infrastructure and constitute the transportation exists.

Logistics as a business concept evolved in the 1950s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for experts called supply chain logisticians. Business logistics can be defined as "having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer", and is the science of process and incorporates all industry sectors. The goal of logistics work is to manage the fruition of project life cycles, supply chains and resultant efficiencies.In business, logistics may have either internal focus (inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (see supply chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions to coordinate resources in an organization. There are two fundamentally different forms of logistics: one optimizes a steady flow of material through a network of transport links and storage nodes; the other coordinates a sequence of resources to carry out some project.

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2.2 SUPPLY CHAIN MANAGEMENTThe concept of Supply Chain Management is relatively new and in this chapter we seek to provide a basic understanding of the origins and components of Supply Chain Management.

Supply Chain Management as a concept has been widely accredited to a Booz Allen consultant named Keith Oliver who in 1982 defined the concept as follows: “Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption”.

This seems to be the earliest published definition and therefore places the concept of Supply Chain Management at approximately 26 years old. We can see that “Supply Chain” without the “Management” is referenced in the definition, so we know that the general idea of a supply flow through a business was recognised prior to Olivers definition. What Oliver really captured was the conscious and deliberate control, integration, and management of the business functions contributing to, and affecting that supply flow through the business, for the purpose of improving performance, costs, flexibility etc, and for the ultimate benefit of the end customer.

The concept has been defined in simpler terms since that time and is often captured with five words: Plan, Source, Make, Deliver, Return.Both of these definitions allude to a manufacturing origin but of course Supply Chain Management is as relevant to service, retail, distribution, and most other types of companies as it is to manufacturing.

The area of Supply Chain Management has enjoyed a meteoric rise in significance over the last twenty to thirty years as businesses have tried to establish advantage, and felt the pressure to keep up, in an increasingly homogeneous and competitive global business environment.

Japanese manufacturing companies brought great emphasis to the area of Supply Chain Management in the 1980's and early 1990's. Awareness of Supply Chain Management tools such as “Just In Time” and “Kan Ban” spread

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rapidly and became globally accepted best practice amongst volume manufacturing businesses. Western businesses raced to keep pace with a rapidly changing environment, dragging their supply bases, and sometimes employees behind them.

At the same time companies like SAP and Oracle were developing the complex IT systems that would be essential for enabling large complex businesses to effectively integrate and managing the sub areas that combined to make complex supply chains.Of course the elements of Supply Chain Management have always existed in business. What changed was the willingness of businesses to recognise the inter-relationship of the various sub areas, and to pursue the benefits generated through coordination and integration, both from a strategy / planning perspective and operationally.

The sub areas comprising a supply chain include:?Forecasting/ Planning?Purchasing/ Procurement?Logistics?Operations?Inventory Management?Transport?Warehousing?Distribution? Customer Service

Today, Supply Chain Management is an accepted term in our business glossary. However, it is difficult to find a standard model of Supply Chain Management operating in the business community. We continue to see variations on the theme. Some business will refer to and manage their supply chains in a coordinated and all encompassing fashion, including all of the sub areas defined above. Others will integrate some elements of the supply chain, for example purchasing and logistics and call this Supply Chain Management. Many will refer conceptually to Supply Chain Management, but only address it specifically at the general management level.One area of confusion arises because Supply Chain Management is both a horizontal business function (i.e. managing the supply chain in a business), and a vertical industry sector (i.e. businesses involved in managing supply

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chain in a business), and a vertical industry sector (i.e. businesses involved in managing supply chains on behalf of their clients). A company like TDG operates as a supply chain services provider, within the vertical supply chain industry sector. But each of the clients serviced by TDG will employ supply chain staff within their business operating on a horizontal basis across their organisation. The “supply chain industry” sector as the vertical is often referred to, is largely restricted to transport and storage type operations. Distributing products on behalf of clients. Whereas, the horizontal supply chain functional areas encompass the entire supply chain spectrum across a business.Supply Chain Management has matured from a compelling method of deriving competitive advantage, to a “ticket to ride”. Its is now a baseline expectation for any company wishing to compete in the 21st Century, and with that the professions and occupations comprising Supply Chain Management are now firmly entrenched in the armoury of essential business executives.

2.3 SUPPLY CHAIN MANAGEMENT COMPONENTSThe sub areas comprising Supply Chain Management are defined further below:Forecasting / PlanningAll business need to forecast and plan. To look forward and predict what will be required in terms of resources and materials in order to deliver their product or service to their customer in a timely manner.In this area we find activities such as demand planning, inventory planning, capacity planning ,etc

Purchasing / ProcurementThe commercial part of the supply chain is purchasing. Otherwise known as Buying or Procurement. This is where a business identifies suppliers to provide the products and services that it needs to acquire in order to create and deliver its own service or product. Costs and terms of business are negotiated and agreed and contracts created.Thereafter the suppliers performance and future contractual arrangements will be managed in this area.This area of the business is sometimes referred to as purchasing, sometimes, procurement, buying, sourcing, etc. However, all titles relate to the acquisition of materials and services.

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The difference between purchasing and procurement is largely academic as, whilst there is a theoretical difference between them, businesses use the titles interchangeably for the two variations of activity. You will for example find manufacturing companies with purchasing departments that are actually doing procurement roles, and you will find service based organisations with procurement departments but in fact doing purchasing roles. In its strictest definition purchasing is limited to the actual commercial transaction and no more, whilst procurement includes the wider elements of the acquisition, including logistics and performance management.

LogisticsIn its strictest definition logistics refers to the movement of goods or materials, whether inbound, through, or outbound.In some manufacturing businesses forecasting and planning will be found within a logistics department, in other businesses logistics will be exclusively managing the movement and transportation of goods and materials.

OperationsOperations is a general management type activity ensuring that a business uses its resources effectively to meet its customer commitments. Usually referring to the conversion activity of the business, i.e. the point where the acquired resources and/or materials are converted into the product or service that the business is selling on to its customers.

Inventory ManagementSometimes found within Logistics Management, or Demand Planning or Operations, Inventory Management typically takes responsibility for both the replenishment of physical stock, the levels of physical stock, and of course storage and issue of physical stock. Stock may be materials and goods sourced from suppliers, work in progress, or finished goods awaiting sale/dispatch.

TransportTransport management can involve the control of a company owned fleet of vehicles, collecting, moving, or delivering materials and goods, or managing transport services sourced from a 3rd party transport provider.

WarehousingLike transport management, warehousing can involve the control of company


warehouse space, or managing warehouse space sourced from 3rd party providers.DistributionDistribution involves the physical distribution of the company's products to the sub-distributor or directly to the customer base. Typically this is a combined transport and warehousing operation, responsible for storing and delivering products to meet the customers needs. Again this combined activity will often be placed with a 3rd party service provider who will control and implement the processes.

DistributionDistribution involves the physical distribution of the company's products to the sub-distributor or directly to the customer base. Typically this is a combined transport and warehousing operation, responsible for storing and delivering products to meet the customers needs. Again this combined activity will often be placed with a 3rd party service provider who will control and implement the processes.

Customer ServiceMost people do not recognise customer service as part of supply chain management, but it is in fact the final piece in the jigsaw. Having taken the business inputs, created and delivered a product or service, the final element is to check that the customers expectations were achieved, and manage any actions necessary to meet your customer obligations and commitments.

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As we have studied in the earlier chapter Procurement is one of the stages involved in the Logistics and supply chain management. It is the commercial part of the supply chain is purchasing. Otherwise known as Buying or Procurement. The purchase is the main activity in the area of Materials management. It is defined as the single largest function in any organization. this is the place where money is spent out of the organization.

THE 7 R’s OF PURCHASE 1) buying the material at right price 2) buying materials of right quality 3) in the right quantity 4) at he right time 5) from the right source 6) at the right place 7) with right mode of transport

Every organization that purchases goods or services has standard procurement procedures, the methods they use to acquire those things. These procedures cover all aspects of the procurement cycle, including the selection of the supplier, contract negotiations, order placement and payment. All firms have procurement procedures, and they are used to control spending activity, ensure appropriate approvals are in place and reduce the risk of overpayment. Procurement or purchasing activity encompasses all spending activity, excluding payroll, and often represents more than 50 percent of all expenditures.

CHAPTER 3

PROCUREMENT

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Definitions:“Acquisition of goods (materials, parts, supplies, equipment) required to carry on an enterprise. Procurement expenses can be a major cost of doing business.”

-The Business dictionary

Procurement is the process by which the resources (goods and services) required by a project are acquired. It includes development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts.

-www.apm.org.uk/Definitions.asp

“Procurement is the process of acquiring goods, works and services, covering both acquisition from third parties and from in-house providers. The process spans the whole life cycle from identification of needs, through to the end of a services contract or the end of the useful life of an asset. It involves options appraisal and the critical 'make or buy' decision.”

-National Procurement Strategy, UK

Thus procurement is the process of obtaining the required goods. it includes various aspects but especially in business it deals with the procurement of raw materials and other services. it is a very crucial step in logistics and supply chain management.

3.1 PROCUREMENT DEPARTMENTA procurement department is responsible for managing the purchasing activity for the organization. There are two types of purchasing or procurement departments: centralized and decentralized. In a centralized model, all requests for materials or goods are center to this department. In a decentralized model, individual departments can process their own purchases.Regardless of the organizational model used, procurement activity is subject to more scrutiny and review than any other process. The use of company resources to purchase goods and services must be based on adherence to specific policies and procedures to reduce the chance of fraud or theft. Typically, the type of activity is monitored by the accounting department and internal audit.

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In a procurement department, the director is responsible for strategic planning, policy development, and providing procurement advice to senior management. Most organizations have procurement officers responsible for managing the request for proposal process, bid tendering, and other related processes. The most junior position in a procurement department is buyer. A buyer is typically responsible for a specific commodity or product type. He or she issues purchase requisitions and orders to approved suppliers, based on internal needs.The main purpose of a procurement department is to manage the process used for the purchase of goods and services by the organization. Advanced planning, group buying, and negotiated pricing are all strategies used to reduce costs and increase profitability. In most organizations, the implementation of procurement strategies is used to reduce overhead and operational costs without compromising on service to customers.

3.2 PROCUREMENT PROCESSProcurement is the complete process of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the invoice for payment. Also called sourcing, it commonly involves 1) Purchase planning 2) Standards determination 3) Specifications development 4) Supplier research and selection 5) Value analysis 6) Financing 7) Price negotiation 8) Making the purchase 9)Supply contract administration 10) Inventory control and stores 11) Disposals and other related functions.

3.3 PROCUREMENT PLANNINGProcurement planning is the process used by companies or institutions to plan purchasing activity for a specific period of time. This is commonly completed during the budgeting process. Each year, departments are required to request budget for staff, expenses, and purchases. This is the first step in the procurement planning process.

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The budgets for all the departments are then reviewed, and in an organization that is committed to procurement planning, the accountants spend the time to find common purchasing requirements. Based on the budgets submitted, they may direct departments to work with central purchasing to combine their planned spending for specific commodities. This process works best in an organization that is committed to reducing costs. Issues surrounding delivery dates, contract compliance, and customer service issues must be resolved internally before going out to contract.

an organization that is committed to reducing costs. Issues surrounding delivery dates, contract compliance, and customer service issues must be resolved internally before going out to contract.

The primary concept of procurement is that advanced planning, scheduling, and group buying will result in cost savings, more efficient business operation, and therefore increased profitability. There are four steps that form the basis of procurement planning: group buying, just in time delivery, negotiated bulk pricing, and reduced administrative overhead.

Group buying is the process of combining the total resource requirements for different departments and creating one purchase order. The departments can be physically located in a range of buildings, with the delivery dates, quantities, and conditions listed in the purchase order. This practice is increasingly common in government and public sector firms, where the same item can be purchased for a range of different institutions.

Just in time delivery is a central component of procurement planning. Under this model, the cost of storage is carried by the supplier. They are responsible for ensuring the purchased quantities of materials are ready and available for delivery at the specified dates and times. This type of delivery requirement is typically combined with group buying, keeping storage costs down.

Bulk pricing and negotiating is very important when completing procurement planning. Organizations that combine the total quantity required for a specific period of time are able to get lower pricing, based on a specific level of ordering. Negotiations are typically completed by the procurement director or senior buying agent.

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3.4 PROCUREMENT POLICYA procurement policy is simply the rules and regulations that are set in place to govern the process of acquiring goods and services needed by an organization to function efficiently. The exact process will seek to minimize expenses associated with the purchase of those goods and services by using such strategies as volume purchasing, the establishment of a set roster of vendors, and establishing reorder protocols that help to keep inventories low without jeopardizing the function of the operation. Both small and large companies as well as non-profit organizations routinely make use of some sort of procurement policy.

There is no one right way to establish a procurement policy. Factors such as the size of the business, the availability of vendors to supply necessary goods and services, and the cash flow and credit of the company will often influence the purchasing procurement approach. The size of the company is also likely to make a difference in the formation of procurement policy, in that a small company may not be able to command the volume purchase discounts that a large corporation can manage with relative ease.

In like manner, the circumstances and financial goals of the business or entity influence the selection of procurement systems. Some systems are simple manual processes that make use of older methods such as a flip card system to track purchases, issuance of items to various departments, and a running tally of inventory that is used to plan future purchases. Today, electronic systems make it possible to automatically track all these functions, include automatically generating requisitions and purchase orders when levels of a given inventory item are down to a certain level.

E-procurement is a common way of placing and tracking orders today. Vendors establish network connections with clients that make it possible to interline with any procurement programs used by the client and automatically place orders, using the Internet to establish the connection. Programs of this type also make it possible to quickly track order fulfillment, delivery dates, and even review any procurement contracts that are currently in place.

Whether the procurement policy involves the establishment of construction procurement procedures, or governs purchases made by a manufacturer or a charity, a solid policy will benefit the organization by keeping costs in line and

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clearly defining how purchases will be made. As the needs of the entity change, there is a good chance that the procurement policy will be adjusted to meet those new circumstances. This is necessary to make sure the policy continues to function in the best interests of the company or non-profit organization and keep the acquisition process simple and orderly.

3.5 PROCUREMENT PROCEDURESEvery organization that purchases goods or services has standard procurement procedures, the methods they use to acquire those things. These procedures cover all aspects of the procurement cycle, including the selection of the supplier, contract negotiations, order placement and payment. All firms have procurement procedures, and they are used to control spending activity, ensure appropriate approvals are in place and reduce the risk of overpayment. Procurement or purchasing activity encompasses all spending activity, excluding payroll, and often represents more than 50 percent of all expenditures.

The primary driving force for the development of procurement procedures is to control all spending. The actual procedures used can vary slightly but will be similar. An appropriate approval process usually involves a separation of tasks and the involvement of senior managers for transactions that will cost more than a specific price. Another standard procurement procedure is to limit access to the purchase order forms and require signed authorization from a manager other than the person using the goods. This separation of the goods recipient and the approval is designed to ensure that a senior staff member is aware of the order and can confirm that the materials are required and will be used for the proper purpose.

Another common procurement procedure is to create a short list of pre-approved vendors for specific commodities. Vendors are added to the list through a bidding process that is conducted on a scheduled basis. This process is designed to be transparent and to provide the firm an opportunity to obtain discounts in price, to meet quality standards and to ensure timeliness of delivery.

The risks for a company without proper procurement procedures are overspending, the failure to achieve good value and purchasing fraud. Many people who do not have any accounting or procurement training resent the

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the steps involved in a purchasing request. These processes, however, are designed to save both time and money.

Other common procurement procedures include setting value thresholds that trigger different procurement activity. For example, purchases that cost more than a certain amount might require a purchase order to be approved by two levels of management. A purchase order for a much higher price might require a proposal to be issued.

In some cases, companies might be required to defend their purchasing contracts. If a vendor who participated in the bidding process feels that they were not provided a fair opportunity to compete, a lawsuit can be filed. Contract law is a source of a great deal of legal activity, and firms with strong procurement procedures are in the best position to defend their business decisions.

3.6 PURCHASE ORDERDefinition: “A purchase order is a document sent to a supplier or vendor, authorizing shipment of a product to the customer at a specified price and terms. The creation of a purchase order creates a legally binding contract which cannot be changed without the consent of both parties.”

Also known as Purchase Requisition A customer may sometimes create an open or standing purchase order which allows the customer to order quantities of the product(s) from the vendor over a period of time (usually a year) at the specified price. Open POs are often used for services which occur over a period of time.

The typical sections of a purchase order are:?Date?The purchase order number?Names and addresses of both the customer and the supplier/vendor.?Description of the items being ordered, the cost for each, and the total amount.The PO number is an important reference for both the customer and the supplier.

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Eprocurement is the term used to describe electronic methods of conducting business transactions. The 'e' in eprocurement stands for electronic. Eprocurement can be used in every stage of the process. It can begin with the actual sale coming through to the purchaser and end with the customer's invoice and payment.

With the advent of the Internet, many businesses now sell only via computer technology. It is an excellent way for businesses to cut overhead costs and reach a larger customer base. Eprocurement is not only beneficial for businesses; customers can also find this method of purchasing advantageous. They have a wider choice of merchandise and can shop without leaving their home. With a little web research, they can easily find the lowest price when purchasing goods.

Definitions:“Purchasing process over Internet: the performing of all steps for procurement over the Internet, including ordering, payment, and delivery”

-encarta dictionary

“E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, Work and services through the Internet as well as other informations and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning.”

-Baily, P. J. H.Procurement principles and management

CHAPTER 4

E- PROCUREMENT

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Specific benefits for a business using eprocurement include modernization, which brings the workplace up to date with the latest marketing and selling methods. It can also help departments manage their supply chain more efficiently. Eprocurement also opens up a diverse range of markets, including tendering bids and reducing costs on government contracts.

An easy to recognize web business that utilizes eprocurement is ebay. Businesses or individuals sell their products on this web site to the highest bidder. Sellers can also advertise a ‘buy it now’ price which customers can accept for purchase without bidding. Once the sale is complete, you can pay by credit card, with a Paypal account or via your bank account.

This type of buying and selling reaches the widest possible marketplace. Many people run businesses from web sites like these. There are little or no overhead costs, but you may need to purchase software applications such as epayment. Epayment is a software tool which deals with electronic invoicing and self-billing. Such software is relatively cheap, and once it is in place the billing procedure takes care of itself.

Eprocurement does not just deal with sales and purchasing. With today's Internet capabilities, it has never been easier, or cheaper, for businesses to market and advertise their products. Instead of costly and time consuming mail shots, a single email can be sent to many customers at a fraction of the price. Even business conferences with staff based all over the world can take place electronically.

There are no limits to what businesses can do using the technology of eprocurement. Almost anything you can think of can be bought or sold using this process. Wholesale buyers can search electronic catalogues for goods, purchase their requisitions and send the goods to their suppliers. The time scales using eprocurement compared to previous methods are extremely quick. In today's fast paced consumer marketplace, no business can afford to underestimate the value of eprocurement.

E-procurement is done with a software application that includes features for supplier management and complex auctions. The new generation of E-Procurement is now on-demand or a software-as-a-service.

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4.1 ARIBA: THE PIONEER IN E- PROCUREMENT

Krach developed the idea of purchasing staff buying items from vendors who provided their catalogs online. Ariba supplied the software to create and host the vendor catalogs as well as the enabling software to purchase the items. In 1999 the company was one of the first business-to-business Internet companies to go public. At the time Ariba was challenged by a number of other players in the e-procurement area, such as Commerce One and Metiom.Ariba offers a spend management solution for company's purchasing requirements. Customers are offered a large number of supplier catalogs to purchase from. The number of vendors with catalogs on the Ariba Supplier Network is now over 160,000 with in excess of 80 million items. Two million purchase orders are sent to these vendors each month at a value of over $8 billion.The Ariba software allows a company to automate, monitor, and control the complete purchasing life cycle from requisition to payment. Users can create requisitions that are approved according to pre-configured business rules that each company decides upon. Purchase orders can be automatically generated and sent directly to suppliers, while order acknowledgements and ship notices are sent back to the original requestor.The invoicing process is simple for the suppliers who can create an invoice directly from the requestors purchase order. The invoices are pre-matched with the purchase order line items and any receiving information, so that the requestor reconcile and pay without delay.For those companies that use an ERP solution, Ariba can be fully integrated. However, Ariba offers its product as an on-demand solution. The “Software as a Service” (SaaS) model has been available from Ariba since 1999 and they offer a fully hosted, pay-as-you-go solution for those companies who require a fast implementation with low upfront costs and a low cost of ownership.

Ariba was founded in 1996 by Keith Krach, who created the idea of using the Internet to enable companies to facilitate and improve the procurement process. The typical procurement process was labor intensive and often costly for large corporation.

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4.2 TYPES There are seven main types of e-procurement:1) Web-based ERP (Enterprise Resource Planning): Creating and approving purchasing requisitions, placing purchase orders and receiving goods and services by using a software system based on Internet technology.2) e-MRO (Maintenance, Repair and Overhaul): The same as web-based ERP except that the goods and services ordered are non-product related MRO supplies.3) e-sourcing: Identifying new suppliers for a specific category of purchasing requirements using Internet technology.4) e-tendering: Sending requests for information and prices to suppliers and receiving the responses of suppliers using Internet technology.5) e-reverse auctioning: Using Internet technology to buy goods and services from a number of known or unknown suppliers.6) e-informing: Gathering and distributing purchasing information both from and to internal and external parties using Internet technology.7) e-marketsites: Expands on Web-based ERP to open up value chains. Buying communities can access preferred suppliers' products and services, add to shopping carts, create requisition, seek approval, receipt purchase orders and process electronic invoices with integration to suppliers' supply chains and buyers' financial systems.

4.3 E- PROCUREMENT VALUE CHAINThe e-procurement value chain consists of Indent Management, eTendering, eAuctioning, Vendor Management, Catalogue Management, and Contract Management. Indent Management is the workflow involved in the preparation of tenders. This part of the value chain is optional, with individual procuring departments defining their indenting process. In works procurement, administrative approval and technical sanction are obtained in electronic format. In goods procurement, indent generation activity is done online. The end result of the stage is taken as inputs for issuing the NIT.

Elements of e-procurement include Request For Information, Request For Proposal, Request for Quotation, RFx (the previous three together), and eRFx (software for managing RFx projects).


4.4 ADVANTAGES

which consumes a large amount of time and money. In some instances, the processing cost has been reduced by as much as 85%. E-procurement is a major component of modern B2B ecommerce and can be applied to a broad spectrum of industries and markets. Many firms have applied e-procurement successfully, reaping benefits often to the tune of millions of dollars. Experience indicates that a firm can enjoy returns that may measure up to 300% of the initial investment in just 3 years. The increasing number of success stories point to the growing recognition of e-procurement advantages. This indicates an increased optimism towards automation in spite of the slowing down of global economy. Some companies have adopted automation at all stages of the supply process to maximize e-procurement benefits.

E-procurement is mostly employed in purchasing small and less expensive items such as office stationery. The traditional approach is still preferred for more expensive products such as complex engineering machinery. However, companies are increasingly recognizing the benefits of online sourcing. Online procurement helps organizations to sketch out optimized plans for managing the supply chain. E-procurement advantages not only include saving money but also the simplification of the whole process. The optimized plans can be communicated quickly to the suppliers thereby reducing the cost and waste usually involved in the supply chain. The advantages of e-procurement include a reduction of overhead costs such as purchase agents, as well as improved control of inventories, and the overall improvement of the manufacturing cycle.

The Internet has emerged as a cost-effective and reliable medium for p e r fo r m i n g o n l i n e b u s i n e s s transactions. More and more companies are now adopting this medium for procuring their goods. E-procurement advantages primarily include saving money, time, and extra workload normally associated with paper works. The conventional procurement process usual ly involves lots of paper processing,

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Benefits for SMEsWhile e-procurement is undoubtedly beneficial to the large companies small and medium enterprises can also gain the benefit through it. There are a list of benefits gained through e-procurement the following are given below,?A better chance to widen your client base?Time-efficiency gains?The chance to market and sell your services to other eProcurement customers?Being paid more quickly because electronic invoicing is generally a more efficient way of billing clients?Potentially a higher level of buyer ordering accuracy, increasing overall efficiency?Ability to compete on a more level playing field with larger companies

From the other end, local councils also benefit because:?Paperwork should be slashed helping them analyse, obtain and respond to bids more quickly?Transparency is improved as all supplier bids using eProcurement systems should be traceable - so there should be a logical reason for opting for one supplier over another?eProcurement tools can help them measure the quality of the service once a supplier has been chosen?They are less likely to rely on a small pool of suppliers, therefore making it easier to change suppliers (which also means suppliers need to work hard to maintain their loyalty)

4.5 DISADVANTAGESThe introduction of e-procurement can meet some resistance, as it often runs counter to corporate culture; in most organizations, this empowers local business units. So a centralized procurement process will not always be welcomed by business managers who feel that some of their power has been taken away from them. Only when they see that there is a financial return do they become convinced that e-procurement can work.

Other disadvantages can include motivating end-users to adopt the new system, and educating suppliers.

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4.6 VENDOR MANAGED INVENTORYVendor Managed Inventory or VMI is a process where the vendor creates orders for their customers based on demand information that they receive from the customer. The vendor and customer are bound by an agreement which determines inventory levels, fill rates and costs. This arrangement can improve supply chain performance but reducing inventories and eliminating stock-out situations.

VMI and EDIWith VMI, the vendor specifies delivery quantities sent to customers through the distribution channel using data obtained from Electronic Data Interchange (EDI). There are a number of EDI transactions that can form the basis of the VMI process, 852,855 and the 856.

The first is the Product Activity Record, which is known as 852. This EDI transaction contains the sales and inventory information such as key product activity and forecast measures, such as?Quantity sold (R)?Quantity sold (units)?Quantity on hand (R)?Quantity on hand (units)?Quantity on order (R)?Quantity on order (units)?Quantity received (R)?Quantity received (units)?Forecast Quantity (R)?Forecast Quantity (units)

The EDI 852 information can be sent from the customer to the vendor on a weekly basis or more frequently in high-volume industries. The vendor makes the order decision based on this data in the 852 transmission. The vendor reviews the information that has been received from the vendor and an order determination is made based on existing agreement between the vendor and customer.Many vendors use a VMI software package to assist them in determining order requirements. VMI software can be part of an ERP suite such as SAP or be a standalone option such as products from Blue Habanero, LevelMonitor, NetVMI or others.

R

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The software will verify if the data as accurate and meaningful. It will calculate a reorder point for each item based on the data and any customer information such as promotions, seasonality or new items. The quantity of each item available at the customer is compared with the reorder point for each item at each location. This will determine if an order is needed and the quantities required.The second EDI transaction that is used in VMI is the purchase order acknowledgment, which is known as the 855. This EDI document sent to the customer contains a number of fields including;?Purchase Order Number?Purchase Order Date?Purchase Order Line item?Quantity?Price?Item Number?Description of Item?Freight Charge?Ship Date?

Some vendors supply an advance ship notice (ASN) to their customers to inform them of an incoming order, which is know as EDI 856. The ASN differs from the purchase order acknowledgement in both timing and content. The 856 is sent to the customer after the shipment has been made instead of at the time of the purchase order.

Why Use VMI?One of the benefits of VMI is that the vendor is responsible for supplying the customer when the items are needed. This removes the need for the customer to have significant safety stock. Lower inventories for the customer can lead to significant cost savings.

The customer also can benefit from reduced purchasing costs. Because the vendor receives data and not purchase orders, the purchasing department has to spend less time on calculating and producing purchase orders. In addition, the need for purchase order corrections and reconciliation is removed which further reduces purchasing costs. Cost saving can also be found in reduced warehouse costs. Lower inventories can reduce the need for warehouse space and warehouse resources.

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4.7 E- PROCUREMENT TRENDSReverse auctions are one of the most prominent trends in procurement today. While this approach to finding suppliers simply wasn't feasible a decade ago, today it has allowed both businesses and vendors to reap some significant benefits. In a reverse auction, the buyer creates a listing of the company’s specific project needs. For example, if the company needs to purchase spools of wire from a supplier, then the company would detail the exact specifications and quantity of the wire they required. The buyer then posts this listing of requirements and invites potential vendors to give quotes on the cost of fulfilling those needs. Essentially, the vendors are competing against one another so lower quotes have an advantage. At the end of the auction, the buyer then chooses a winner based on several important factors, including cost, delivery time, and vendor reputation.

Reverse auctions and their popularity have had a tremendous impact on both manufacturers and on suppliers. Manufacturers have been able to streamline the vendor selection process and have made it easier on themselves to select the right supplier for each project. These auctions have also played a critical role in the increase of offshoring. Reverse auctions have also forced suppliers to find new ways of staying competitive. Since price is not the only factor, vendors have been forced to bring more added value to their goods and services, such as extra warranties, training, or other options.

Despite their profound impact, reverse auctions aren't the perfect solution for every project. They do have some weaknesses, as well as a number of strengths that have caused them to become a dominant force in modern procurement. In order to determine whether reverse auctions are the best strategy for a business, both the pros and the cons need to be weighed.

Reverse auctions do offer a number of advantages. First, they do open up competition. Many manufacturers are today doing business with vendors they never knew existed a year ago simply because they were located on the other side of the globe. By allowing businesses to expand their horizons, reverse auctions have given them the tools to truly find the best and most affordable suppliers. Another strength of reverse auctions is that they speed up the entire procurement process. While before, the buyer has to create a complex RFP, distribute it to potential vendors, wait for their responses, then sift through each of their proposals individually in order to make a decision,


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today the entire process can be completed in 3-7 days instead of weeks or months.

Regardless of these benefits, reverse auctions still fall short in some areas. Because reverse auctions seem to emphasize cost over other qualifications, many buyers may choose the lowest bid only to find out that the shoddy workmanship, low quality products, and slow delivery times cost them more in the long run. Reverse auctions can also be detrimental to the supplier-buyer relationship that is essential for some goods. For example, if only a handful of vendors can provide the raw materials a company needs, and that company places the project up for auction instead of simply using its long-term vendor, chances are that they will lose the goodwill of that vendor and will find it difficult to work with them again. Furthermore, when only a small number of vendors can provide a specific good or service, reverse auctions do not always deliver cost savings and can sometimes cost the buyer more.

Most businesses feel that the strengths of reverse auctions outweigh their weaknesses, hence the reason why they are so popular. Another method of online procurement that works well in some industries is trade exchanges. In trade exchanges, a number of separate companies in a specific industry join together to create specifications for suppliers. Large suppliers are then allowed to participate in the vendor selection process. Unlike reverse auctions, which are open to almost any size vendor, trade exchanges are usually limited to the big players in the field. Many successful trading exchanges are often set up by several large players in an industry.

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4.8 WHY E-PROCUREMENT?The benefits to be achieved from an e-procurement initiative are significant and the business case for e-procurement is compelling for Queensland Local Government. With a number of cost-effective e-procurement solutions available today, the real bottom line is that councils purchasing sections cannot afford to miss this opportunity.

The Local Buy e-Marketplace solution offers immediate and substantial ROI. The dynamic purchasing environment allows buyers to transact in real-time with vendors for goods and services. It streamlines and automates the purchasing processes, distributes purchasing power to authorised users, standardises buying methods, controls overall spending and leverages corporate purchasing to negotiate better deals. The result is increased productivity, greater efficiency, less maverick buying, and lower transaction costs.

The numbers speak for themselves. A Deloitte Consulting survey found that companies expect to save 5-15% of total corporate spending by investing in e-procurement initiatives. The research firm Aberdeen Group reports that with e-procurement, transaction-processing costs may drop by 70%, from an average of $107 to $30 per order. And industry experts from PriceWaterhouseCoopers and Killen & Associates claim that reducing purchasing costs by 5-10% can increase profit margins, or in respect of Local Government, cost effectiveness by 28-50%.

1.The Elimination of Administrative CostsImplementing the Local Buy e-Marketplace automates much of the administration involved in purchasing, making it a truly paperless process. Procurement has traditionally been regarded as a complex paper chase running throughout an organisation. Relieving staff of the administrative burden and automating key tasks saves them time and therefore saves the council money.

Requisitioning officers are often staff in departments outside of purchasing who simply have a need for goods or services to perform their daily duties. All too often they spend a great deal of time filling in paper-based forms, passing them on for authorisation and then chasing the authorisers or purchasing department.

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The e-Marketplace offers requisitioners a very quick and simple means of raising a requisition directly on-line, which is then automatically routed to the necessary authorisers and then converted into a purchase order and electronically transmitted to the supplier. These orders can then be automatically integrated into the council financial management information system (FMIS) to enable the receipting and payment functions to be completed.

In many medium to large councils, the saved time and effort can equate to thousands of person-hours every year. This saved time enables procurement staff to begin implementing a more strategic approach to purchasing and enables end users to get on with their specific roles.Many councils using paper-based procurement processes waste considerable effort in coordinating the matching of orders, delivery notes and suppliers' invoices. If councils do not manage this process well, they will be unable to ensure that what is invoiced by the supplier was actually delivered and that both agree with what was originally ordered. The time spent by accounts staff and purchasing staff alike reconciling these documents can often be significant.

The integrated e-Marketplace solution enables automated matching of electronic supplier invoices to goods receipts and purchase orders in the council FMIS. As no paperwork is involved, a supplier's invoice can be matched and authorised in minutes, rather than days or weeks.There are many more examples of where the administration of procurement involves unnecessary time and effort, often from key individuals. The aim of an e-procurement solution is to automate these types of tasks and therefore remove the inefficiencies associated with them.

Order generation

Order distribution

Expediting

Goods reciept

Invoice processing

TOTAL

66.76

7.36

8.87

1.87

0.91

3.83

10.40

100

0.0

1.5

0.0

0.3

0.5

0.7

33.2

TRADITIONAL PROCESS

Requisition generation

Requisition distribution

FUNCTION

29.2

E-PROCUREMENT

The above table, taken from a report by Warwick Business School, highlights the administrative costs of a traditional procurement system compared with the costs of e-procurement (using the manual system costs as the base index (= 100)

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2.Reduced Purchase CostsThe e-Marketplace does not intrinsically reduce purchase costs. However, e-procurement empowers the organization to achieve this goal in the following ways:?By introducing a system that people can use easily and are happy to use, it is possible to ensure that everyone in the organization adheres to preferred supplier rules and therefore increases the buying power of the organization with its chosen suppliers.?When transacting with a supplier electronically, suppliers are more likely to give discounts, because their own administration costs are less. ?By reducing council 'maverick buying' suppliers become more committed to their agreements as there is more assurance of obtaining a greater share of the council spend.

3.Reduced Purchase Cycle TimeIn many councils the requisition-to-delivery time can be counted in days or sometimes weeks, making the proper procurement process simply unfeasible for anything which needs to be ordered quickly. Delays are often caused when paper-based requisitions have to be authorised manually by one or more people and where budgets and commitments have to be checked in advance of the order going out.

The e-Marketplace solution with inbuilt workflow streamlines this process and avoids the common bottlenecks in the process. It enables a requisition to be automatically checked against pre-configured settings and electronically authorised. Not only does this speed up the entire process but also it enables a complete analysis of the purchase cycle so that procurement staff can identify common bottlenecks and whether delays are attributable to external or internal forces. Put simply, it empowers staff to get the job done quickly, without sacrificing control.

When attempting to calculate the benefit to the council in terms of reduced purchase cycle time, it is essential to bear in mind that many of the purchases which are most critical and which will benefit from the increased efficiency, may fall outside the current system. This of course, makes it difficult to calculate an accurate cost benefit.

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4. Reduced Purchase Cycle TimeIn many councils the requisition-to-delivery time can be counted in days or sometimes weeks, making the proper procurement process simply unfeasible for anything which needs to be ordered quickly. Delays are often caused when paper-based requisitions have to be authorised manually by one or more people and where budgets and commitments have to be checked in advance of the order going out.

The e-Marketplace solution with inbuilt workflow streamlines this process and avoids the common bottlenecks in the process. It enables a requisition to be automatically checked against pre-configured settings and electronically authorised. Not only does this speed up the entire process but also it enables a complete analysis of the purchase cycle so that procurement staff can identify common bottlenecks and whether delays are attributable to external or internal forces. Put simply, it empowers staff to get the job done quickly, without sacrificing control.

When attempting to calculate the benefit to the council in terms of reduced purchase cycle time, it is essential to bear in mind that many of the purchases which are most critical and which will benefit from the increased efficiency, may fall outside the current system. This of course, makes it difficult to calculate an accurate cost benefit.

5. Greater Management ControlBecause all procurement data is processed through one central database and automatically integrated into the council FMIS, e-procurement allows relevant analysis and management reports to be easily produced. As well as arming procurement professionals with the information they need to manage effectively, e-procurement aims to reduce their administrative duties meaning that they can focus more on proactive decision-making.

6. User ComplianceMaximising compliance - ensuring that everyone only buys from approved suppliers - is the holy grail of any purchasing manager, since it serves two purposes: - (1) gets the best value from the deals the company has struck, and (2) allows companies to leverage far better deals with suppliers. It is compliance and leverage that deliver the lion's share of cost reductions through e-procurement.


With traditional procurement processes, paper requisitions are so time-consuming to complete and prone to delay as they pass through the approval process that many end users simply don't bother with them. They find other ways to purchase something, whether it is by placing an order directly with a supplier or by using a credit card or petty cash. This is known as 'maverick purchasing' or 'rogue spending', though to many end users who are simply trying to buy something to get a job done, it is not 'maverick' but in the best interests of the organisation. When they do use the traditional system, they sometimes have to make several phone calls to different authorisers or to the buyer to speed up the transaction.

This results in the following problems. Firstly, the best value is not achieved. Maverick buyers cannot command the same favourable terms as the organisation as a whole, and preferred suppliers are rarely used. Secondly, because the purchase is bypassing the system it cannot be analysed and therefore meaningful management information is hard to produce. Finally, it may cause internal friction that could be avoided.

The e-Marketplace provides end users with a way of procuring goods that is generally quicker than even maverick methods. It enables them to quickly complete an order on-screen in the user-friendly marketboomer front end. They can track their orders progress at any stage of the approval chain and can be informed electronically of shipment of the goods from the supplier.

7. Reduced Order Error Rate The e-Marketplace dramatically reduces the likelihood of user error in the procurement process, as orders are created by selecting items from catalogues within the system. With integration through the Local Buy e-Hub it is possible to reduce the chance of errors even further, as electronic transactions passing between the council FMIS, the e-Marketplace and the suppliers system require no human intervention. This reduces the chances of orders being interpreted incorrectly, prices being incorrect or of catalogue items being obsolete or discontinued at the time of order.

8. Knowledge WorkersAlthough we have highlighted a range of benefits to councils through the Local Buy e-Marketplace it is also interesting to consider the following.

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In his 1999 book, Business @ the Speed of Thought, Microsoft founder Bill Gates described the effect of deploying an e-procurement solution at Microsoft. As well as savings to the tune of around $140m per annum, the principal effect of the implementation was the transformation of staff into 'knowledge workers'. This term describes how staff are no longer bogged down with administrative chores such as filling in and passing around forms – this is all computerised and staff are given the information to actually manage procurement, rather than be managed by it.

Turning staff into knowledge workers achieves better productivity throughout the council. This applies not only to purchasing staff but to all involved in the procurement process: requisitioners, authorisers, managers, finance staff, and so on. It enables end users to focus fully on their own tasks with the support of an effective procurement system, and it allows procurement staff to shift their focus from often meaningless administrative duties to concentrate on procurement strategy and analysis.

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While we have studied various standard levels in procurement and its procedures it is very important to review the actual procedures undertaken by companies. In this chapter we will take into consideration the process undertaken by some reputed companies. this will help us to understand the actual procedure apart from the theory knowledge.

5.1 CHUGOKU ELECTRIC POWERThe Chugoku Electric Power Company Inc. is a public limited company incorporated since 1951. Currently has with more than 10000 employees. CEPCO generates and supplies electricity to the Chugoku region of Japan, which covers approximately 32,000 square kilometers. The region is made up of the prefectures of Yamaguchi, Hiroshima, Shimane, Tottori, and Okayama, which with local heavy industry and a total population of 7.8 million provides the sixth largest customer base of the ten electric power companies in Japan. The company operates 93 hydroelectric power stations, 12 thermal stations, and one nuclear power station. Plans are in the works to launch several new hydroelectric and coal-fired power stations, and by 2016 the company expects to have its generating capacity balanced equally between nuclear, coal-fired, and other types of facilities. As a result of industry liberalization, CEPCO has diversified its operations and established new divisions including comprehensive energy supply, information and telecommunications, environment, and business and lifestyle support.

Procurement procedureChugoku Electric procures equipment and materials according to the following Standard Procurement Procedure.

CHAPTER 5

INDUSTRY INFORMATION

Chugoku

1

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1.Prospective Supplier SelectionProspective suppliers will generally be selected from Chugoku Electric's list of registered suppliers after the Group Management Div receives a request for procurement from a section that needs equipment or materials.

2.Bid RequestChugoku Electric generally procures a product by means of competitive bidding, whereby two or more potential suppliers are asked to offer proposals. Chugoku Electric may request a proposal from a specific supplier, however, when technical competence, patents, production capacity, equipment compatibility, or other factor is of particular importance.

3.Bid SubmissionWritten proposals will be deemed valid only if they meet Chugoku Electric deadlines, specifications, and conditions. Proposals based on specifications different from those designated by Chugoku Electric will be considered, however, if such alternative specifications satisfy Chugoku Electric functional and performance requirements.

4.Supplier Selection and Price NegotiationAs a general rule, Chugoku Electric negotiates the final price of a contract with the low bidder only. Unsuccessful bidders will be informed of the results upon request.

5.Contract ConclusionA contract should, in principle, be in compliance with the clauses prescribed by Chugoku Electric when placing an order. When circumstances necessitate, however, a contract may be drawn up in accordance with terms and conditions agreed upon between Chugoku Electric and the supplier.

6.Delivery, Inspection, and PaymentProducts will be inspected upon delivery by Chugoku Electric to confirm conformance with contract stipulations. The supplier's presence at such inspection and/or assistance may be requested.Payment is usually made in the month following acceptance. If warranted, such as when long lead time is needed to manufacture a certain type of product, Chugoku Electric will make scheduled disbursements or other special payment arrangements.

7.Othera)A party to the contract shall not divulge classified or otherwise sensitive information in its possession without the express written consent of the other party.b)Chugoku Electric may also make formal claim for damages due to late delivery of contracted goods.c)Any questions or comments for Chugoku Electric at any stage of the procurement procedure should be addressed to the Group Management Division Chugoku Electric will respond to each party in good faith.

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5.2 NTT DOCOMONTT DOCOMO established in 1991 is Japan's premier provider of leading-edge mobile voice, data and multimedia services. With more than 56 million customers in Japan, the company is one of the world's largest mobile communications operators.

DOCOMO also is an influential force in the continuing advancement of mobile technologies and standards. In 1999, DOCOMO launched i-mode™, the world's most popular platform for mobile Internet services including e-mail, browsing, downloading and more. Over 49 million DOCOMO subscribers now use i-mode.

In 2001, DOCOMO introduced FOMA™, the world's first 3G commercial mobile service based on W-CDMA, which has transformed the mobile landscape in Japan while bringing the DOCOMO brand global recognition.The role of mobile phones as "lifestyle tools" was cemented when DOCOMO launched Osaifu-Keitai™, a mobile wallet platform enabling quick, contactless transactions for cash, credit, ID, and more. More than 37 million phones equipped for Osaifu-Keitai services are now in use.

Building on a solid foundation of research and development, and guided by its customer-first philosophy, the company leverages the power of mobile communications to enable customers to enrich their lives.DOCOMO is expanding its global reach through offices and subsidiaries in Asia, Europe and North America, as well as strategic alliances with mobile and multimedia service providers in markets worldwide.

Procurement procedureThe procurement procedure of NTT docomo is divided into four major steps as given below.PROCEDURE FOR REQUEST FOR PROPOSALS (RFP)1. Request for ProposalsPotential suppliers who wish to submit a proposal can view requirements and information (overview of the requested product, time and place of submission, how to download the Procurement Procedure Manual, etc.) on our Internet website.The Procurement Procedure Manual contains detailed information necessary to submit a RFP. The Procurement Procedure Manual can be downloaded from our website from the day proposal acceptance starts until the submission deadline.

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2. Acceptance of ProposalsPotential suppliers will submit the necessary application form based on information provided in the Procurement Procedure Manual. This will be reviewed by NTT DOCOMO.3. Evaluation, Selection, Agreement of ContractProposals are comprehensively reviewed according to the criteria indicated in the Procurement Procedure Manual. A contract will be awarded to the supplier who scores the highest marks as a result of this assessment.

PROCEDURE FOR SUPPLIER'S PROPOSAL1. Application for ProposalPotential suppliers who wish to submit a proposal for a new product or technology can apply via a form designated by NTT DOCOMO.See Acceptance of New Proposals and Products for how to submit.NTT DOCOMO will review the proposal.Comparative studies indicating merits (quality, specifications, performance, price, etc.) over other competitors regarding the product you wish to submit and company brochure are requested.Please note that we can only accept information that is non-confidential and available to the public.2. Confirming the details of the proposalMeetings may be requested to discuss and confirm technical points and other details of the proposal. If NTT DOCOMO selects the product, procedures will advance to the next step.3. Submission of Detailed DataPotential suppliers will submit the necessary application form based on information provided in the Procurement Procedure Manual. This will be reviewed by NTT DOCOMO.4. Evaluation, Selection, Agreement of ContractProposals are comprehensively reviewed according to selection criteria indicated by NTT DOCOMO. A contract will be awarded as a result of this assessment.

PROCEDURE FOR RENEWAL OF ONGOING PROCUREMENTAdditional Purchases of a ProductWe make additional purchases of a product that has been selected through the "request for Proposal" and "Supplier's Proposal" procedures to an already Suppliers that have been chosen via the "Request for Proposal" and "Supplier's Proposal" procedures are what we call "selected suppliers".

PROCEDURE FOR PROCUREMENT BASED ON A DEMAND BY CUSTOMERS1. Customer's SelectionThe product and the supplier will be selected by the customer.

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2. ContractWe will sign a contract with the supplier who is selected by our customer.

Request for ProposalsNTT DOCOMO issues Requests for Proposals, offering opportunities to suppliers who are interested in participating in our business activities.

Request for InformationNTT DOCOMO issues Requests for Information, requesting data and other information from suppliers, to assist us in determining whether to solicit certain goods with a Request for Proposal.

5.3 SOUTHEAST ASIA MANAGEMENTSouthEast Asia Management (SEAM) provides a wide range of consulting and agent services to high-tech/telecommunications companies. Their specialty is helping companies establish economical manufacturing operations in Southeast Asia either through partnerships with existing local manufacturers or establishing your own manufacturing operation.

Procurement procedureSEAM is a service provider they help firms in procuring goods and services by acting as an agent between the buyer and the seller. They provide professional services in procuring goods for the organizations. Given below is strategy and procedure they undertake to deliver to their clients.1. All information regarding marketing is registered in our database.2. From that database, we select a supplier who has items we desire to procure, and request an estimate after consideration. Then we evaluate the submitted estimate.If a supplier estimate is evaluated highly:3. We visit the supplier to investigate general considerations such as business operations and policies. Then we judge the transaction.4. We inspect items required for Quality audit based on ISO9000 from the viewpoint of quality and manufacturing techniques at the same time or separately from the company investigation.5. We check that each part specification satisfies our design specifications, and decide whether or not it is acceptable. At this time, we ask the supplier to submit a sample, approval drawing and documents related to certification already acquired.6. We then test each part to be procured regarding its reliability, compare supplier's guaranteed performance with our demands, and decide whether or not it is acceptable.

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At this time, we ask the supplier to submit a sample and the supplier's test results.7. When inspection and evaluation are acceptable, we negotiate with supplier in respect to transaction contents.8. Contract is concluded formally.9. Mass-production prototype is tested using actual machine.10. Formal mass production is requested.11. For regular transactions, parts performance is checked from the point of view ofquality, cost, delivery and service.12. Regular audit is conducted.13. When contents of regular transaction and results of regular audit are suitable, we request a new estimate.

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With the growing awareness about the global issues like ozone depletion and global warming. Going green is the word in the corporate sector. More and more organizations are aiming toward going green resembling a sense of social responsibility towards the masses. Thus earning them goodwill.

Moreover earning a goodwill for the sake of performance and growth is not enough there is dire need of being socially responsible and working towards sustainable growth. In this chapter we will focus on Sustainable procurement. There are a list of companies going green and working towards green procurement.

Definitions:“Procurement policies that encourage development and diffusion of environmentally sound goods and services”

-Buying Green,a handbook on environmental procurement

“Green procurement is the purchase of environmentally friendly products and services, the selection of contractors and the setting of environmental requirements in a contract.”

-Sustainability Concepts,by GDRC

“Environmentally responsible or 'green' procurement is the selection of products and services that minimize environmental impacts. It requires a company or organization to carry out an assessment of the environmental consequences of a product at all the various stages of its lifecycle. This means considering the costs of securing raw materials, and manufacturing, transporting, storing, handling, using and disposing of the product.”

-Business and Sustainable Development a global guide

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CHAPTER 6

GREEN PROCUREMENT


Green procurement is an approach to procurement in which environmental impacts play an important role in purchasing decisions, with procurement officers concerned about more than just price and quality. Companies which pride themselves on environmental stewardship and thoughtful care of the environment may use green procurement, among many other tactics, to ensure that they do business in an environmentally responsible way. A number of aspects of the procurement process may be adjusted to meet a mission of environmental sustainability.

Within a procurement office, green procurement can involve changes in office procedure which are designed to benefit the environment. For example, rather than having people submit purchase orders and requests on paper, the procurement office might switch to electronic methods of communication so that paper is not wasted. The office might also engage in environmentally friendly activities like reducing energy usage, keeping plants around the office to improve air quality, or buying carbon offsets to compensate for office energy usage.

During the procurement process, green procurement involves seeking out products which are manufactured sustainably. On a simple level, green procurement can push companies to seek out office supplies made from environmental products, or products made by companies which are committed to environmental stewardship. The office might also demand minimal packaging on the products it orders, look for products moved with biodiesel, seek out manufacturing facilities which bear environmental certifications, or indicate to potential vendors that it would prefer products from companies which are committed to minimizing waste and benefiting the environment.

Buying products which are environmentally responsible can be a dicey occupation. Labeling and certification requirements vary, so a green procurement officer may think that he or she is doing the right thing by purchasing a product which bears a “green” label and later learn that the product isn't more environmentally responsible than that of a competitor, even though it's more expensive. Good procurement officers will investigate their sources with care, taking the time to confirm that the claims made by a company are accurate and comparing data from different sources to see which vendor is the best.

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Companies which engage in green procurement processes may be eligible for environmental certification, formal recognition from the government, and other perks. Projecting a sustainable image can also be a valuable marketing tool which a company may use to get an edge on the competition. Environmental advocates also point out that as more and more companies demand green procurement, the market for environmentally sustainable products expands, making them cheaper and easier to obtain. These advocates hope to see green procurement becoming the norm, rather than an unusual event.

6.1 CHALLENGES TO GREEN PROCUREMENT1. Price:There is a perception that green products are more expensive than conventional alternatives. This is true in some cases, particularly where development costs are reflected in the price; however, often there is no significant difference. The real problem may simply be that products are being ordered in small quantities, or are not available locally.

Sometimes a green product may have a higher up-front purchase price, but will cost less over its liftime. For example, a non-toxic alternative to a toxic product will cost less to transport, store, handle, and discard. It will require fewer permits, less training for staff, and the consequences of an accident will be greatly reduced.

Similarly, a product that uses less packaging and that is easily recyclable or reusable will carry a lower disposal cost.

2. Lack of corporate commitment:For an organization to implement a green procurement program, it must have commitment from all levels, including senior management and purchasing agents. A policy statement outlining the corporate commitment to green procurement can help.

3. Insufficient knowledge:Many organizations are unfamiliar with the concept of green procurement or with the options available to them. For an organization to participate, it must have an understanding of concepts, vocabulary and terms.

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4. Availability:Frequently, local distributors do not stock green products, or else they stock only small quantities. This can lead to delays in obtaining the product. Increasing market demand will help to overcome this obstacle.

5. No acceptable alternative:Another barrier to green purchasing can be simply a lack of acceptable alternatives to the present product. For example, a few years ago in the furniture manufacturing industry, the use of water-based finishes as an alternative to solvent-based ones was impeded by the fact that water-based finishes presented technical difficulties which were costly to overcome, and were of lower quality. Growing demand for will stimulate the development of new and better 'green' products.

6. No specifications:It is important that suppliers be asked to provide the environmental specifications of the products they are offering. Purchasers, in the same way, must clearly define their needs and requirements.

7. Purchasing habits:We've always done it this way' can be a difficult mentality to overcome. There may also be existing relationships between purchasers and suppliers that make it difficult to switch to alternatives.

6.2 IMPLEMENTING GREEN PROCUREMENTThe steps involved in implementing a green procurement program are outlined here. It is not comprehensive, but rather is intended to provide an overview.

1. Organizational support:Implementing a green procurement program means changing policies and procedures. For it to be successful, it is essential that management support the initiative fully. In addition, those charged with making purchasing decisions must be involved in the implementation process. Their suggestions and support are critical.

2. Self-evaluation:An important step in implementing green procurement is conducting an

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evaluation of present purchasing practices. This process will help to clarify what is purchased, in what quantities, from where and at what price. The evaluation will provide a baseline, in order to measure future success and to focus the development of green procurement goals.

3. Set goals:A broad policy should be established, and specific priorities and targets set.

4. Develop a strategy:It is now to time to identify and implement changes, both short and long-term, identify suitable products and services, and evaluate the environmental performance of suppliers.

5. Run a pilot project:A pilot project can provide practical experience in purchasing green products and services, by applying green procurement principles to a specific product or service. Pilot projects can be used to generate more detailed guidance on purchasing practices.

6. Implementation:Implementing the green procurement program will require an assignment of accountability, plus a well designed communications plan addressing employees, customers, investors, suppliers and the public.

7. Sustainment: As with all business practices, it is important that a systematic review of the green procurement program be carried out, in order to establish whether the scheme is meeting its goals and objectives. The review should take into account changing environmental goals.

6.3 CASE EXAMPLES1. FujitsuFujitsu Japan has a green procurement policy that selects materials; parts; products; and production equipment based on price; environmental impact; quality; and delivery. Environmental considerations include: avoidance of toxic substance during production and disposal; resource and energy conservation; recyclablity; and ease of disassembly for processing and disposal.

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2. IkeaIkea, a furniture and household goods retailer, has implemented a code of conduct for its 2,000 suppliers. The code of conduct focuses on environmental impact and working conditions. An external body verifies information submitted by suppliers. If suppliers do not meet the code, they are requested to remedy the situation and if suppliers continually breach the code, they can be removed from Ikea's suppliers list.

The code includes a list of supplier musts (waste and emission reductions, handling, storage and disposal of hazardous chemicals, recycling, etc) and must nots (use of chemical compounds and substances banned or restricted by Ikea and source of wood).

3. Japan Travel BureauJapan Travel Bureau (JTB), a Japanese Travel Agency, implemented an ISO 14001 accredited Environmental Management System (EMS) in 1999. The EMS required the development of a green purchasing policy, which covers office supplies and sales kits.

6.4 SHARP’s WAY OF DOING ITWhile we have taken various cases of companies doing it above. it’ll be very helpful and informative to know how actually a company undertakes the entire process. In this sub-topic we have focused on Sharp’s way of doing it. Their Purpose of Green ProcurementSharp Group (hereafter "SG") pursues the reduction of environmental burdens in all aspects of its business activities following our Basic Environmental Philosophy stated above, as well as the Sharp Group Charter of Corporate Behavior and the Sharp Code of Conduct. When obtaining materials from our business partners, in particular, we follow the evaluation criteria of the "Green Procurement Guidelines" as we work together with them to conserve the global environment and to achieve a fully recycling-oriented society. Procurement JudgmentGreen procurement involves the conventional procurement of materials based on the criteria of "quality (Q), cost (C), delivery terms (D)", but it also comprises an overall judgment that is based on environmental considerations (E).

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Evaluation based on environmental considerations follows the "Environmental Management Evaluation", criteria which appraise our partners' organizational measures for environmental conservation, It also follows the "Delivered Goods Evaluation", criteria for appraising their efforts to reduce environmental burdens imposed by parts and materials we purchase from them (raw materials, multi-purpose parts, finished goods, semi-finished goods, supplementary materials, etc.)

4. Positioning of Green Procurement Guidelines SG established the "Green Procurement Guidelines" and the "Manual for Survey of Chemical Substances Contained in Parts and Materials" It continues to issue them requesting our business partners' cooperation. For this revision we have changed the procurement criteria given by the "Green Procurement Guidelines" to conform generally to those of the "Environmental Management Evaluation". We have changed the "Delivered Goods Evaluation" to conform to the "Manual for Survey of Chemical Substances Contained in Parts and Materials"

For a detailed information please visit:http://sharp-world.com/corporate/eco/customer/pdf/gguide3e.pdf

overall evaluation

environmentalmanagementevaluation

deliveredgoodsevaluation

ProcurementJudgement

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An IT procurement process, formal or informal, exists in every organization that acquires information technology. As users of information systems increasingly find themselves in roles as customers of multiple technology vendors, this IT procurement process assumes greater management significance. In addition to hardware, operating system software, and telecommunications equipment and services - information resources traditionally acquired in the marketplace - organizations now turn to outside providers for many components of their application systems, application development and integration, and a broad variety of system management services. Yet despite this trend, there has to date been little, if any, research investigating the IT procurement process.

Definitions:“IT Procurement is defined as acquisition of technological goods and services”

Information Technology Services,IT procurement documents

IT Procurement is the process by which IT resources (goods and services) required by a project are acquired. It includes development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts.

-www.apm.org.uk/Definitions.asp

CHAPTER 7

IT PROCUREMENT

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7.1 DEVELOPMENT OF THE FRAMEWORKIn January 1994, the Society for Information Management (SIM) Working Group on Information Technology Procurement was formed to exchange information on managing IT procurement, and to foster collaboration among the different professions participating in the IT procurement process.This chapter presents a model of the IT procurement process that was developed by the SIM Working Group to provide a framework for studying IT procurement. Specifically, the IT Procurement Process Framework was developed by a 12-member subgroup comprised of senior IT procurement executives from large North American companies. The task of developing the framework took place over the course of several meetings and lasted approximately one year. A modified nominal group process was used, in which individual members independently developed frameworks that described the IT procurement process as they understood it.In a series of several work sessions, these individual models were synthesized and combined to produce the six-process framework presented below. Once the six major procurement processes had been identified, a modified nominal group process was once again followed to elicit the sub-processes to be included under each major process. Finally, a nominal group process was once again used to elicit a set of key issues, which the group felt presented managerial challenges in each of the six processes.The key issues were conceived of as the critical questions that must be successfully addressed to effectively manage each process. Thus, they represent the most important issues faced by those executives responsible for the management of the IT procurement function.The process framework and key issues were reviewed by the Working Group approximately one year later (summer 1996), and modifications to definitions, sub-processes, and key issues were made at that time. The key issue content analysis described below was conducted following a Working Group review in early 1997.

7.2 THE IT PROCUREMENT PROCESSESThe IT Procurement Process Framework provides a vehicle to describe systematically the processes and sub-processes involved in IT procurement. Exhibit 1 illustrates six major processes in IT procurement activities: three deployment processes (D1, D2, and D3) and three management processes (M1, M2, and M3). Each of these major processes consists of a number of sub-

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(M1, M2, and M3). Each of these major processes consists of a number of sub-processes. The Appendix at the end of this chapter lists the sub-processes included in each of the major processes, as well as the key issues identified by the Working Group.

DEPLOYMENT PROCESSESDeployment processes consist of activities that are performed (to a greater or lesser extent) each time an IT product or service is acquired. Each individual procurement can be thought of in terms of a life cycle that begins with requirements determination, proceeds through activities involved in the actual acquisition of a product or service, and is completed as the terms specified in the contract are fulfilled. Each IT product or service that is acquired has its own individual iteration of this deployment life cycle.

D1. Requirements determination is the process of determining the business justification, requirements, specifications and approvals to proceed with the procurement process. It includes sub-processes such as organizing project teams, using cost-benefit or other analytic techniques to justify investments, defining alternatives, assessing relative risks and benefits defining specifications, and obtaining necessary approvals to proceed with the procurement process.

D2. Acquisition is the process of evaluating and selecting appropriate suppliers and completing procurement arrangements for the required products and services. It includes identification of sourcing alternatives, generating communications (such as RFPs and RFQ) to suppliers, evaluating supplier proposals, and negotiating contracts with suppliers.D3. Contract fulfillment is the process of managing and coordinating all

D1 D2 D3

Deploymentprocesses

RequirementsDetermination

AcquisitionContractFulfillmenr

ManagementProcesses

Supplier Management

Asset Management

Quality Management

M1

M2

M3

Major Processes in IT Procurement.


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D3. Contract fulfillment is the process of managing and coordinating all activities involved in fulfilling contract requirements. It includes expediting of orders, acceptance of products or services, installation of systems, contract administration, management of post-installation services such as warranty and maintenance, and disposal of obsolete assets.

MANAGEMENT PROCESSESManagement processes consist of those activities involved in the overall governance of IT procurement. These activities are not specific to any particular procurement event, but rather are generalized across all such events. Three general classes of IT procurement management processes are supplier management, asset management, and quality management.

M1. Supplier management is the process of optimizing customer-supplier relationships to add value to the business. It includes activities such as development of a supplier portfolio strategy, development of relationship strategies for key suppliers, assessing and influencing supplier performance, and managing communication with suppliers.

M2. Asset management is the process of optimizing the utilization of all IT assets throughout their entire life cycle to meet the needs of the business. It includes activities such as development of asset management strategies and policies, development and maintenance of asset management information systems, evaluation of the life cycle cost of IT asset ownership, and management of asset redeployment and disposal policies.

M3. Quality management is the process of assuring continuous improvement in the IT procurement process and in all products and services acquired for IT purposes in an organization. It includes activities such as product testing, statistical process control, acceptance testing, quality reviews with suppliers, and facility audits.

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IT Procurement handbook for SMEsby David Nickson

http://www.bcs.org/upload/pdf/it-pro-chapter1.pdf

For a detailed information on managing IT procurement process visitRobert L. Heckman’s article on http://www.ittoday.info/Articles/Managing_IT_Procurement_Process.htm

a very comprehensive and informative book is available on the net:


Procurement, one of the very important step in Logistics and supply chain management also known as purchasing. It contributes over more than 50percent of entire production cost. hence, it is very crucial for every organization to give special attention towards strategic procurement policies to reduce cost and procure best quality. A quality of the raw materials forms the basis of the quality of the final product.

In this project we have seen the importance of procurement and its role in the functioning of the organization and in supply chain management. Procurement being very important aspect of Supply chain management, This project first deals with what Logistics and supply chain management is and the steps involved in it. In chapter three we have come towards explaining what is Procurement. Procurement defined in its simplest form is “Acquisition of goods (materials, parts, supplies, equipment) required to carry on an enterprise. Procurement expenses can be a major cost of doing business.”

With the advent of technology and growing phase of computerized operations E-procurement isn't an alien topic. And due to the growing awareness of environmental degradation and CSR activities we are also seeing companies getting more and more Socially responsible and using Green procurement approach.

This project also includes original first hand procurement procedures of various companies making it more understandable and industry oriented. In case of E-procurement we have also included its advantages, disadvantages giving reasons for firms to adopt E-procurement policies in this competitive business world.

CHAPTER 8

CONCLUSION

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WEBSITESwww.merriam-webster.com

www.logistics.about.comwiki.answers.com

www.supplychainrecruit.comen.wikipedia.org

en.wikitionary.orgwww.apm.org.uk

www.businessdictionary.comwww.ittoday.info

www.wisegeek.comwww.nextlevelpurchasing.com

searchcio.techtarget.comwww.bitpipe.com

ecommerce.hostip.infowww.answers.com

www.theanswerbank.co.ukwww.epiqtech.com

searchwarp.comwww.its.state.nc.us

Elements of Logistics and Supply Chain Management-by S.D. Aphale

Logistic Chain Management-by Donal J. Bowersox and David J. Closs

IT Procurement Handbook for SMEs-by David Nickson

BOOKS

REFERENCES

Documents

Procurement by Akhtar Khan