One of the significant current discussions in the business world today is the subject of "Electronic Procurement" (EP). EP and eCommerce are used interchangeably by several studies to mean the same thing, but EP is a component of e-commerce (Leipold et al 2004).
Chaffey (2002:257) defines Electronic Procurement System as:
"An electronic system used to automate all or part of the procurement function by enabling the scanning, storage and retrieval of invoices and other documents; management of approvals; routing of authorization request; interfaces to other finance systems; and matching of documents to validate transactions".
The EP information system can best be described by the core elements the ITPOSMO model below.
This information system comprises of information (Data processed), technology (Hardware and Software), people (Suppliers, buyer) and processes (Operations and Logistics, finance and accounting etc) therefore, it is referred to as a "Social-Technical system" (Lucey 2005; Heeks, 2006).
DATA CONTENT: Data is unprocessed facts, figures, and observations with little or no value (Bocij et al 1999). A typical data content of an EP system can be classified based on source; that is internal or external source (Lucey 2005). The Internal data includes details of a requisition form by buyer such as list of items to be purchased, request date, quantity and price. Also for B2B data will also include the organization's policies, contract terms, list of existing suppliers (if available) budget allocations, account to be charged, payment records etc (Leenders et al, 2002 ; Heeks, 2006).
External source ; These are data inputted by suppliers such as suppliers details (name, code, address, phone no, fax, email), tenders, bids, proposals, catalogues, terms of sale, mode of delivery, discounts available , invoices , items on sale, types of services offered, sale conditions, seller's contact address, payment options etc. These data are been processed and produced as output using IT components such as software, hardware etc.
SOFTWARE COMPONENT: Bee & Bee (2005) defines software as "series of detailed instruction that controls the operation of a computer system". There are 2 types of software: system software and application software. A system software can be said to be a set of instructions provided by manufacturer to enable computers carry out general functions. Application software is designed for carrying out specific tasks. The system software used in an EP system are Operating System e.g XP, Win 2003 Server, Vista, X Leaopard, Snow etc. While the application software are internet enabled electronic data interchange (EDI) software, enterprise resource planning system (ERP) applications such as SAP, Oracle, and People soft. Other web based software are web load balancing software, system integrated software and fire wall software. (Leenders et al, 2002).
HARDWARE ARCHITECTURE: Hardware are those computer components that can be seen and touched (ibid). The EP hardware is comprises of clients computers (referred to as work stations) monitor, system unit, key board, printer, scanner etc, client server architecture, web application server, web database server (SQL), networking cables, satellite connection, internet for transmission of information, backup system for storage etc (Bishapathi et al (n.d), Bocij 1999; Heeks, 2006). The hardware architecture is represented by the model below:
PROCESSESS SUPPORTED BY THE SYSTEM.
According to Laudon & Laudon (2007:42) organizational processes are "the manner in which work is organized, coordinated and focused to produce a valuable product or service". These processes may vary from one organization to the other (Leenders et al 2002). EP system assists organizations to re-engineer their business processes by providing a smooth information flow, which also aids management decision making (Laudon & Laudon 2007).
Purchasing and Logistics: EP aids the electronic sourcing of potential suppliers (Leenders et al 2002). Sourcing involves a lot of processes such as specification of need, online search, selection of suppliers, price negotiation, placement and electronic approval of orders (Baily et al 2005,Bikshapathi & Raghuveer 2009). In terms of price determination, EP offers opportunity for price competition by suppliers (reverse auction) which results in buying at best prices (Leenders et al 2002 ).The use of internet enabled EDI (electronic data interchange) software helps to automate the monitoring of inventory and generation of orders (ibid). In cases where the organization makes order that cover a period of time (blanket order), the system automatically alerts the supplier when stock is a approaching re-order level (ibid). This function performed by the system assists the store manager in inventory management.
Manufacturing: The system aids the planning for raw materials to avoid production bottlenecks. Sourcing for services such as repair and maintenance of machines can be carried by the EP system. Operations manager can use the information produced for day to day planning of production. A case study by Laudon & Laudon (2002) states how Kia motor industries use the system to control number of defective products after production. Also, tactical managers use the information to aid planning of production resources, while strategic managers may use it to aid decisions such as acquisition of new production technology and equipment (ibid).
Accounting and Finance: the accounting task supported by the EP system are invoicing, checking of budget limits against orders, approval of invoices, payment, collection of refunds, claiming of discounts, confirmation of supplies or maintenance work done, inspection of goods, and management of creditors, etc Baily et al (2005) Information flow from the system assist strategic managers in budget forecasting, ratio analysis and other long term financial decisions (Laudon and Laudon 1999). Middle managers use it for budget monitoring and control. It also supports the day to day payments of cash and credit suppliers, receipt of payment and other accounting functions (ibid).
The potential benefits of the EP system can be explained using the CIPSO aspect of the CIPSODA diagram below:
This diagram explains the information flow and use in the system. CIPSODA simply means Data is Captured(C) and Inputted into the system (I).It is then processed (P), Stored (S), retrieved and produced as output(O) for decision making(D), whereby Action (A) is taken so as to result (R).
Cost and potential benefits can be determined through the information processing aspect of the diagram (CIPSO). The cost involve are cost of obtaining data, cost of hardware, software, cost of installation, training etc.
The three Key potential benefits that can be derived from the EP system are as explained below:
Perceived Cost savings (Capture and Input): A major benefit of the EP system is the cost reduction it offers to buyers. A lot of money is saved, from sourcing, capturing and inputting data from suppliers. This makes it possible for information to be shared, however eliminating the cost of postage, communication, transportation and advertisement ( Laudon & Laudon 1999). A lot of paper work is reduced; thereby cutting down administrative and personnel cost (Chaffey 2002). A case study of the Brazilian government reveals cost savings on procurement process amounting to US $1.5m within the first two years of implementing EP system (Amaida 2002). Also, Microsoft and Cisco where able to cut down cost from $60-$5, and $130-$25 respectively (Ageshin 2001).
However, other administrative costs reduced are; ordering cost, cost of holding inventory (Rent, Insurance), personnel cost, as well as total cost of production. Communication between seller and buyer is very efficient. All these may translate into cheaper goods and services offered to clients. The time spent on entering this data by staff is greatly reduced as well. A centralized eProcurement system can help achieve economies of scale (ibid).
Reduced purchasing cycle time (Process): Information processing is quicker and more efficient. Ordering, approvals, purchasing and payments are done faster because information is processed immediately. For example in a study by Ageshin (2001) "General Motors" a US automobile company could deliver a customized order by customers within 5-15days .The Brazilian government was also able to cut down purchasing circle time from 2 months to 15 working days (Amaida, 2008). Administrative errors are also eliminated as well, making information from the system accurate (Morrison, 2009). Task of producing information is greatly reduced thereby time is saved. A lot of information related task can be undertaken within the shortest time (Heeks, 2006).
Easy access to centrally stored data (Storage and output): The central storage of data enables easy sharing of information to suppliers and the purchasing organization. Information is readily available to stakeholders at unlimited times. The central storage of information makes it easy for an audit trail to be carried out. For government procurement, transparency is very important (Amaida 2008). This system makes easy the performance of audit trail, in which records can be traced with ease (who ordered what, what was ordered, when it was ordered, how much was spent, from whom it was bought from etc). These are the issues faced by the traditional procurement system.
POTENTIAL PROBLEMS OF E-PROCUREMENT APPLICATION IN DEVELOPING/TRANSITIONAL ECONOMIES
Lack of Infrastructure: Developing countries are usually characterized by low level infrastructures; such as electricity, good roads and communication channels. As a result installation of internet and ICT facilities cost a fortune and very few enterprises can afford the initial cost of installation. Availability of internet facility is crucial for implementing a good EP system, as system integration between businesses is very important among businesses. Very few business and individuals in developing countries can afford to secure broadband and internet facilities. Unlike the developed countries where most large manufacturing firms use ICT for their purchases and sales, increases the scope of their market as well .Africa as a continent has got little or none of such experiences (UNCTAD, 2009). Chege et al (2001) stated in a study how low internet bandwidth served as a major challenge for ecommerce in the South African and Mozambique construction industry.
Lack of trust in the system: One of the major issues that serve as a major constraint in the implementation of eProcurement in developing countries is the fact that there is little or no trust by people in the online transaction system. This is as a result of the high level of corruption in the developing world. In order to build a successful electronic society rules and regulations have to be in place and a new measure to govern electronic markets (Mahan & Melody 2005). This will increase in the level of trust among eProcurement partners (ibid). Unlike developed countries, there are little or no national legislations to protect the system. Greenhill (2009) stated that "A number of countries have yet to put in place a legal framework that addresses questions such as legal electronic contracts and digital signatures, the privacy and security of data transmission, and facilitation of electronic transaction". For example in South Africa and Mozambique, a study reveals that one of the greatest challenges for e-adoption was the fact that there were no policies and legal framework to guide the system (Morris 2006). As a result most businesses and individuals feel insecure to operate the online procurement, or run online markets.
High Level of Computer illiteracy (Digital Divide): This is a major problem in the use of the EP application, most especially in Africa. According to Odera et al (1993) "Africa seems to be a lost continent of the information technology. A great number of its population is not computer literate. This is not limited to the uneducated alone, but even among the educated, there seem to be a technology phobia, where people are use to the traditional ways of doing things. Even though most organizations seem to include some IT training into their training plan, but there is some form of technology phobia, most especially among elderly people and management staff. Technology is being associated with young people.
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