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Chapter 13 Supply chain planning and control 381
It may seem as though companies that multi-source do so exclusively for their own shortterm
benefit. However, this is not always the case: multi-sourcing can bring benefits to both
supplier and purchaser in the long term. For example, Robert Bosch GmbH, the German
automotive components business, required that subcontractors do no more than 20 per cent
of their total business with them. This was to prevent suppliers becoming too dependent
and allow volumes to be fluctuated without pushing the supplier into bankruptcy. However,
there has been a trend for purchasing functions to reduce the number of companies supplying
any one part or service.
Purchasing, the Internet and e-procurement
E-procurement
For some years, electronic means have been used by businesses to confirm purchased
orders and ensure payment to suppliers. The rapid development of the Internet, however,
opened up the potential for far more fundamental changes in purchasing behaviour. Partly
this was as the result of supplier information made available through the Internet. By
making it easier to search for alternative suppliers, the Internet changed the economics of
the search process and offers the potential for wider searches. It also changed the economics
of scale in purchasing. For example, purchasers requiring relatively low volumes find it
easier to group together in order to create orders of sufficient size to warrant lower prices.
E-procurement is the generic term used to describe the use of electronic methods in every
stage of the purchasing process from identification of requirement through to payment,
and potentially to contract management. 3 Many of the large automotive, engineering and
petrochemical companies, for example, have adopted such an approach. Typical of these
companies’ motives are those put forward by Shell Services International, part of the petrochemical
giant: 4
‘Procurement is an obvious first step in e-commerce. First, buying through the web is so
slick and cheap compared to doing it almost any other way. Second, it allows you to
aggregate, spend and ask: Why am I spending this money, or shouldn’t I be getting a bigger
discount? Third, it encourages new services like credit, insurance and accreditation to be
built around it.’
Generally the benefits of e-procurement are taken to include the following.
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It promotes efficiency improvements (the way people work) in purchasing processes.
It improves commercial relationships with suppliers.
It reduces the transaction costs of doing business for suppliers.
It opens up the marketplace to increased competition and therefore keeps prices
competitive.
It improves a business’s ability to manage their supply chain more efficiently.
The benefits of
e-procurement go
beyond reducing costs
Note how lowering prices (purchase costs to the buyer) is only one of the benefits of
e-procurement. The cost savings from purchased goods may be the most visible advantages
of e-procurement, but some managers say that it is just the tip of the iceberg. It can also be
far more efficient because purchasing staff are no longer chasing purchase orders and performing
routine administrative tasks. Much of the advantage and time savings comes from
the decreased need to re-enter information, from streamlining the interaction with suppliers
and from having a central repository for data with everything contained in one system.
Purchasing staff can negotiate with vendors faster and more effectively. Online auctions can
compress negotiations from months to one or two hours, or even minutes.
Electronic marketplaces
E-procurement has grown largely because of the development over the last ten years of
electronic marketplaces (also sometimes called infomediaries or cybermediaries). These
operations which have emerged in business-to-business commerce offer services to both