E- Procurement and Buyer- Supplier Collaborative Relationships

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Introduction

In our technology oriented dynamic world, every day we come across new opportunities and new challenges, as a result of which people and governments across the globe are being pressurized to work harder and faster, using smarter means of communication and technology. Rahim and As-Saber (2009) indicated,

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Procurement is a function of considerable importance to public and private sectors alike. Such an importance can be attributed to the fact that procurement accounts for most of the organizational spending across the majority of organizations worldwide (Rahim and As-Saber, 2009).

According to Turban and Wetherbe, (2007) “Electronic commerce or e-commerce is the procedure of selling and buying services or products with the help of electronic systems” (Turban and Wetherbe, 2007). Computer networks or the internet is the common fundamentals of the electronic system. Over the last decade, this form of business has grown into a huge volume and has spread all over the world. There are different forms of electronic business starting from automated data collection systems to “inventory management systems, electronic data interchange, online transaction processing, Internet marketing, supply chain management and electronic funds transfer” (Turban and Wetherbe, 2007). This form of business is able to reach a global market on a fast note and the cost is considerably low. As the focal point of the study is the e- procurement and its possible impact on collaborative relationships between Buyers and Suppliers, it is important to understand the consequences where this e-procurement delivers.

Literature review

Business to Business, (B 2 B) Electronic Commerce (E Commerce) has brought about a sea change in the way transactions are carried out between different entities in business. B2B provides a way for manufacturers to develop products for clients, circumventing the traditional channels involved in doing business. The manufacturer, vendors and customers can directly communicate with each other rather than letting intermediaries mediate. In facilitating easy access, E Commerce provides a cost saving method for different parties to a business to develop maximum productivity. The geographical barriers to conducting trade or manufacturing no longer exist. A manufacturer can sell or market through the Internet on a ‘virtual’ platform but will make huge profits in the real world as he can now get through to a buyer or supplier any where in the world (Alshawi and Alalwany, 2009). According to Chang, Markatsoris and Richards (2004), “e-Procurement application is data intensive and requires data from a variety of sources” (Chang, Markatsoris and Richards, 2004).

Specifically E Commerce integrates telecommunications, computers and stream lined work processes. Business to Customer (B2C) e commerce enables customers to get in touch with manufacturers. B2B helps organizations communicate. In both forms of this system, parties to a transaction avoid the unnecessary overhead costs and the impact of the technology does more to expand the business than before. The digitized transaction will require taxation and customs regulations to be reviewed to adapt to this change (Chan, 2008).

In many parts of the world, resources are inadequate or stretched to produce mediocre good, which do not find worldwide markets. Even those firms, which aspire to international reach for their products, are hampered by poor infrastructure and unnecessary problems on the way. Additionally there are government regulations, which have not reacted to changing technological environments as rapidly as they should. Partly this may be due to political compulsions especially in developing countries, which impede quick decisions and action. There are developing countries, which could be serious players in the B2B scenario but are not cost competitive enough (Turban and Wetherbe, 2007).

B2B e-business exchange model (e-procurement) has been an issue in developing countries where it is a relatively new tool for production enhancement. The model is delivered through channels using information technology and information exchange. For example, instead of having to send along inventory, a manufacturer can rely on the vendor managed inventory software for B2B, which relies on a certain level of information substituting actual inventory.

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Manufacturers principally use B2B processes, to pass down to suppliers their requirements of their manufacturing program. A traditional supply management program would have involved intricate formalities to be fulfilled. Electronic trading improves productivity, greatly enhances customer satisfaction, and a major consequence of adopting it is reduced inventory lines due to just in time production methods. The need for stocking inventory is negligible as information passes rapidly down the electronic corridor. One of the greatest advantages of an e commerce platform is that information is exchanged between manufacturer and customer directly. Therefore, a product can be designed quickly and delivered. This motivates a shift to a more customer centric focus rather than a top-heavy inventory policy, which can lead to a build up of obsolete stock (Wagner, Cheung and Lee, 2009).

The greatest advantage of E commerce is the flexibility it provides to production to take advantage of information sharing long the production chain. A production unit can manipulate this information to great profit customer needs can be coordinated better with processes. In future, order processing, invoicing and transportation may increasingly share the resources of e commerce. If such an eminent and important presence it is obvious that more research is needed on this sector particularly in the field of effective B2B e-business exchange model (e-procurement) and its possible impact on collaborative relationships between Buyers and Suppliers.

Thus, in the context of E-procurement, Thawiwinyu and Laptaned (2009) clearly stated that

The utilization of E-procurement is also critical in that well planned and effective utilization of Internet can free purchasing managers’ time from transactional activities related to order processing and turn their attention to value-adding purchasing activities (Thawiwinyu and Laptaned, 2009).

So, the benefit for this process is great. With e-procurement, the huge cost of communications between different agencies can be reduced immensely. Using e-mails, intranets and the internet, the agencies can cut down costs of communications and provide faster services to citizens, businesses and other government organizations.

Alongside, it should be noted that every company in order to use Information Technology most effectively in the advantage of the company has to work out some strategies, which will give them competitive edge over other companies, help them to get more profit and all. And as each company have different needs and also different types of businesses all of them have different strategies. But in general case, we can discuss the factor by a common model. There are four factors that determine the intensity of rivalry for a company. They are substitutes, new entrants in the market, the suppliers and the buyers. The substitutes are the other companies and their prices and range of performance is a real factor. The new entries in the market are also a potent threat as they will try to get a foothold in the market by all the means. The suppliers and buyers are always in the most important scheme of a company. The strength of the forces is determined by the structure of the industry (Quayle, 2005). It is to be noted that there is a few influences on a company after it becomes digital and web based.

In a nutshell, the influences of internet on a company are:

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  1. The threats of new entries in the market (every now and that a new company enters into the market, and all the existing companies have to be well aware of the companies strategies, techniques of catching the market, as the new company will try very hard to catch the market) (Yu, 2008).
  2. The bargaining power of the suppliers(the suppliers will always want that their amount of profit would grow up, and the company has to manage this)
  3. The bargaining power of the customers (customer is king, but the bargaining power of them is a cause of worry of the companies. They have to make products in such a way so that the customer cannot bargain about that) (Xiao, Xiao and Zhao, 2007).
  4. Threat of substitute powers and services
  5. Rivalry among existing firms

To be very precise, Encyclopedia Britannica, which was a brand name for generations, is facing stiff competition for web based services. Porter proposed some solutions and strategies like:

  1. Cost Leadership strategies
  2. Differentiation strategies
  3. Niche Strategy
  4. Growth Strategy
  5. Alliance Strategy
  6. Innovation Strategy (Alshawi and Alalwany, 2009)

Porter also proposed a value chain model which is divided into two parts, primary and support activities are the two activities of any manufacturing company. The primary activities are:

  1. Inbound logistics(inputs)
  2. Operations(both manufacturing and testing)
  3. Outbound logistics(storage and distribution)
  4. Marketing and sales
  5. Service (Yu, 2008)

The primary activities are supported by support activities. As:

  1. The firm’s infrastructure
  2. HR management
  3. Technological Development
  4. Procurement (Chan, 2008)

To gain and sustain competitive advantage the support of IT requires the whole understanding of the value system. The applications of Porter’s models are still valid in the digital age with some adjustments for the digital age. Though there are some managerial issues in the work like risks in implementing strategic information systems, planning and sustaining competitive advantages. But one has to really admit that this procedure has really helped modern day businesses like anything. Pearcy, Parker and Giunipero (2008) stated, “Increasing numbers of firms use e-procurement in an attempt to enhance these key business outcomes” (Pearcy, Parker and Giunipero, 2008).

Challenges

Online transactional systems have very low usage levels and are often restricted to businesses rather than citizens. According to latest reports from the Saudi Ministry of Information and Communication, only about 13 to 15 % of the entire population is net-savvy on a regular basis (Nerkar, 2008). Al-Khouri and Bal indicated that in GCC Countries G2C e-government is “progressing but in a slow motion because of the lack of a trusted and secure medium to authenticate the identities of online users” (Al-Khouri and Bal, 2006). In developing countries like Saudi Arabia, there is a lack of accountability of this system as there are no monitoring agencies or professionalism in governance. Government rules and regulations are quite complex and they will need to be altered a lot to achieve transparency of information flow (Wan, Wang and Zheng, 2007).

Thus, it can be safely stated that in the ever changing global economy, e-commerce and e-business have increasingly become one of the most necessary components of business strategies for all the big business houses. It can also be termed as a strong catalyst for economic development for any company and it provides a unique competitive advantage for the company using it. Strategic positioning of e-commerce provides a unique edge for the company. E-commerce refers to a wide range of online business possibilities and as the name suggests the business is always done through internet, where parties interact digitally (Xiao, Xiao and Zhao, 2007).

But e-commerce and e-business are two different concepts. As in e-commerce, information and communications technology (ICT) is used in inter business or in cases inter-organizational; transactions while ICT is the tool for enhancing e- business. The primary processes of e- business are production processes, customer-focused processes, and internal management processes (Turban and Wetherbe, 2007).

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E-commerce is based upon our day to day activities and can be very well executed by these factors. Some of the e-commerce execution tools are “emails, enterprise content management, instant messaging, online shopping, online order tracking, online banking, and online office suites, teleconferencing” (Turban and Wetherbe, 2007) etc. Alongside, “Domestic and international payment systems can also be performed by this process” (Turban and Wetherbe, 2007). There are different forms of e-commerce. One of the fundamentals is the process m-commerce or mobile commerce. Another important aspect is C2C or consumer-to-consumer. Similarly, B2G or business-to-government and B2C or business-to-consumer is all important process. However, the most important is B2B or business-to-business e-commerce process (Wagner, Cheung and Lee, 2009).

E-infrastructure and e-market are two primary segments of B2B e-commerce. Electronic paying system or EPS is one of the widely used applications of B2B e-commerce. Governments should be one of the lead-users of e-commerce. The existences of governments have created a very positive influence on e- commerce and it is called e-government. E-government can be like online transactions such as registration, taxation for companies, applications for a variety of employee- and business-related requirements, and the like of other government works. Digitalization will smooth the work of government. Government can use e-commerce in tax procurements, e-procurements, and customs clearance. Reduction in marketing costs and other miscellaneous costs, low-cost in the maintenance of infrastructure is found here. As a result, according to Nøkkentved and Hedaa (2007), “As the cost and latency or friction is removed from B2B transactions, companies will be more willing to consider outsourcing what were once core business processes” (Nøkkentved and Hedaa, 2007). This in turn renders positive effects on buyer and suppliers. Thus, it can be stated that e- procurement and its possible impact on collaborative relationships between Buyers and Suppliers.

As with all the business, it also has some ethical aspects. The business managers deal with a lot of personal knowledge of the consumers. And they must be utterly careful in using that. The safety of the customers’ finances and other important details is presented in form of useful data. Withstanding this risk, this can be safely said that this is the future of business (Wagner, Cheung and Lee, 2009).

Conclusion

Business to Business, (B 2 B) Electronic Commerce (E Commerce) has brought about a sea change in the way transactions are carried out between different entities in business. B2B provides a way for manufacturers to develop products for clients, circumventing the traditional channels involved in doing business. In facilitating easy access, E Commerce provides a cost saving method for different parties to a business to develop maximum productivity. Specifically E Commerce integrates telecommunications, computers and stream lined work processes. Business to Customer (B2C) e commerce enables customers to get in touch with manufacturers. B2B helps organizations communicate. The model is delivered through channels using information technology and information exchange. Manufacturers principally use B2B processes, to pass down to suppliers their requirements of their manufacturing program. The need for stocking inventory is negligible as information passes rapidly down the electronic corridor. One of the greatest advantages of an e commerce platform is that information is exchanged between manufacturer and customer directly. B2B e commerce may greatly impact the way B2B e-business exchange model (e-procurement) are handled by sharing information on production schedules and demand forecasts and this is particularly effective for buyers and suppliers.

References

Al-Khouri, A.M. and Bal, J. (2006). Electronic Government in the GCC Countries. International Journal of Social Sciences 1(2), 83-98.

Alshawi, S. and Alalwany, H. (2009). E-procurement Evaluation: Citizen’s Perspective in Developing Countries. Information Technology for Development, 15(3), 193–208.

Chan, H. (2008). Intelligent Spider For Information Retrieval To Support Mining-Based Price Prediction For Online Auctioning, Expert Systems With Applications. International Journal, 34(1), 347-356

Chang, Y., Markatsoris, H., and Richards, H. (2004). Design and implementation of an e-Procurement system. Production Planning & Control, 15(7), 634–646.

Nerkar, A. (2008). Determinants of invention commercialization: an empirical examination of academically sourced inventions. Strategic Management Journal, 28(11), 1155-1166.

Nøkkentved, C., and Hedaa, L. (2007). Collaborative Processes in esupply Networks. Center for Applied Management Studies, 1(2), 1-40.

Pearcy, H., Parker, D., and Giunipero, L. (2008). Using Electronic Procurement to Facilitate Supply Chain Integration: An Exploratory Study of US-based Firms. American Journal of Business, 23(1), 23-35.

Quayle, M. (2005). The (Real) Management Implications of E-procurement. Journal of General Management, 31(1), 23-39.

Rahim, M., and As-Saber, S.N. (2009). E-Procurement Adoption Process: The Experience of an Australian City Council. Sydney: Monash University.

Thawiwinyu, K. and Laptaned, U. (2009). The impact of strategic sourcing and E-procurement on supply chain performance management. China-USA Business Review, 8(8), 8-25.

Turban, E. and Wetherbe, J. (2007). Information Technology For Management: Transforming Organizations In The Digital Economy. 4Th Ed. Delhi: Wiley-India.

Wan, J. P., Wang, Y. F., and Zheng, C. W. (2007). Research on IT Service Management Knowledge Support Structure. 2007 International Conference on Wireless Communications, Networking and Mobile Computing, 1(15), 6613-6616.

Wagner, C., Cheung, K. and Lee, F. (2009) Enhancing E-government in Developing Countries: Managing Knowledge Through Virtual Communities. The Electronic Journal on Information Systems in Developing Countries, 14(4), 1-20

Xiao, Y., Xiao, M., and Zhao, H. (2007). An ontology for e-procurement knowledge modeling and interoperability. 2007 International Conference on Wireless Communications, Networking and Mobile Computing, 1(15), 3605-3608.

Yu, C. C. (2008). Building a Value-Centric e-Government Service Framework Based on a Business Model Perspective. Electronic Government, Proceedings, 51(84), 160-171.

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