`What exactly is online procurement, and how can my business benefit?’

Jun 01, 2000 9:30 PM  By

Online procurement is obtaining online anything needed to operate a company or produce a product. This includes a wide range of products and services, from office supplies and Web design tools to chemicals and electronic components. Online procurement generally falls into five categories:

Procurement solutions: These applications integrate purchases from a variety of vendors and procurement sources, including electronic product catalogs, Websites, exchanges, auctions, and requests-for-quotes (RFQs). With these solutions, nearly every aspect of procurement, including product search, requisition, managerial approval, order tracking, invoicing, billing, integration with accounting and financial systems, and collection of purchase data, can be handled online. Procurement solution providers such as Ariba, Commerce One, Concur Technologies, Intelisys, Oracle, among others, offer electronic procurement applications and develop electronic marketplaces.

Click and buy e-tailers: Commonly used for frequently purchased products, click and buy sites offer easily cataloged products and services. Staples.com, for example, offers a catalog of office supplies, while Grainger.com sells maintenance, repair, and operations supplies. People can search, click, and buy directly from these sites.

Vertical Marketplaces: Certain Websites aim to be one-stop destinations for industrial or functional vertical markets, ranging from chemicals to human resources. These sites commonly combine commerce opportunities – such as a steel exchange, or an RFQ system for electronic components – with community features such as chat rooms, and industry-specific content. Examples of vertical marketplaces include Chemdex, E-Steel, Sciquest, Neoforma and PlasticsNet.

Forward Auction Sites: Forward auction sites, such as Dovebid, TradeOut and E-Bay’s Business Exchange, are best suited for selling unique or limited inventory products. These sites are a great way for companies to easily unload excess inventory and improve their bottom line. One wholesale clothing company, for example, recently used Tradeout.com, a trading exchange, to find buyers for 12,000 sets of children’s pajamas and warm-up suits.

Reverse auction sites: On these sites, buyers specify their service or product needs, and sellers then bid on them. Reverse auctions are best suited for buyer-specific services and products, such as customized services (i.e., Web design), or for large orders of customized products, such as specific manufactured parts. My firm BizBuyer.com, for example, provides businesses with a request-for-quote marketplace of qualified vendors across 63 categories. It lets buyers compare and contrast customized quotes, view vendor profiles and ratings, and consult with purchasing advisers. Reverse auction sites can save buyers time and money, while providing vendors with low-cost, targeted leads.

Let’s view this from the perspective of a business interested in providing an e-procurement service for its customers. First, to make sure you will be successful, you need several things, the most important of which is a top-notch online ordering system – a system that’s easier for customers to use than your offline ordering system. Pay close attention to how easy it is to make a purchase – can you buy what you need in one click? Are the items prioritized according to the customer’s needs and wants? How many choices do you offer? Too few? Too many? Consider how you handle purchase orders and credit redemptions, and where you list your guarantees, warranties, and shipping charges. You will likely want to standardize your ordering procedures and policies – something many big companies prefer.

Before you develop your system, you should ask customers – via an online/offline survey, or through your sales reps – what they are looking for in online procurement. Also ask what types of e-procurement management software they are using. This will give you a good indication as to how the buying process is being managed and will allow you to develop your systems accordingly. You’ll also want to ask if they want you to manage the process or if they want to manage it themselves.

One of the major benefits of an e-procurement system from a customer’s perspective is that it can save a tremendous amount of time. It helps consolidate everything from paper clips to forklifts in one place, and then manages where and how to buy each item. It tells you where the best prices are, who has product, and simplifies the purchasing of those products.

On your end, knowledge of your customers and their needs is critical. Your system needs to be able to capture all of the information about their buying habits. For instance, you may need to accommodate multiple Bill To’s and Ship To’s, special shipping or packaging instructions, as well as a variety of discount structures. You’ll also want to know what items your customers are inquiring about and what items they’re quoting to help improve conversion.

To get the biggest bang for your buck, you should carefully review your upselling and cross-selling strategy program. Develop automatic delivery programs for items that are needed on a regular basis, offer additional incentives for those orders that exceed your typical average order (for example, if your average order is $500, give an additional 5% off any $600-plus order), and reward customers with special offers for using the site and for using it frequently.

You may also want to offer custom pages. Many e-procurement companies offer custom pages to only their biggest customers – to make it easy for them to take advantage of their special prices and product configurations. But the more successful firms offer special pages for all customers.