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An introduction to e-commerce and distributed applications
An introduction to e-commerce and distributed applications

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2.3 Procurement

The term procurement is used to describe the purchase of goods and services which are not directly used in the main business of a company. For example, a car manufacturer will procure stationery for its employees or procure training courses for them to attend in order to improve their skills.

A typical conventional procurement process consists of a number of steps:

  • the person making the procurement expresses their need by typing in details of a requisition using either a computer-based or paper-based form;

  • the form is then dispatched to a member of staff who checks that it has been filled in correctly, that the amount is no larger than the amount that they are able to authorise and that there are sufficient funds available for purchase;

  • if the form is authorised then it is sent on to a member of staff who is concerned with the purchasing of the good or service that is required; they then fill in a purchase requisition and send it off to the company who supplies the item that is to be purchased. If the item is over the limit for authorisation, then it is sent to someone who can authorise greater amounts.

This is in contrast to an e-procurement system which would automatically take the form produced by the person making the procurement, check that it satisfies all the company rules for procuring the item that is required, carry out authorisation if it is below a certain limit or send the form to someone who can carry out authorisation and then log the purchaser into the site of the supplier. He or she is then able to use this site to make the purchase, quoting an automatically generated procurement requisition number.

Again this is not hugely different to a conventional automated procurement system; however, it does cut out a number of inefficiencies at the purchase requisition end by virtue of the fact that the purchaser of a good or service is able to interact directly via the internet with the supplier. With procurement consuming as much as 10 per cent of a company's resources some large savings can be made by such an utilisation of e-commerce-based technology. Another example of the myth detailed in the previous section.

Microsoft and MSMarket

Microsoft discovered that 70 per cent of its purchases were for relatively small items which took up something of the order of 3 per cent of its purchase volume. The company discovered that a large amount of employee time was spent on the procurement process and hence invested $1.1 m on a system known as MSMarket. When a Microsoft employee wishes to buy some item such as stationery they log into MSMarket, the system identifies them from their login identity and consults its database to discern what rules should be applied to purchases from that employee. The employee informs the system that they require some stationery and a screen of items and prices negotiated with a supplier are displayed. The employee purchases what is required and the order is sent over the internet; an email is then sent to their manager to inform them of this and a tracking number generated which can be used to query the supplier if the item has not been delivered by a certain time. The use of MSMarket has increased exponentially since it was deployed and it now handles more than $3 billion of orders.