Advantages & Disadvantages of E-Procurement

The Internet has brought about major changes in the way that people interact with one another, and this includes the world of business. The Internet has given rise to e-procurement, through which businesses can interact with one another without being hampered by location. E-procurement results in much more efficient operations but does take some time to implement properly, Business owners desiring to get into e-procurement should consider the advantages and disadvantages before making a business decision to move to the Internet.

E-procurement (or business-to-business networks) is an online system by which companies can be connected directly to suppliers for the purpose of buying products and services at the lowest cost possible. E-procurement essentially replaces its offline version, called tendering. The advantages and disadvantages of e-procurement mostly parallel the universal benefits and disadvantages of the Internet.

E-procurement increased in the second half of 1999, when online auctions and product catalogues became commonplace on the Internet and continued to expand. The convenience online buying offered, even in its infancy, led e-procurement to reach as high as £94 billion in transactions in 1999, according to a 2001 article in "Product Inventory and Management Journal," by Evgeniy Ageshin. A study by Deloitte Consulting in the fall of 1999 concluded that 85 per cent of firms that made use of e-procurement systems were highly satisfied with its benefits. According to Ageshin, e-procurement is still a growing trend, which started with General Electric and Wal-Mart creating buying and selling hubs over the Internet. Internet commerce expanded, as companies like Amazon.com brought together diverse groups of buyers and sellers. Vertical markets (for example, insurance, heavy manufacturing, banking and real estate) have also joined e-procurement consortiums.

The low cost of information and technology courtesy of the Internet is a major advantage of e-procurement. The costs of buying or selling as well as barriers to market entry have significantly been lowered as operation costs are reduced. Prices are more transparent, maverick buying (purchases that occur outside of an organisation's guidelines) is avoided, businesses can easily use preferred supplier networks, and there is better balance of power between buyer and seller given that information is much more available.

E-procurement systems also allow more efficient integration of supply chains and provide better organisation and tracking of transaction records for easier data acquisition, according to Ageshin. Transactions can be standardised and all bids for products and services can be tracked more easily, allowing business owners to use such knowledge to obtain better pricing. Due to faster exchanges of information and delivery of goods and services, e-procurement also promotes shorter product-development cycles.

Disadvantages of e-procurement are mostly on the side of the supplier. Ageshin suggests that buyers reap more benefits than suppliers such as shorter ordering cycles, a wider adoption of "just-in-time" practices and increased supplier involvement in product development.

On the other hand, Ageshin says that suppliers face problems such as high training costs, the necessity of dealing with more than one marketplace, higher risk of data compromise and full organizational restructuring in some cases. Some suppliers used to dealing with clients face-to-face may find online transactions uncomfortable, since suppliers don't necessarily know whom they are dealing with online. Just like online dating, knowing and verifying an organisation over the Internet is more difficult, and deception is easier to carry out online.

Another disadvantage of e-procurement services is rapidly growing multiple standards. Both buyers and suppliers are uncertain of which e-procurement service provider will survive or become obsolete. Multiple standards also add to the confusion about which one to use and may increase costs for the seller as it attempts to fulfil multiple standards.