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AACE International

AACE International. E-Procurement in Project Management Revolution or Evolution. What is e-procurement.

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AACE International

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  1. AACE International • E-Procurement in Project Management • Revolution or Evolution

  2. What is e-procurement • Electronic procurement (e-procurement) is the acquisition of goods, materials and services using the Internet to source bidders, transmit criteria, request pricing, and commit and track orders. • EDI – Pre-curser to the Internet Electronic Data Interchange, capable of transmitting criteria and requests, obtaining pricing and confirming Purchase Orders electronically.

  3. What is e-procurement • Electronic procurement (e-procurement) is the acquisition of goods, materials and services using the Internet to source bidders, transmit criteria, request pricing, and commit and track orders. Electronic Commerce • (e-commerce) • e-commerce is any commercial activity on the Internet which encompasses on-line shopping, direct sales, marketing, on-line services, and any other commercial activity which is directed towards the Internet public as a whole; including e-procurement.

  4. Internet - Integral Part of Business Strategy • Growth of e-commerce has been rapid and is expected to double again by 2003. The trend within e­procurement is even greater, with an anticipated increase of more than 3 fold within the same time frame, and is the most active of the B2B applications. Source IDS, Department of Commerce

  5. The Electronic Marketplace • Marketplace Portals Internet Web Sites designed for B2B activity. • Horizontal Portal • Specific to an industry or market sector – combined resources to improve buying power (Collaboration). • Vertical Portal • Collection of industries complementing each other through economies of scale and broad-range partnerships. • Meta-Market • Interconnectivity of different industries linking portals of a common platform such as Ariba or Commerce-One.

  6. Why is e-procurement Significant • On-line access to potential Sellers and their product catalogues. • Establishment of a community (a marketplace) enhancing the purchasing power (leverage) of a single enterprise through co­operative association with other businesses. • “Reverse Auction” capabilities reduce acquisition costs of unbranded commodities. • Opportunity to exchange market intelligence and supplier performance evaluations within a larger network. • Opportunity to reduce the cost of the procurement transaction when purchasing MRO parts and unbranded commodities.

  7. Why is e-procurement Significant • Traditional Procurement Selected Supplier Award Buyer Demand Evaluate Source Bidders Bids Issue Bid Request Bidders

  8. Why is e-procurement Significant • e-procurement Selected Supplier Buyer Award Sellers Seller Profile Demand Evaluate On-line Product Catalogue Customer Pricing

  9. Why is e-procurement Significant • Reverse Auction Selected Supplier Buyer Award Demand Select low bid Bid Period Time Limit On-Line Reverse Auction Post / Revise Price Notify Bidders

  10. Marketplace Successes (Perceived) • Collaborative portal consisting of GM, Ford, Daimler Chrysler and other partners for the automotive industry. • Aerospace net marketplace created for aircraft manufacturers and their suppliers. • Net marketplace for the grocery industry launched as a collaborative project by world’s leading food, beverage and consumer product manufacturers. • Leaders in the Mining & Metals industry have teamed together to form a common marketplace through which all procurement for the industry will be managed.

  11. Impact on Project Management • Portals are suitable for commodity and MRO buying activity and primarily for “operating” companies or contractors. EPCM procurement does not necessarily fit the commonly accepted model for e­procurement. • Why is e-procurement an issue for Project Management and the EPCM business? • Client expectations • Client subscribed portals • Competition • Traditional EPCM system providers • Portals for EPCM & AEC sectors

  12. Impact on Project Management • Client expectations • EPCM and AEC Industry to be at the leading edge of e­procurement technology. • Maintenance of comprehensive seller databases complete with evaluations and qualification of seller performance. • Client subscribed portals • General Markets - 30 • Mining & Metals - 19 • Chemicals & Plastics - 24 • Energy (Oil, Gas & Electricity) - 7 • Pulp & Paper - 7

  13. Impact on Project Management • Competition • Fluor, Bechtel, Amec, Morris Knudsen and SNC-Lavalin all have an active interest in portals. • Traditional EPCM system providers • Blueline, Timberline, Primavera, and Constuctionworks all are developing web-enabled applications or have launched portals for the construction industry. Portals for EPCM and AEC sectors • Bidcom, buzzsaw, Cephren, PrimeContract, Build­online, AEC Connect.

  14. Impact on Project Management • How will e-procurement impact EPCM procurement? • Cost of procurement will increase as a direct result of transaction fees charged (i.e. 0.5% absorbed by the Seller and 1.0% as a fee charged directly to the Buyer). • Only those potential sellers who have registered on the particular platform will be included within the e­procurement database. In addition to the subscription fees the seller incurs a cost for every portal he joins (initial set-up, product catalogue, and maintenance) • The e­procurement product catalogue does not properly respond to the EPCM industry requirements for the tendering of engineered equipment designed to unique specifications.

  15. Impact on Project Management • How will e-procurement impact EPCM procurement? • “Reverse Auction” practices are not suitable for the material procurement of goods requiring compliance with established specifications or quality criteria. • The Non-integration of data will be an issue. Most EPCM Contractors have project management systems which function independently of the existing e­procurement platforms. Information recorded or created within the project management application program will need to be re-entered into the e-procurement web application, and vice versa. • Clients may require us to use the same portal to which they subscribe.

  16. Developing an e-procurement Strategy • The current trend in portals where e­procurement is managed as a chargeable transaction has little or no attraction within the EPCM industry; especially when Sellers are also charged fees to register and maintain a product catalogue. • Less promoted but very promising are the Web enabled systems which also support e­procurement. These are sold as application programs and Internet usage is not subject to transaction fees. • MyAircraft.com is a portal for the aircraft industry, employing a web enabled ERP application “WebPlan”. • CBC.com (Commonwealth Business Council) operates on a non-profit basis and uses Elcom.com’s purchasing system. • Ogma Consulting markets a web enabled purchasing system. • i2, S.A.P. and PeopleSoft are all aggressively introducing their own products.

  17. Developing an e-procurement Strategy • Traditional Procurement Selected Supplier Award Buyer Demand Evaluate Source Bidders Bids Issue Bid Request Bidders

  18. Developing an e-procurement Strategy • Web enabled procurement application Selected Supplier Buyer Award Sellers Seller Profile & Catalogue Order execution Demand Evaluate Supplier Performance Evaluation Product Database & Supplier Evaluation Source Bidders On-Line Bid Request Bids Notify Bidders

  19. Developing an e-procurement Strategy • Web enabled applications are particularly affected by the “common platform” problem. • Sellers are limited as to how many different platforms they can support and how many resources they can assign to maintaining the information. • A collaborative approach to the exchange of information is required. XML appears to be the new protocol, however there is no agreed standard.

  20. Conclusion • While e-procurement may be regarded as a revolution it is in fact an ongoing evolution of procurement’s exchange of electronic information. • What is new is Management’s involvement in e­procurement while EDI remained relatively ignored. • Many portals regard e-procurement as a potential source of revenue and have focused on the high-volume low-value catalogue purchases which typically have a relatively high procurement transaction cost within an organization. A 1% or 1.5% transaction fee is therefore deemed to be competitive

  21. Conclusion • EPCM procurement activity tends towards low-volume high value purchases which are not suited to the current transaction fee strategy. • Some clients have already invested heavily in there own portals and may require EPCM Contractors to use theirs. • Sellers incur significant costs to register, digitalize product catalogues and maintain the information in a variety of portals using a wide range of platforms. Eventually sellers will force the industry to standardize or establish a collaborative approach to the exchange of information. • Web enabled application systems are becoming more readily available, and these will provide the next stage of progression within the e-procurement process.

  22. AACE International • E-Procurement in Project Management • Revolution or Evolution

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