What Is Online Procurement?
Online purchasing is a transaction method for B2B e-commerce. All non-physical forms in the procurement process are carried out on the Internet, such as finding suppliers and required products online, negotiating trade online, ordering online, and even paying for goods online, but delivering goods offline Under this model, the scope of procurement is expanded, procurement procedures are simplified, procurement time is reduced, procurement costs can be saved, and work efficiency can be improved. [1]
Purchase online
- Online purchasing is a transaction method for B2B e-commerce. All non-physical forms in the procurement process are carried out on the Internet, such as finding suppliers and required products online, negotiating trade online, ordering online, and even paying for goods online, but delivering goods offline Under this model, the scope of procurement is expanded, procurement procedures are simplified, procurement time is reduced, procurement costs can be saved, and work efficiency can be improved. [1]
- What is online purchasing
- Online procurement is generally divided into tender procurement, competitive procurement, negotiated procurement and direct procurement.
- Comparison of traditional models
- Compared with traditional purchasing methods, online purchasing has the following advantages:
- Increase selection range;
- Reduce procurement time;
- Get a best price and reduce procurement costs;
- Increase the transparency of transactions and reduce the possibility of black box operations;
- Provide enterprises with the possibility of zero inventory.
- Data proof
- Research shows that online procurement can reduce procurement costs by 70% and product costs by 5% -15%. For example, Ford Motor s net income in 1999 was US $ 7.2 billion, but the purchase amount was as high as US $ 90 billion. It can only save $ 2.2 billion, and Ford uses a combination of bidding and online purchasing to save $ 18 billion and save 20% of costs. It can be seen that significantly reducing procurement costs is the core driving force for enterprises to adopt online procurement.
- There are three main business operation models for B2B online procurement: Sell-sidesystems supplier seller system, Buy-sidesystems buyer buyer system, and third-party transaction platforms / portals.
- 1) Sell-sidesystems seller system
- Sell-sidesystems is an e-commerce system established by one or more suppliers. It is usually connected to the supplier's intranet and docked with CRM to promote the company's online promotion and sales. The advantage of Sell-sidesystems is that it is easy to access, it can reach more buyers, and it can save a lot of sales costs. The disadvantage is that it is difficult for buyers to track and control purchasing expenses. For example, 85% of Cisco's products are network equipment for the Internet. Products sold through the CISCO seller platform exceed $ 40 million a day, saving at least $ 800 million in marketing costs each year, 24 hours a day, worldwide Purchasers within the network can log in to the online product market area of the Cisco website for online purchases.
- 2) Buy-sidesystems buyer system
- Buy-sidesystems is an e-commerce system jointly established by one or more companies to transfer market power and value to buyers. Buy-sidesystems is usually connected to the company's intranet and is connected to ERP. In foreign countries, multinational companies generally have their own online procurement systems, such as the global supplier network of General Electric (GE), the global auto parts supply jointly formed by General Motors, Ford, and Daimler-Chrysler Automobiles Business network; in China, some large enterprise groups have also established their own procurement platforms. For example, Vanke Group has established a joint e-commerce with more than 20 domestic developers to conduct centralized bidding for construction materials. In addition, In addition to the buyer system established by large enterprises, local government departments at all levels have also established government procurement websites, mainly for online bidding or bidding for office supplies.
- 3) Third-party trading platforms / portals
- There are two types of portals on the internet: Verticalportals and Horizontalportals. Vertical portals are online markets for products of a certain industry, such as steel, chemicals, energy, etc., which are mainly attracting buyers in this industry. For example, China Food Trade Network and China Feed Online are vertical portals in the agricultural and grain sector; The online procurement of electronic component products and online auctions are Chinese electronic component vertical portals whose core businesses are; Asian Business Online is a professional portal for office supplies procurement. Horizontal portals focus on products from multiple industries for purchase by buyers in different industries. In foreign countries, Ariba and Free Markets are representatives of horizontal portals. In China, there are purchasing channels opened by comprehensive portals such as Sina, Yahoo and Yahoo. Third-party trading platforms / portals can be further subdivided into procurement agents, alliance procurement and intermediary markets.
- Purchasing agent
- Third-party procurement agents provide companies with a secure place to purchase online, as well as services such as online bidding and real-time auctions. They license technology to companies and give them access to their suppliers.
- Alliance purchase
- A different group of companies aggregates the same (or similar) products they want to purchase in order to increase their collective purchasing power in order to obtain price discounts. This third-party system is jointly developed and maintained by this voluntary business alliance.
- Intermediary market
- The intermediary market is established by specialized online procurement companies to match online transactions between enterprises and multiple suppliers. This is the most common third-party electronic market. In addition to providing technical means, online purchasing companies also add value to corporate procurement processes through consulting and market analysis activities.
- Third-party systems
- The advantage of the portal is that enterprises do not need to invest a lot, they only need to purchase the services of third parties, and use the technology provided by third parties to make online purchases. The disadvantage is still the inability to track and control procurement expenditures.
- Online procurement is a new type of "win-win" procurement model for enterprises and suppliers.
- 1. Enterprises can make profits in the following areas:
- First, the entire procurement process is reasonable and orderly. In the past, the company's purchasing staff only focused on results. Usually, the orders were handed over to those suppliers who could meet the quality requirements and deliver on time. They may purchase from too many suppliers, but they do nt actually need that much; in addition, similar materials are often scattered among a large number of suppliers, and scattered purchases will make the company pay higher unit costs. The total cost of purchasing is also higher than needed because of the large number of suppliers to maintain. The online procurement process usually involves the company's manufacturing engineers, who review the drawings and sort the materials according to similar characteristics or processes. In this way, candidate suppliers can bid on merged materials with similar characteristics, which improves cost, delivery, and quality characteristics.
- Secondly, online procurement companies usually implement one-stop services for the entire procurement process, from contacting and identifying suppliers to determining the procurement time, and finally completing the procurement bidding, and tracking services all the way.
- Third, the online procurement process requires companies to evaluate other capable suppliers. In the past, these new suppliers may not be considered at all.
- Fourth, online procurement has reduced the time for price negotiations from months to hours, reducing the possibility of dramatic changes in the business environment affecting prices.
- Finally, online purchasing leads to market prices, which is information unknown to companies that are not good at cost analysis.
- 2. Online purchasing is also good for supply businesses.
- First, fair competition excludes some of the advantages enjoyed by existing suppliers, and competing suppliers have equal opportunities to win orders.
- Secondly, the expanded market is biased towards competitive suppliers, that is, qualified suppliers will be invited to participate in online purchases initiated by their current customers in the future, and they will have more opportunities to win business from new customers; Suppliers can therefore increase sales and expand customer reach, and reduce sales and marketing costs associated with this.
- Third, suppliers participating in online procurement can see market prices and verify their competitiveness, which is very competitive information. Fourth, the winning supplier wins a material order that has been organized by part or process series, which enables the supplier to focus on their core capabilities for production. Finally, online procurement processes often lead to multi-year long-term agreements, which are very useful for obtaining capital loans, especially for small businesses.
- Since the late 1990s, with the rapid development of network technology, online procurement projects have developed rapidly. On the one hand, the government vigorously promotes the informatization process and the application of e-government, and advocates that government procurement is carried out publicly through the Internet. On the other hand, companies have tried to increase the efficiency and cost of the Internet application, and have established websites or set up online Transaction activities have become the leading force to promote the development of e-commerce activities. Among them, online purchasing with SMEs as the main body is more active. In western countries, Internet application technology is relatively advanced and the Internet economy is more developed. Online procurement has been widely used in large companies and small and medium-sized enterprises. A survey by Goldman Sachs shows that the total amount of global companies' purchases via the Internet increased from approximately US $ 20 billion in 1999 to approximately US $ 460 billion in 2005, a surge of 23 times; Activ Media's "E-commerce Research Topics Series: The Real Numbers (2002) shows that more than 50% of business organizations purchase online. It can be seen that procurement through the Internet has become the mainstream form of corporate or government procurement. Compared with western countries, the pace of Internet application and popularization in China is relatively slow. The use of the Internet by domestic enterprises is still at the stage of establishing a primary information-based website. The website functions are relatively simple, and they are inconsistent with the application of enterprise internal management informationization. Said that the website function has not yet been connected with the internal ERP or CRM of the enterprise, which caused obstacles to the real-time transmission and processing of information. Therefore, most domestic companies often rely on the advanced functions of trading platforms to engage in online trading activities. After the bleak operation of the domestic Internet industry in 2000-2003, the two years have entered a period of recovery. E-commerce between enterprises has grown rapidly, and online procurement has been widely used among enterprises, especially in energy and material procurement, medical and health product procurement, construction Materials procurement, manufacturing companies' raw materials procurement, military material procurement, government procurement, and international trade are widely used. Taking Beijing, where Internet applications are more developed, as an example, Beijing Youth Daily reported on November 2, 2004 that 98% of Beijing's large and medium-sized industrial enterprises have established websites to use the Internet to implement online bidding, bidding procurement, online ordering, Online transactions, online payments and other business activities, among which the online bidding purchase rate exceeds 31%, which is nearly 12 percentage points higher than the national average.
- Analysis of the reasons
- The main goal of an enterprise's online procurement is to automate the processing and completion of key product or service orders with low costs and large quantities or affecting the business. Domestic online procurement has entered a growth stage. Many companies and companies have invested a lot in realizing online procurement due to the rapid growth of business or the need for competition, including the transformation of the original ERP or the construction of a new business system. After consulting a large amount of information, it is found that most current B2B online purchases are conducted through third-party transaction platforms, especially many SMEs generally conduct online purchases and transactions through transaction platforms such as Alibaba, HC Business Network, and China International Tendering Network. On the one hand, small and medium-sized enterprises often pursue short-term benefits and immediate benefits, and are unwilling to invest a lot of funds for internal enterprise information construction, especially ERP and CRM construction. , The trading platform can provide higher guarantees in terms of network security, online payment and transaction credit, and the trading platform has more advanced business functions, has more enterprise resources and information resources, and can provide member companies with a mutual supply and demand resource sharing This platform is suitable for the needs of SMEs participating in e-commerce. On the other hand, online procurement is often closely linked to the supply chain management of the enterprise and becomes a system. Many multinational companies or large manufacturing companies are driven by the ERP management model to build an online procurement system to achieve the relationship between enterprises and suppliers. The connection and sharing of information; however, for SMEs, the role of supply chain management in the enterprise is not very prominent, companies often do not invest huge amounts of money to establish an ERP system, the endogenous power of the enterprise to establish an online procurement system Insufficient, more inclined to rely on external forces-trading platforms. Therefore, in the field of B2B (merchant-merchant), SMEs rely more on procurement platforms for e-commerce activities; in the field of B2C (merchant-consumer), the opposite is true. SMEs make extensive use of trading platforms and value business websites. It has played an active role in expanding publicity, facilitating purchase, and low sales expenses, focusing on the construction of its own business website, and even some companies themselves operate a sales website. Compared with the weak information construction of SMEs, large or extra large enterprises pay more attention to the construction and development of their online procurement systems. For example, domestic Haier Group, Gree Air Conditioning, and Vanke Group have established their own procurement websites. Large enterprises have huge costs in the procurement process and high procurement costs. By strengthening ERP management and online procurement, they can save a lot of procurement costs and expenses. Many large enterprises have previously established ERP management systems. On this basis, it is easier to report to Online purchasing expansion.
Prospects for the online purchasing market
- The market potential of B2B online procurement is huge, and it will become one of the main ways of e-commerce applications. According to the Gartner Group, the total value of global B2B e-commerce in 2004 reached about US $ 7.3 trillion, of which the total value of the Asia-Pacific market increased sharply from US $ 9.2 billion in 1999 to US $ 995.8 billion. During this period, major B2B transactions occurred in In the supply chain of enterprises, it is expected that in 2005-2006, 10% of the world's raw materials will be purchased online. At the same time, an IDC survey shows that by 2006, the amount of domestic transactions through online procurement platforms will reach 35 billion US dollars. Therefore, this article believes that in the era of the network economy, the procurement methods of enterprises are rapidly changing to the direction of electronic procurement. Online procurement will gradually replace manual procurement and become the main procurement method for domestic and foreign enterprises. For large or very large enterprises, enterprises will invest more funds to improve ERP management, strengthen the development and construction of Buy-sidesystems buyer system or Sell-sidesystems seller system; for small and medium enterprises, the trading platform will still be in a certain period It has become the main way for enterprises to achieve online procurement. However, with the popularization and deepening of domestic e-commerce activities and the widespread application of information construction in SMEs, the demand for SMEs to build their own online procurement systems will increase. Because, on the one hand, with the expansion of the production scale of the enterprise and the increase in the frequency of procurement, the commissions paid by SMEs to the trading platform naturally increase, and the procurement costs naturally increase. On the other hand, for production and processing SMEs, enterprises must not only maintain existing suppliers, but also enhance production, procurement, and real-time sharing of information with suppliers. These cannot be satisfied by trading platforms, forcing small and medium-sized enterprises Enterprises must establish their own EPR system and online procurement system.
Prospects for the online purchasing industry
- The industries suitable for the development of BtoB online procurement should have the following common characteristics: First, the industry itself has a high degree of informatization, and companies in the industry have established junior websites, and many companies have already tried the benefits of online transactions; High, suitable for online display; Third, the product structure is complex and the traditional circulation method has a long time. Online purchasing can improve procurement efficiency. This article believes that the industries currently suitable for the above conditions are:
- 1) Petroleum and chemical products
- As a traditional industry, the petrochemical industry has a history of 200 years. From the emerging industry to the sunset industry, during the 200-year development process, its production, supply and marketing model has become extremely mature and has become a classic of the traditional industry. The trading volume of chemical products is large, the user group and the supplier are relatively fixed, and the quality and specifications also have strict regulations, which are more suitable for online display. The petrochemical industry's use of BtoB online procurement can reduce sales and procurement costs for both supply and demand. It can be said that B2B online trading is a change and impact on the sales model of the traditional petrochemical industry, and has great development potential. Taking Sinopec as an example, Sinopec has implemented online purchases since 2000. Online purchase transactions in 2001 were 7.6 billion yuan, 12 billion yuan in 2002, 24.2 billion yuan in 2003, and 48.2 billion yuan in 2004, at an average annual rate of over 100%. increase. At present, Sinopec's production and construction companies have all realized online procurement.
- 2) Medical and health products
- At present, the circulation of China's pharmaceutical product market is relatively complicated. The procurement costs of hospitals and pharmacies are relatively high, which has increased the retail drug prices to a certain extent. The application of the Internet has greatly promoted the supply and marketing of traditional medical and health products. B2B online procurement can not only greatly expand the supply channels of medical and health products, but also significantly reduce the purchase price through online bidding. At present, hospitals and pharmaceutical sales departments in some large and medium-sized cities in China have adopted online procurement for product procurement.
- 3) Home appliances
- Appliance market
- 4) Office supplies
- The consumption of office supplies by enterprises and government departments supports a large market for office supplies. Office supplies are often of low value. Traditional manual purchases require relatively high purchase costs, and frequent small purchases seriously reduce procurement efficiency. , Which increases procurement costs. Centralized online procurement can solve the above problems, and the government's online bidding for office supplies can also improve the transparency of government procurement. In recent years, there have been many B2B trading platforms specializing in office supplies procurement in China, such as Asia Business Online and OA Online. At the same time, in the area of e-government, local government departments have also implemented procurement of online public bidding for office supplies. the way.
- 5) Textile products
- There is a natural advantage in developing BtoB online procurement for the textile industry in China. Since 1994, China's textile and apparel exports have ranked first in the world for 7 consecutive years, and the development of China's textile industry has had a significant impact on the production and trade of global textile raw materials and textile products. After joining the WTO, rational use of information resources, optimal allocation of human, financial and physical production factors of enterprises to form effective production, and continuous improvement of innovation capabilities and reduction of procurement costs through informatization construction will become a further increase in competition among Chinese textile enterprises. An important way of force. According to statistics, the global trade volume of the textile industry reaches US $ 550 billion per year. Based on the envisaged e-commerce saving of 10% for textile manufacturers, this is a market worth US $ 55 billion. Mainland China accounts for 13% of global textile trade, while Hong Kong and Taiwan each hold 1
- Textile products
- 6) Electronic products The computer and electronics industry is undoubtedly the industry with the highest level of informatization. Its BtoB is likely to be characterized by the expansion of the manufacturer's supply chain and the use of the network to produce and sell final products. DELL and CISCO are among them. representative. The computer and electronics industry has a huge market share. In 1999, the transaction value of computers and electronic products through the BtoB website accounted for 8.2% of the entire BtoB industry. The computer and electronics industry has a high degree of standardization of products, and because of the large number of parts, it makes purchasing difficult and the time increase. By purchasing online, you can save a lot of time, intermediate processes and business personnel.