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Procurement Management Using Buyer's Internal Market Place

Improvements to procurement have been attempted for decades, usually by using information technologies. The real opportunity for improvement lies in the use of e-procurement, the electronic acquisition of goods and services for organisations. The general e-procurement process (with the exception of tendering) is shown in figure 2.8. 

One effective solution to the procurement problem in large organisations is to aggregate the catalogues of all approved suppliers, combining them into a single internal electronic catalogue. Prices can be negotiated in advance or determined by a tendering, so that the buyers do not have to negotiate each time they place an order.





By aggregating the suppliers' catalogues on the buyer's server, it is also easier to centralise and control all procurement. Such an aggregation of catalogues is called an internal procurement marketplace. 

Benefits of Internal Marketplaces 
1) Corporate buyers can use search engines to look through internal aggregated catalogues to quickly find what they want, check availability and delivery times, and complete electronic requisition forms.
 
2) A company can reduce the number of suppliers it uses. For example, Caltex, a multinational oil company, reduced the number of its suppliers from over 3,000 to 800. Such reduction is possible because the central catalogue enables buyers at multiple corporate locations to buy from remote but fewer sellers. Buying from fewer sellers typically increases the quantities bought from each, lowering the per unit price.
 
Desktop Purchasing 
The implementation of internal purchasing marketplaces is frequently done via desktop purchasing. 

In this variation of e-procurement, suppliers' catalogs are aggregated into an intermal master catalog on the buyer's server, so that the company's purchasing agents can shop more conveniently. Desktop purchasing is most suitable for maintenance, replacement, and operations (MRO) indirect items, such as office supplies. 

In the desktop purchasing model, a company has many suppliers, but the quantities purchased from each are relatively small. This model is most appropriate for government entities and for large companies, such as Defra in the U.K. 

Desktop purchasing automates and supports purchasing operations such as product and supplier selection, requisitions, catalog searches, approval processes, purchase order processing, catalog updates and content management and report generation. 

A schematic overview of such a system is shown in figure 2.9.



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