Risks and impacts of e-procurement

The Tranmit (1999) report above indicated that in the UK and throughout Europe, adop­tion of e-procurement is low, with less than a fifth of large companies adopting this technology. It may be possible to explain low adoption through a consideration of the risks and impacts involved with e-procurement. A PricewaterhouseCoopers survey of 400 senior European business leaders indicates that security concerns and lack of faith in trading part­ners are the most significant factors holding back e-procurement (Potter, 2000). Potter states that authentication of identity is the main issue. He says ‘People need to be satisfied about
who they are dealing with. They need to know that their messages have not been intercepted or corrupted on the way, and most importantly they are legally non-repudiable – meaning that the other party can’t walk away from it in a court of law.’ He goes on to say that the security fears are well founded, with nearly two-thirds of companies relying solely on pass­word protection when dealing with suppliers. Trusted third-party certification is required for the level of trust to increase. While the Internet may give the impression of making it readily possible to swap between suppliers and use new suppliers, two-thirds of those inter­viewed said building a trusted relationship with suppliers is necessary before they would trade using the Internet. The nature and solution of Internet security risks are studied in more detail in Chapter 11, p. 652.

1. Organizational risks

If the cost savings referred to earlier in the chapter are to be achieved it may be necessary to redeploy staff, or in the worst case make them redundant. For a medium-sized company such as Cambridge Consultants the purchasing team of five people was reduced to four. The threat of redundancy or redeployment is likely to lead to resistance to the introduction of the system and this needs to be managed. The purchasing manager will have to carefully explain the reasons for introducing the new system, emphasizing the benefits to the com­pany as a whole and how it should enable more variety to be introduced to the buying role.

Since the cost savings of e-procurement are achieved through empowerment of originators throughout the business to directly purchase their own items rather than through a purchasing department there is a risk that some originators may take advantage of this. This is known as ‘maverick or off-contract purchasing’, and it has always happened to some extent. Maverick purchasing occurs when items are ordered that are unnecessary or too expensive. Complete Activity 7.3 to review the mechanisms that can be used to reduce this risk.

2. Failure to achieve real cost reductions

There is a risk that the return on investment (ROI) from introducing e-procurement may be lower than that forecast and the introduction of the e-procurement system may not pay for itself. This may occur if the assumptions used to calculate savings from e-procurement such as those in Activity 7.2 are too simplistic. Complete Activity 7.4 to review why savings may belowe r than anticipated.

3. Technology risks

Tranmit (1999) reported the biggest barrier to automation of e-procurement as integration with existing financial systems, according to 60 per cent of respondents.

The section on implementing e-procurement below shows that there is a range of different models for procurement. The models are evolving fast, so it is difficult to know which to select. Likewise there is a range of different marketplaces, many of which have not yet reached critical mass. It will be wasteful to become involved in a marketplace which fails in a year’s time. Problems introduced by large-scale ERP systems may also not dispose organizations to e-procurement.

Source: Dave Chaffey (2010), E-Business and E-Commerce Management: Strategy, Implementation and Practice, Prentice Hall (4th Edition).