Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

2.2.5 Basics of Supplier Relationship Management and E-Procurement Solutions

Intended learning outcomes: Produce an overview on several categories of e-procurement solutions. Describe various classifications of an electronic marketplace according to the institutional provider, the degree of “openness”, and the range.



Supplier relationship management (SRM) is, according to [APIC16], a comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services the enterprise uses.

The goal of SRM is increased efficiency of the processes between the company and its suppliers. Technologies, guidelines, and methods that support the procurement processes are used. At the center are IT platforms and SRM software for automation of processes, from requests for quotations obtaining blanket orders, up to paying and evaluating the performance of the supplier. A further aim is to exchange information on products and processes to be supplied as early as possible. Also falling under the heading of SRM software are e-procurement solutions.

E-procurement refers to electronic, particularly Internet-based, procurement solutions.

E-procurement solutions can be grouped in several categories according to the institutional provider of the application, as shown in Figure 2.2.5.1 (see also [AlHi01], [BeHa00]).

Fig. 2.2.5.1        Categories of e-procurement solutions (the cylinder stands for electronic procurement solutions of the trading platform).

  • direct link connects existing electronic procurement solutions of buyers and suppliers. With the introduction of MRP II / ERP software, modern IT-based systems were already redesigning communication bet­ween business partners. EDI solu­tions, which used standards like EDIFACT, were developed to improve the exchange of data and information among strategic partners in the supply chain. Today, Internet-based solutions have become firmly established because of the use of XML (Extensible Markup Language) technologies.
  • With a sell-side solution, or shop system, the supplier provides access to a catalog of products and ordering procedures on the World Wide Web. This is also typical of B2C applications in the area of consumer goods (for example, amazon.com and dell.com). However, for industrial purchasers, these applications are of limited value, as they do not offer uniform accessibility to the offerings of various sellers. For their decision-making process, each time, the purchasers have to take the trouble to navigate through a number of vendor Web sites.
  • For a buy-side solution, a standard soft­ware, e.g., Ariba, is installed on the buyer’s side. The purchasing de­partment uses the software to set up a uniform catalog of products from a number of suppliers. The user within the buyer’s company can then select products directly from this catalog and, via an interface to ERP software, place orders. Internal company procedures, such as obtaining approvals from the cost center, are also processed by the system. The systems thus simplify internal company processes and prevent individual orders from being placed with suppliers not in the preferred vendor pool (maverick buying). This reduces transaction costs, but actual purchasing costs remain essentially the same, excepting discounts that can be obtai­ned by concentrating on a few suppliers. Furthermore, the build­ing and up­dating of company-internal catalogs can require major work efforts, and the required IT environment is comparatively demand­ing. Therefore, buy-side solutions are more practicable for medium-to large-sized enterprises than for small-sized firms.
  • An electronic marketplace brings together a comparatively large group of partici­pants and provides a high degree of transparency in real time to all who are taking part; in that sense, an electronic marketplace enables to come a step closer to optimal market conditions. See also [Gull02].

The types of electronic marketplaces are currently being differentiated according to the institutional provider:

  • dependent marketplace is financed and managed by a single company or a group of companies. It will therefore tend to be a buy-side or sell-side solution.
  • neutral, or independent, marketplace is provided by an independent third party, meaning a neutral party, which can also aggregate and edit the data. In addition, it can add additional services to the marketplace.
  • consortium marketplace is built by a consortium and can take on any of the forms described above.

Marketplaces also have differing degrees of “openness”:

  • public marketplace is open to any company and accessible without proprietary software. A valid e-mail address is often the only thing that is required.
  • private marketplace, or a private trading exchange (PTX), is not open to all companies. Participation in a private marketplace or a PTX hinges on certain conditions, such as a membership in a certain trade association. In other cases, certain companies (such as partners in a supply chain) will exchange data like forecasts or cooperate in some other form (for instance, in the areas of product design, project planning, and project processing).

In the area of investment goods, a third distinguishing feature of electronic marketplaces is the range:

  • horizontal marketplace cuts across industries to offer products and services to support general operations and maintenance in many sectors. As a rule, these marketplaces are channels for the buying and selling of indirect materials, such as MRO items or office supplies. Two examples are  alibaba.com and wlw.com.
  • vertical marketplace is sector specific. Companies in the same sector come together to conduct business, for commu­ni­­cation purposes, or to call up industry-specific information. Exam­ples of vertical marketplaces are com (chemical indust­ry), efresh.com (food industry), VWGroupSupply.com, supplyon.com (automotive industry), and MFG.com (manufactu­ring industry).

The animation sums up the strategies. They are complementary to the strategies shown in Section 2.2.2. Here again the focus is on operating performance. Resources must be implemented in the best possible manner.
By clicking on the four indicators you get the accordant details for the different categories.




Course section 2.2: Subsections and their intended learning outcomes

  • 2.2 Strategic Procurement

    Intended learning outcomes: Produce an overview on strategic procurement. Differentiate between traditional market-oriented relationship and Customer-Supplier Partnership. Describe strategic procurement portfolios. Explain strategic selection of suppliers. Present basics of supplier relationship management and e-procurement solutions.

  • 2.2.1 Overview on Strategic Procurement

    Intended learning outcomes: Disclose the supplier structure follows the product structure. Differentiate between direct material, indirect material, commodities, and various demand patterns. Describe various traditional procurement strategies.

  • 2.2.2 Traditional Market-Oriented Relationship Compared with Customer-Supplier Partnership

    Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed. Identify the concept of customer-supplier partnership and disclose adequate target area strategies, and disclose possible supply chain risks entailed.

  • 2.2.3 Strategic Procurement Portfolios

    Intended learning outcomes: Explain the supplier portfolio describing the degree of mutual dependence between buyer and supplier. Present procurement strategies for material groups in dependency on their logistics characteristics.

  • 2.2.4 Strategic Selection of Suppliers

    Intended learning outcomes: Describe possible supplier-evaluation criteria for each target area. Explain the score and the gap method for supplier evaluation, using an example with two suppliers. Disclose possible supply chain risks risks entailed using these methods.

  • 2.2.5 Basics of Supplier Relationship Management and E-Procurement Solutions

    Intended learning outcomes: Produce an overview on several categories of e-procurement solutions. Describe various classifications of an electronic marketplace according to the institutional provider, the degree of “openness”, and the range.