Procurement in the Cart: E-Commerce & Collaboration

If you are looking for buying your spare like a bearing or a motor or even a mundane thing like a fan belt, you would wish you could do that like buying a book by clicking it into the “Cart”.

Clicking an item into the “Cart” looks so simple when you do that through any platform, whether Amazon or Flipcart or Alibaba, but doing the same in any organization for procuring any item isn’t that simple.

It is simply because you are not the sole authority to take a decision and there are compliance issues and delegation of authority and most importantly you need to ensure that the buy delivers value and cost which could be audited as well. You belong to the “user” department and the sole authority of buying rests with the ‘Procurement” department, this is where the puzzle becomes murkier.

A buying decision in large organizations is therefore very complex as it involves multiple stakeholders and even if the item is small you cannot make a distinction in the process of buying just because it is relatively cheap. The “user”, which is the department that needs that stuff and the “procurer” which is the department that is authorized to buy that stuff must work through some “rules” to ensure that certain business requirements are met in a manner that you create a sustainable process which at the end meets compliance standards while also ensuring that the buy delivers value to the business.

This is however very complex when large items get involved and specially when you have multiple locations indenting the requirements and your sourcing becomes global.

The first challenge is not that much about the procurement process itself, it is about compliance and governance and multiple stakeholder involvement. If you are framing the rules of engagement you would be cautious to understand that the simple rule of L1 (which means that the lowest quote should win) does not satisfy all stakeholders. The second more difficult contention would be that creating value can only come when the buying process is aided by a structural plan that clubs items for buying in a manner that gives both buyer and seller a way to a win-win.

So when we go back to the first problem, putting an item into the buying cart, we must have a way to answer two questions:

1. What compliance standards should be to facilitate this process?
2. How would you ensure that large number of items could be clubbed to allow the platform to make buyers and sellers to a win-win situation?

If a bearing manufacturer wants to be part of the platform, it must be in a position to catalogue the items in a manner for ease of viewing and review. So cataloguing is the first step to ensure that items of purchase could be made available to the buyer for review.

The Procurement department steps in now to ensure that there are rate contracts done against such catalogued items so that the “user” can simply match an item to the rate contract which is equivalent to putting the item on the cart.

This would be a clear elimination of the Purchase Requisition to Purchase Order process, as with one click the “user” of bearings is putting the Bearing into the cart against the rate contracts already done, so that the “bearing” he has chosen matches his buying criteria.

This kind of E-commerce would need massive collaboration in the first place between Procurement and “user” departments on one hand and between Suppliers and Procurement department on the other.

Without the supplier collaboration none of the items could be catalogued in the first place and without “user” collaboration it is never possible to connect such vast number of items into standardized simple distinguishable units, which would include service items as well.

Once the cataloguing is done, which is however an arduous task, the next step would be to create a process of approval that would allow “users” to make a buy meet the compliance standards set by the organization.

Compliance is the most difficult part as in this suppliers are collaborating on the platform for putting up their items for purchase with a visibility on price and other terms of the contract and the buyer is making a decision to buy based on all available information without going through the normal channels of “Purchasing” where multiple levels are involved to push a purchase requisition for conversion into a purchase order.

The established process of RFQs invariably involves multiple engagements between the buyer and seller and if the items are varied and large in number it would mean thousands of touch points. Apart from the delay, it would mean multiple decision possibilities. While this could have the positive impact of choosing the right fit between cost and value within a band, it could be time consuming to arrive at this decision.

Thus the approval process for internet commerce needs a far bigger scrutiny and it is here that large organizations struggle to find a solution that gives authority not at the cost of losing on compliance standards.

The next very big challenge is how the receipt of material would happen as the logistics piece also needs to be automated. As in the case of buying a book it may look simple as the platform calculates through an algorithm what the shipping charges would be to the destination; it can do so only when the ownership of logistics is clearly defined. But for internet commerce with MRO items, this part is the most difficult part.

You can have brilliant catalogues of spares but how would you connect logistics of delivery and its cost when you would be putting the item on the cart?

This would again need very involved collaboration of buyers and sellers in the platform, so that solutions in the logistics area could be obtained easily. With large numbers of buyers and sellers getting to the platform productivity of this process would automatically improve.

The last piece is making the payment possible and this is not that complex if the invoicing part is taken care of.

In sum, buying a spare using the e-commerce tools would have to start with compliance and engagement of the users and sellers with the procurement fraternity to start with.

But the future is clear, our children would click the MRO item on the cart, without going through the PR to PO, the way our generation has processed.