Information Technology Impact on the Purchasing Department

Topic: BusinessCompany
Sample donated:
Last updated: January 31, 2019

The purpose of this paper is to discuss of the various ways in which information technology has changed the purchasing department, in particular how the Internet has impacted on the purchasing department. Will be outlined the most well known information system, their objectives and the e-purchasing. An example from daily business life will be illustrated in the second part of this paper. 1.

Introduction IT is transforming the way that business is conducted. Computers prepare invoices, issue checks, keep track of the movement of stock, and store personnel and payroll records.The personal computers are changing the patterns of office work, and the spread of information technology is affecting the efficiency and competitiveness of business, the structure of the work force, and the overall growth of economic output. Purchasing department has been radically changed by the development of the Information Technology (IT).

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Simply the communication channels widened enormously, and the information exchange has became significantly faster and broader, simplifying several steps with regards to purchasing, and also enhancing the fast decision making.Also the quality has improved, costs have been reduced, and speed has increased. Many communication channels are available like Internet, email, telephone, mobile communications, fax, video conference calls, GPS, etc. business is now able to operate in 24 hours, seven day a week. 2. Information Technology and Purchasing The Internet can be used by purchasing department for many specific purchasing actions, like; -information search (accelerate the flow of information and increase processing capabilities.The information collected by the buyer may give a clearer picture on the market what will be useful during the negotiation of prices with supplier) -for transactions (advantages in the form of lower transaction costs can be realized if both supplier and buyer are connected to the same electronic marketplace) -follow up the delivery (online web tracking or other integrated systems) -book in advance the stock from Suppliers database The Internet allows companies to exchange data and information in secure line.

These applications are significant quicker than the traditional way.Griffin (1990) identified the main cost elements of Information Systems. These are: hardware and software investments, their installation and maintenance, environmental cost (recycle pay in advance), running and security cost, networking cost, training the users.

Server room needs to be allocated. The integrated systems, like Enterprise Resource System (ERR), Material Requirements Planning (MRP), System Application and Products (SAP) etc. gives many complex integrated solutions for companies. These integrated systems give complete solutions for all departments of the organization.The benefits for Information System are: -information relevance (more reliable than the human made information) -accurate and up to date information are available -speed of information delivery -improved customer service -gaining competitive advantage and avoiding competitive disadvantage -support for core business function -improved management function -improved product quality -improved communication (internal and external) -impact on the business through innovation The threats of IT systems are the accidents, nature disaster, sabotage, vandalism, theft, hacking, spam and computer viruses.

Another big issue of Internet transaction and communication is trust. This is a necessary ingredient in the completion of business agreements. The Computer Purchasing Systems in practice may be used for, stock control and requisition, purchase order placing, expediting, goods receipt, reporting, transaction processing, data capturing and to allocate stock (barcode system).

3. E-purchasing E-purchasing creates value for organization by reducing cost of goods and services, giving higher productivity and reducing processing cost and gives better information and better planning.The e-purchasing can be split in two parts, the e-sourcing and e-procurement as illustrated in Figure 1. Figure 1 3.

1 E-sourcing (strategic direction) using the Internet and it covers the elements of buying process which are: -knowledge specification -request for quotation, e-auction, e-tenders -evaluation – negotiation E-sourcing system should enable the sourcing team to: -analyze and model complex decisions in real time -automate the management to contract amendments and renewal -collaborate with suppliers -provide real time informationE-sourcing use the internet to make decisions regarding how and where services or products are obtained. E-marketplaces play an important role in this activity, since the price and availability of products from multiple suppliers can be checked from a single point. Another benefit for E-marketplaces in terms of product sourcing is that not only they provide detailed product information from existing suppliers, they also give access to new potential partners and suppliers. Furthermore, the use of reverse auctions and online exchanges enables procurement officers to obtain better prices as they encourage competitive bidding between suppliers. . 2 E-procurement (process driven) covers the following areas of the buying process: – requisition, authorization, order, receipt, payment E-procurement is Business to Business (B2B) purchase and sales over an electronic network such as the Internet. The Internet’s rapid growth has driven many companies to add an electronic commerce component to their operations to gain competitive advantage. A well managed E-procurement also could help to reduce inventory levels.

Kalakota an Robinson (2001) have identified seven basic e-procurement models: ModelsCharacteristics EDI NetworksTrading partners and customers imple transaction cost value added network charges Business to employee (B2E) requisition applicationsfast buying automated approvals and standardized requisition procedures provide supplier management tools Corporate procurement portalsimproved control over procurement process, business rules can be implemented custom, negotiated prices posted in a multi-supplier catalogue spending analysis and multi-supplier catalogue management First generation trading exchanges: community cataloguesindustry content, news new sales channel for distributors and producers product content and catalogue aggregation serviceSecond generation trading exchanges: transaction orientedrequisition process and purchase order transactions supplier, price and products availability discovery catalogue and credit management Third generation trading exchanges: collaborative supply chainsynchronize operations and enable real time fulfillment process transparency, resulting in restructuring of demand and the supply chain Industry consortia: buyer and supplier ledthe next step in the evolution of corporate procurement portals 3. 3 Electronic Data Interchange (EDI) The EDI were developed in 1970s to exchange of business transactions in electronic format.The main functions for EDI are: query handling, transaction handling, funds transfer and technical data. The benefits for using EDI are; reduced cost, elimination of paperwork, time saving and increased efficiencies, improved supplier management, enhanced service and quality, improved access and communication. 4.

Examples Few examples brought from the world of the pharmaceutical business and Clinical Research Organization (CRO) outsourcing. The changes due to the IT development could be categorized in many different ways, all very valid ones, I chose to bring separate examples to its ‘slow implementation’, and to its ‘fast implementation’. 4.

Slow implementation It utilizes more the ability of calculating/computing of the IT devices – not that much the speed of interactions through the novel communication channels. The example I would like to give is around the costing process when preparing a complex clinical trial to be outsourced to a CRO. A task with this level of complexity, requiring the work of so many service lines, individuals with various hourly rates, working of various task durations – most of the time in various countries – so preparing an overall proposal to undertake a clinical trial cannot be done in any other ways than by using ultra sophisticated pricing tools.

Most of the times these pricing tools are based on the main features of Microsoft Excel, some other times specially designed software platforms are prepared to handle this specific task. Speaking of Microsoft Office Applications – which are probably the most commonly used ones of the type in Europe – needless to point out that the Proposal Document reviewed by the Sponsor company purchasing (outsourcing) department is initially prepared in MS Word – saved in final stage as Adobe . pdf – to prevent accidental modifications.When the outsourcing process leaves the proposal stage and enters the Bid Defense phase, it is the most common to have the clinical trial displayed as a MS Project simulation, where both the Sponsor Purchasing Department and the CRO to be hired can go through the entire project length, try various scenarios, adjust timelines, etc. Last but not least during the purchasing process MS PowerPoint presentations are most commonly employed to outline the message to be conveyed and to enhance the communication.

Still at the IT ‘slow’ implementation, I would like to point out the boost of the various communication channels in line with the integration of the advanced IT technologies. The most information pathways are through e-mails and phone calls, but also specially designed internet secure web areas are quite often available to deposit and access essential documentation and updates when necessary. The uses of such web areas are obviously very restricted by applying the strictest policies to ensure the confidentiality of the data exchanged are always maintained.Phone communications and face-to-face meetings just very recently are to be dropped to the favor of video-conference calls which can host several participants at the same time, regardless of their geographic position. One word for the contrary IT does indeed enhance communication to an incredible extent, however it cannot replace the human contact not even the most developed video conferences will ever be able to offer the same level of confidence between the parties in business as a single handshake, and a clear look in each other’s eyes.Body language is mostly excluded whilst the communication uses advanced IT technology and it’s been said that more business is being done besides a white sheet table than in any large meeting rooms. 4.

2Fast Implementations I would like to point out a single example to a process which utilizes the ‘speedy’ way of the IT technology. This is the large scale drug distribution from the depots of country level coverage in the direction to the regional depots and pharmacies (the example taken is from Converged Enhanced Ethernet (CEE) and drug distribution in Romania).CEE is an enhanced single interconnect Ethernet technology designed to enable the convergence of various applications in data centers, such as LAN, SAN and HPC.

These applications are designated for transport over existing storage networks with a high throughput and low-latency communication. CEE may also be called Data Center Ethernet. The price of any pharmaceuticals may depend on a number of things, details of which the frame of this paper will not permit to analyze in-depth. One of the determining factors however is the price induced directly by the market itself.

This becomes increasingly important when it comes to trading between National Depots and the regional ones as well as trading with the pharmacies. The available offers and the needs in this close community will drive the prices extensively. This is further complicated by making the price of the various products dependent on the volume of the transaction as well as on the other items purchased at the same time. It all works rather as an auction, and it is all online, real time purchase.The players are in complex communication among each other on an ongoing basis, and the deals are being instantaneously sealed when the reach the common sense. To be able to do such auction-based trading, the IT had to reach an extremely high level of development.

Major investments had to be carried out to upgrade the available equipments to ensure this level of communication between the parties. Being a country just recently catching up and somewhat behind in their infrastructure, the relevant purchasing departments had to undergo a thorough change.There were players, who preferred to stay conservative and pursue to earlier fashion of business: after a few years they are no longer on the market. This is the level of seriosity how such things shall be perceived. 5. Conclusion The advance of IT changed completely the main stream of purchasing in relatively short time, and applying the most recent technology has become a matter of survival for the parties in business.

With the rapid changes in technology in the recent time, business organizations are rushing to keep pace with these changes.However, mostly don’t give sufficient thought and attention to how they can best execute them. Many of us may not notice or may forget an organization’s culture and people behind these developments.Bibliography Ricky W.

Griffin, Management, (3rd Edition) (1990), Houghton Mifflin Ravi Kalkota, Marci Robinson, (2001) M-Business: The Race to Mobility, McGraw-Hill Companies Emiliani, ML 2000, ‘Business-To-Business Online Auctions: Key Issues For Purchasing Process Improvement’, Supply Chain Management, vol. 5, no. 4, pp. 76-186.

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