E-procurement defined
E-procurement refers to the automation of a company's purchasing and procurement processes and transactions, whether it's the purchase of simple office supplies or of goods for a supply chain. It involves a broad category of software, which can include Electronic Data Interchange (EDI) and supply chain systems, as well as Web-based digital exchanges and business-to-business commerce systems. E-procurement products or services imply that there will be electronic data transactions, automated decision processes and approvals, and a reduction or elimination of paperwork and the costs associated with such work.

A few of the key terms related to e-procurement:
Buy-side system: A procurement system hosted or maintained by the company doing the buying of supplies. E-procurement falls squarely in this category.

Electronic marketplace: An aggregate of electronic catalogs from suppliers in a vertical market, administered by a third-party firm.

Indirect purchases: Supplies that are purchased by a company, but are not a part of the finished goods a company produces. The classic example is office supplies.

Sell-side system: A commerce system administered by a selling organization.

E-procurement quick study
According to the National Association of Purchasing Management, the cost of generating a purchase order manually is $150 a transaction. The Aberdeen Group claims the average purchase order costs between $115 and $150 to conduct manually, while the Gartner Group pegs between 40 and 50 percent of spending as "maverick spending," where purchases are made with companies other than a company's preferred suppliers.

E-procurement has generated significant interest among businesses because automating the traditionally cost-intensive procurement process can result in measurable cost savings. Predictions of potential cost efficiencies vary, but Gartner estimates that implementing an e-procurement strategy can cut purchasing costs by between 50 and 60 per cent. Forrester Research projects that the U.S. e-procurement market will reach $900 million by 2003. Because of numbers like this, many vendors have jumped on the e-procurement bandwagon, offering an extensive variety of packages and services.

The current generation of e-procurement technologies builds on earlier solutions: EDI and ERP.

Electronic Data Interchange (EDI) offered a means of reducing costs by automating transactions, but many EDI systems required expensive value added networks, or VANs. Additionally, the EDI standard wasn't quite as standardized as many hoped, making implementation difficult and expensive. Essentially, EDI was viable only for larger, Fortune 1000-type companies and never gained much acceptance outside of an elite few.

The management capabilities of Enterprise Resource Planning (ERP) systems tend to overlap with the management systems of e-procurement. This has created not only a significant integration issue for companies implementing e-procurement, it also means a lot of ERP suppliers are moving into e-procurement applications.

E-procurement functions on three levels, each more complex than the last. Those levels are:

• Cataloging
• Automated workflow
• Exchanges and marketplaces

At the most basic level, e-procurement offers a glorified supply catalog, with up-to-the-second pricing information. Frequently, vendors offering their supplies online provide such functionality. Office supply companies, such as Office Depot (http://www.officedepot.com/) and Staples (http://www.staples.com/) allow companies to set up a customized catalog, available via a Web browser.

The next level of e-procurement, automated workflow, adds tools for exchanging technical documents, and automates decision, routing and workflow processes.

At the third, most complex level, e-procurement is synonymous with digital marketplaces or business-to-business exchanges, offering such possible features as collective pooling of purchasing power and competitive bidding from multiple suppliers and the like. This level of complexity typically implies a Web-based system that uses open standards and has a relatively low barrier to entry for companies who wish to participate in the digital marketplace.