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    Manage Purchasing with the Internet


    © International Trade Centre, International Trade Forum - Issue 1/1999

    Most organizations do not use the Internet to buy goods and services-yet. ITC's trend-trackers in international purchasing and supply management expect this to change, however, as Internet use becomes more widespread. Companies and governments in developing countries and economies in transition should take a second look at using the Internet to save time and money on purchases, and build better relations with suppliers.

    Business use of the worldwide network mostly involves information gathering with relatively few organizations actually purchasing products or services over the Internet. Yet the Internet is already proving its cost-effectiveness in purchasing and supply management, according to trade sources as diverse as leading business newspapers, specialized purchasing and supply management magazines, and reports from international organizations.

    Purchasing-related sites are on the rise, such as ones allowing businesses to track costs of raw materials and ones with on-line procurement requests. As telecommunication infrastructure improves, and people become more comfortable with using the Internet, organizations are starting to use a variety of tools (ranging from simple e-mails to more sophisticated Internet-based Electronic Data Interchange systems) to track purchases, manage stock levels, streamline ordering and payment processes, and build better relations with suppliers.

    Six reasons to use the Internet

    • Cut purchasing costs. You can negotiate better prices for the products you purchase by using the Internet to monitor the material and labour costs of your suppliers. If your product material contains a high percentage of commodities, you can monitor current market prices and trends in public on-line databases, and use this information when negotiating with suppliers. Sources like Reuters commodities (http://www.commods.reuters.com) provide you with both current and historical data on commodity futures and options prices, which can help you to hedge against future price rises.

    The Internet can also help you analyze the labour costs involved in your purchased product. For an example, visit the web site of the United States Department of Labour (http://www.bls.gov/datahome.htm), where you can obtain information on International Comparisons of Manufacturing Productivity and Unit Labour Cost Trends for 1997.

    Even without analyzing the detailed material or labour costs of your supplies, you can use the Internet as a benchmark for comparison with current prices paid, or for negotiating anticipated price rises. Try to access a server specialized in the market from which you are buying. You can often gather commercial information on your supply market, and also request suppliers connected to this site to quote you a price according to your specifications. For example, buyers of office supplies in developing countries can now use the Internet and sites such as Buyerszone (http://www.buyerszone.com) to identify which local equipment is overpriced when compared with competitively-priced international market items, enabling them to negotiate discounts with their local suppliers.

    Using the Internet allows you in some cases to directly access manufacturers, and save money by avoiding costs of intermediaries. This was the experience of a rural Kenyan farming cooperative, which managed to bypass distributors and obtain lower prices by establishing a direct relationship through e-mail with the US-based Earth Marketplace, whose main business is selling directly to North American consumers.

    • Reduce operating costs. The Internet-when coupled with web-based Electronic Data Interchange systems that incorporate a purchase order facility-reduces costs involved in order processing and invoice processing. It also lowers costs by reducing the number of dedicated telephone lines for fax machines normally required to move data.

    • Improve management of suppliers. Strengthen relationships with suppliers that are linked with you electronically. For example, you can communicate by e-mail, involve them at an early stage in your design process, exchange ideas for product improvements and encourage them to send you information regularly on your supply market by e-mail. The more you improve information flows and communication (both with your internal customers and with suppliers), the faster you can react and cut lead times.

    • Control stock levels. One of the greatest benefits organizations can achieve by electronic linking with suppliers is substantial savings in inventory. Better communication links will decrease supply risks and shorten lead times, enabling you to adapt stock levels to the variations in demand more rapidly.

    • Take advantage of government and international organization calls for bids. Businesses are responding to a growing use of the Internet by governments to disseminate procurement opportunities and receive quotations from interested providers. International organizations are also using Internet for purchasing activities. The United Nations, for example, recently launched UN Development Business Online (http://www.devbusiness.com), a site providing procurement opportunities from multilateral development banks, such as the World Bank, and other international agencies. Over the next five years, the major development banks will pay over US$ 190 billion to companies worldwide.

    • Reduce problems. Other concrete advantages of using Internet-based tools include eliminating errors due to rewriting or re-keying data, and speeding up the payment process by processing invoices electronically.

    Where do I start?

    If you are new to the Internet and interested in using it to improve purchasing and supply management in your organization, you may have two concerns: where to start, and how to find resources.

    You do not know where to look

    You may not be an information technology professional, so each time you search the Internet, you spend hours on web sites unrelated to your original query.

    The first step is to use on-line tips for beginners that are available on the Internet. Good starting points are sites which show you how to use the best available Internet search engines and give other advice on facilities (browsers, multimedia, sounds, and video) that can be used with the web. Try the Helpweb (http://www.imaginarylandscape.com/helpweb/www/www.html), Internet101 (http://www2.famvid.com/i101/), or Getrade ( http://www.intracen.org) for specific countries and markets (section "Infobases"); the ITC web site will also feature a collection of international purchasing bookmarks later this year. In addition, ask your colleagues, suppliers or buyers of similar products to recommend web sites they visit regularly.

    You do not have resources

    Companies that believe they do not have the time or money to invest in the Internet for purchasing should consider how quickly the investment will be offset by reduced telecommunications costs. By way of example, a small shipping company in the United Republic of Tanzania, Regent and Forwarding, now uses US$ 0.10 e-mail messages and US$ 1 e-mail fax gateway instead of US$ 20 faxes to place orders in North America and Europe. As a result, they have seen their monthly telecommunications bill drop from US$ 500 to US$ 45. E-mail can be used with existing suppliers for most forms of communications, including sending engineering specifications, negotiating, drafting contracts and exchanging information at the price of a local phone call.

    The Internet and web-based Electronic Data Interchange continuously improve information access and simplify the processes of ordering and payment. While they do not replace important routine purchasing activities such as supplier evaluations, visits or meetings, they offer an important opportunity to develop and manage day-to-day relations with suppliers that can lead to increased effectiveness and reduced costs in your purchasing operations.

    Catherine Taupiac, ITC Associate Officer, conducts research in international purchasing and supply management including those related to Internet purchasing trends. Contact taupiac@intracen.org for more information.

    Public Sector Electronic Tenders

    Australia: Transigo: (http://www.transigo.net.au/wci/home)

    Canada: MERX: (http://www.merx.cebra.com/)

    European Union: Tenders Electronic Daily: (http://www2.echo.lu/echo/databases/ted/en/ted)

    Hong Kong Special Administrative Region of China: Government Supplies Department: (http://www.info.gov.hk/gsd/tender.htm)

    India: India Invest: (http://www.india-invest.com/tender.htm)

    Poland: Office of Public Procurement: (http://www.uzp.gov.p1/a_index.html)

    United States: General Services Administration: (http://www. fss. gsa. gov/index.html) or US government tenders: (http://www.govcon.com)

    United Nations: UN Development Business: (http://www.devbusiness.com)