A01 chaf6542 06 se fm indd

Input parameters (Company A)

Input parameters (Company B)

Number of orders

25,000 Number of orders

2,500

Traditional cost per order (average) £50

Traditional cost per order (average) £50

New cost per order (average)

£10

New cost per order (average)

£10

Average value of order

£150

Average value of order

£1,500

Table 7.4

Input parameters for  cost‑  saving calculations for two companies

Parameter

Company X

Company Y

Turnover

£10,000,000

£10,000,000

Traditional purchasing costs

£5,000,000

£1,000,000

Other costs

£4,000,000

£8,000,000

Reduction in purchasing costs

20%

20%

Table 7.5

Input parameters for profitability calculations for two companies

Answers to activities can be found at www.pearsoned.co.uk/chaffey

M07_CHAF6542_06_SE_C07.indd   309

7/22/14   1:51 AM

---

310

Part 2  Strategy and applications

  Barriers and risks of e‑procurement adoption 

 Of course, there are also barriers to adoption of e‑procurement. CIPS (2008) identifies the 

following issues for suppliers: 

   

● 

  Competition issues, e.g. in exchanges using collaborative purchasing.  

  

● 

  Possible negative perception from suppliers, e.g. their margins reduced further from 

e‑auctions.  

  

● 

  Negotiated procurement benefi ts may be shared with other exchange users who may be 

competitors.  

  

● 

  Creation of catalogues can be a long process and costly to suppliers.  

  

● 

  Culture profi le within organisations, e.g. resistance to change.   

 These barriers are specific to e‑procurement. There are also more general limitations to digi‑

tal business adoption mentioned in  Chapters   1    and  4 , such as the cost of implementation and 

managing change. 

 If the cost savings referred to earlier in the chapter are to be achieved it may be necessary 

to redeploy staff, or in the worst case make them redundant. For a  medium‑  sized company 

such as Cambridge Consultants the purchasing team of five people was reduced to four. The 

threat of redundancy or redeployment is likely to lead to resistance to the introduction of the 

system and this needs to be managed. The purchasing manager will have to carefully explain 

the reasons for introducing the new system, emphasising the benefits to the company as a 

whole and how it should enable more variety to be introduced to the buying role. 

 Since the cost savings of e‑procurement are achieved through empowerment of origina‑

tors throughout the business to directly purchase their own items, there is a risk that some 

originators may take advantage of this. ‘Maverick or  off‑  contract purchasing’ occurs when 

items are ordered that are unnecessary or too expensive. Complete  Activity   7.3    to review the 

mechanisms that can be used to reduce this risk.  

 

  

Activity 7.3

 

Avoiding maverick purchasing