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Neither Direct nor Indirect—Just E-Procurement

Until now, the focus of nearly all e-procurement energy, software, and press coverage has been on the indirect materials side of procurement, partly because the purchasing process of high volume, low-unit-cost goods that can easily be bought at a retail store with a credit card are much easier to automate than more complexly engineered MRO or direct manufacturing materials and goods. The in-house software platforms and third-party exchanges and buying hubs that are just now beginning to mature began their focus with indirect procurement, but are quickly shifting toward vertical and horizontal exchanges for suppliers of direct goods. With Enterprise Resource Planning (ERP), Advanced Planning and Scheduling (APS), and independent supply chain software vendors moving quickly into alliances that will help extend a buyer's supply chain back into their supplier's systems, by all accounts, e-procurement will be a major leap toward achieving the—until now, primarily theoretical—"pull" type of relationship that manufacturers would like to have with their suppliers, with vendors able to electronically and automatically "see" through the entire supply chain and take responsibility for inventory and JIT delivery of production materials.

Accordingly, as valuable as the automation of the indirect materials process can be, the real savings for manufacturing, distribution, and retail companies will come in applying those same principles to direct material procurement. Even now, the traditional division between direct and indirect purchasing is beginning to blur, and the logic of the evolution is toward treating it as one process.

One strong step in this direction comes when software vendors begin to develop total procurement information systems that capture, through advanced data warehousing tools that interrogate ERP and other back-end company systems, all information regarding suppliers and products purchased by the company. Decision support tools such as SAS Solution's Supplier Relationship Management System have emerged that allow companies to access and organize all transactional purchasing information—both direct and indirect—and consolidate them in a single data warehouse. Using business information made available through an arrangement with Dunn & Bradstreet, the system provides relationship information about suppliers—what products were purchased from them, how much those products cost, the name of the supplier's parent company, their delivery and financial performance—all of which provides organizations with the ability to accurately complete strategic sourcing exercises based on real-time, legacy system information.

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