TRADITIONAL PROCUREMENT OF MRO SUPPLIES – Project topics materials

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Definition of E-Procurement

E-procurement focuses on creating efficiencies and their goal is to make the traditional purchasing procedures more efficient and cost effective (Wu, 2007; Turban, King, Lee & Viehland, 2006). It has become popular nowadays and has rapidly become a successful and evergoing reality (Puschmann & Alt, 2005). As parallel to this popularity, it is vital to understand the scope of e-procurement. The literature presented various definitions, characteristics, frameworks and practices of e-procurement. For instance, Carayannis and Popescu (2005) assert that electronic procurement has been widely described, in its most basic form, as using electronic means using the internet, web or email to buy products and services over the Internet while Moon (2005) argues the use of reverse actions, purchasing cards and integrated automatic system in the e-procurement. Nonetheless, McConnell (2009) claims that authors perceived the description of e-procurement in different ways because they tend to look from different standpoints involving economic and geographical areas. For example, Muffato and Payaro (2004) link e-procurement to the industry of motorcycles while Hawking, Stein, Wyld and Foster (2004) associate e-procurement to the SME’s sector.

Traditional Procurement of MRO Supplies

MRO supplies are important to run the business. They might be a small part for the company but still play a critical role. According to Michalides, Ho, Boughton and Kehoe (2003), MRO procurement process indicates that companies buy MRO supplies by assigning an order with a number of suppliers through internal documentation like purchase requisition and orders from the procurement department of the company. In handling the request of MRO supplies, DHL MRO Indirect Supply Report (2009) shows that MRO supply functions have operated in a silo separate from many companies’ particular procurement departments; and while most procurement activities have moved to centralized procurement experts, MRO supplies have continued to be managed at a site level with little or no system support. Since, little or no support has been given to the MRO supplies within traditional procurement, it produces various problems. As a result, MRO supplies are ordered inappropriately and stored in warehouses or stock rooms which increased the MRO inventories, low level of productivity and supplies obsolescence (DHL MRO Indirect Supply Report, 2009). To get a profound understanding of the traditional procurement process when dealing with MRO supplies, the illustration made by Keen and McDonald (2000) is used.

Problems of MRO Traditional Procurement

In the literature, different problems linked with the traditional buying process of MRO are mentioned. Kong and Gray (2006) claim that traditional procurement is time consuming because of the different stages and phase of the process. Additionally, Alan Daniel stated during the interview with Atkinson (2002) that the large spending of the company in MRO procurement is mainly for the transaction process which brings inefficiency and difficulties. According to Hawking et al (2004) traditional procurement is based on slow manual processes and even slower processes for handling transactions. Some challenges which consumed a lot of time in traditional procurement are checking of errors and invoicing. Furthermore, Van Weele (2005) and Le Sueur and Dale (1998) said that the most common challenges in procuring MRO supplies are; disproportional workload, an extensive range of items and suppliers, many company-specific items and a low and irregular demand for items. Other challenges associated in traditional MRO procurement are inefficient buying of MRO, redundant and disconnected processes and maverick buying (Subramaniam & Shaw, 2004). Due to these problems, the efficiency and satisfaction level of the companies are at risk.

Efficiency in the E-Procurement

Efficiency refers to the relationship between planned and actual sacrifices made in order to realize a previously established goal (Van Weele, 2005). Purchasing efficiency typically includes the time involved and the number of steps required to complete an order. A main attribute of increased procurement process efficiency might be the reduction of product searching costs and time: e-catalogues could be defined and uploaded by the supplier or third party without requiring the customer to be highly involved (Atkinson, 2000). Croom (2005), states that an important objective of e-business is an overall reduction of procurement process costs. The main value-adding mechanism for e-MRO procurement lies in the reduction of transaction costs (Knudsen, 2003) . A study in automotive industries revealed that improved procurement efficiency in general and control over maverick spending in particular are benefits that have both been realized as expected for non-production goods (Howard et al., 2006). Croom and Johnston (2003) state 22 that employees with access to e-procurement systems appreciate their “ease and speed of use” and now refrain from such maverick purchases. According to Puschmann and Alt (2005) another way of increasing the efficiency of the MRO procurement process is by lowering the number of authorization stages. Based on a benchmark study of five companies that successfully implemented e-marketplaces for indirect procurement, Puschmann and Alt (2005) found the reduction of authorization stages is an e-marketplace effect that significantly contributes to a more efficient MRO procurement

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Abductive Approach

There are different ways or approaches that are deemed necessary to put into consideration while conducting research. According to Yin (2003), when approaching research work, the best method to be adopted for the study depends solely on the research purpose of that study. Research approach can be divided into three categories namely: deductive, inductive and abductive. Deductive research looks at the theory in general and latter narrows it down to the specific. While, inductive approach is in which data will be collected to develop theory as a result of the data analysis (Saunders, Lewis & Thornhill, 2009). In this research, the abdductive approach has been used. According to Saunders et al (2009) abduction is a combination of inductive and deductive approach and instead of moving from theory to data or data to theory an abductive approach moves back and forth. The theories relevant to answer the research questions and meet the purpose are being collected and discussed. The theories are firstly presented in general perspective. Then the authors collected primary data to specify and develop theories.

Table of Contents :

1 INTRODUCTION
- 1.1 BACKGROUND
- 1.2 PROBLEM STATEMENT
- 1.3 RESEARCH PURPOSE AND QUESTIONS
- 1.4 DELIMITATIONS
- 1.5 DISPOSITION OF THE THESIS
2 FRAMEWORK OF REFERENCE
- 2.1 DEFINITION OF E-PROCUREMENT
- 2.2 PROCUREMENT PROCESS
- 2.3 MRO SUPPLIES
  - 2.3.1 TRADITIONAL PROCUREMENT OF MRO SUPPLIES
  - 2.3.2 E-PROCUREMENT OF MRO SUPPLIES
- 2.4 EFFICIENCY IN THE E-PROCUREMENT
3 METHODS
- 3.1 QUALITATIVE RESEARCH
- 3.2 ABDUCTIVE APPROACH
- 3.3 MULTIPLE CASE STUDIES
- 3.4 LITERATURE STUDIES
- 3.5 SAMPLING AND COLLECTION OF EMPIRICAL DATA
- 3.6 INTERVIEWS
- 3.7 STRUCTURE OF THE ANALYSIS
  - 3.7.1 ANALYSIS OF EMPIRICAL DATA
- 3.8 RESEARCH CREDIBILITY
4 RESULTS OF EMPIRICAL STUDY
- 4.1 JOB AGENCY
  - 4.1.1 CURRENT MRO PROCUREMENT PROCESS
  - 4.1.2 BENEFITS OF CURRENT PROCUREMENT PROCESS
  - 4.1.3 CHALLENGES OF CURRENT PROCUREMENT PROCESS
- 4.2 MARKETING COMPANY
  - 4.2.1 CURRENT MRO PROCUREMENT PROCESS
  - 4.2.2 BENEFITS OF CURRENT PROCUREMENT PROCESS
  - 4.2.3 CHALLENGES OF CURRENT PROCUREMENT PROCESS
- 4.3 EDUCATIONAL SECTOR
  - 4.3.1 CURRENT MRO PROCUREMENT PROCESS
  - 4.3.2 BENEFITS OF CURRENT PROCUREMENT PROCESS
  - 4.3.3 CHALLENGES OF CURRENT PROCUREMENT PROCESS
- 4.4 CONSULTING SERVICE SECTOR
  - 4.4.1 CURRENT MRO PROCUREMENT PROCESS
  - 4.4.2 BENEFITS OF CURRENT PROCUREMENT PROCESS
  - 4.4.3 CHALLENGES OF CURRENT PROCUREMENT PROCESS
- 4.5 INTERVIEW WITH THE EXPERT
- 4.6 SUMMARY OF THE EMPIRICAL STUDY
5 ANALYSIS
- 5.1 HOW DOES E-PROCUREMENT ENHANCE TRADITIONAL PROCUREMENT OF MRO
  - 5.1.1 E-PROCUREMENT MODEL
- 5.2 BENEFITS OF MRO E-PROCUREMENT
- 5.3 CHALLENGES OF MRO E-PROCUREMENT
- 6 CONCLUSIONS
7 MANAGERIAL IMPLICATIONS
8 REFERENCES
9 APPENDICES