IOIS Classification

IOIS Integrated Office Information System

E-Procurement in Tata Steel Transaction cost perspective

E-Market
Invisible hands of market decides
No prior relationship exists
mjunction.com
Case study E-Hierarchy
Managerial authority decides
Tightly coupled relationship exists
Tata Steel using VPN to communicate with its suppliers

Organization choosing a specific IOIS

The
Internet

E-Market High asset specificity and / or complexity of description.

Technological and volume uncertainty of demand and Market

mjunction.com
The
Internet
variability.

Issues of quality, material costs and product differentiation

tatasteel.co.in impose constraints on purchasing decision.
E-Hierarchy

VPN

Adityapur

How to Develop IOIS How Does IOIS Generate Value

Competitive V/S Cooperative
volswagonsupply.com V/S covisint.com E-Markets may reduce procurement price.
Connects company with supplier V/S platform for integration
Strategic significance of the IOIS and the size and
bargaining power of the initiating firms. E-Markets can provide strategic advantage through greater
Leadership and strategic drive business efficiency and better information access and
Collaborative IOIS requires a sponsor external to all flexibility.
partners, and executive sponsor within each organization.
TISCO and SAIL each have internal e-commerce taskforce.
Ownership of E-Markets
As long as the cooperation of at least two participant is
necessary to create value, sole ownership is never the best.

1
 IDR Framework
Intermediation, Disintermediation, and Reintermediation E-Procurement Initiatives Tata
(IDR)
Reintermediation, especially by firms with long term Steel
commitments to their market places, is likely to occur in the
long run

Conditions for reintermediation to occur

Imitation of e-commerce innovations
Ownership of co-specialized assets
Economies of scale

Pani, A.K. and Agrahari -procurement solutions portfolio: Case study of an

Journal of Internet Commerce.

The Theme About TISCO

In last few years various forms of E-Procurement solutions have
emerged.
Case study looks into evolution of various types of E-Procurement
solutions at Tata Steel
Established in 1907, Tata Steel is the first integrated steel plant
in Asia.
TISCO is the 2nd low cost producer in the world after South
Korean steel giant POSCO.
TISCO is India's single largest exporter of high-quality, value-
added steel products.

This study argues that rather sticking to one solution, firms need to Tata Steel's turnover in fiscal year 2003-04 was nearly INR
manage a portfolio of E-Procurement solutions to realize the full 980 billion (USD 19.6 billion). The company's profit in the
potential of the Internet. same year was INR 101.2 billion (USD 2.2 billion),

Prior to Electronic An Early Attempt

Procurement process involved lengthy paperwork with a cycle
time for purchase request to purchase order release, above 60
days.
Lack of transparency and payment delays.
Inefficiencies resulting in higher procurement and inventory
costs
During 1991-92 Tata Steel installed an IBM 2370 mainframe.
In late 90s, a procurement solution was developed over DB/2
database. However only a few key suppliers were provided the
facility to see their orders and goods receipt notes (GRN).
Not equipped to support any transaction.
solution was expected.

2
 E-Procurement Initiation Two Development Options
In 1999 Tata Steel and SAIL came together to form a industry 1st: Wait for SAP to stabilize and then develop E-Procurement
portal metaljunction.com. solution.

Since metaljunction.com was a consortium sponsored e-market 2nd: Start developing E-Procurement solution right away.

Because of high opportunity cost second option was exercised.

A move to internal E-Procurement solution was initiated soon
after SAP was implemented at Tata Steel in December 2001.
Procurement architecture similarity
IBM mainframes were replaced by client server architecture
mainframe and E-Procurement solution
and SAP was the ERP solution implemented on ORACLE
database. Tata Steel did develop an E-Procurement solution by April
2002.

The Early Days E-Procurement adoption

The pilot implementation involved suppliers from rapid order
segment (a low value high transaction segment).
Most of the suppliers in this segment are local supplier and in the
vicinity of Tata Steel.
-how.
The pilot project also enabled SAP and E-Procurement solution
to evolve simultaneously.
Stabilized, by July 2002, both SAP and E-Procurement solutions
Migrated all suppliers in rapid order segment to E-Procurement solution.
In traditional electronic data interchange (EDI) systems
A large proportion of suppliers, usually small to medium size enterprise
(SMEs), remain outside the EDI.
Various subsidy strategies
These include e-readiness audit
Identifying subsidy needs
Providing monitory as well as non-monitory subsidies etc.
MetalJunction.com conducted training and awareness sessions
for suppliers
Generated demand for an industry consortium sponsored e-market.

E-Procurement adoption E-Procurement Adoption

Tata Steel conducted training sessions for its suppliers across
the country.
Objective of these sessions included technical training and
confidence building.
To provide technical training Tata Steel
collaborated with SNTI (Jamshedpur based training
institute)
Developed CD that included tutorial on E-Procurement
Training modules offered over the Internet.
To overcome security fear, Tata Steel got BS7799 (a security
standard) certificate for its information system including E-
Procurement solution.
TISCO also installed E-Procurement clinics with the help of
some tech savvy suppliers.
These suppliers were early adopters who helped other
supplier in their vicinity to over come initial technical
problems.

In a bid to emphasis on confidence building,

Tata Steel communicated to its suppliers very clearly that
the solution is not a threat to their business in any way.

3
 Still Low Adoption Rate? E-Procurement made mandatory
By November 2002 over 90% suppliers were made
E-Partners i.e. they were registered with Tata Steel and had
access to the Internet. In November 2002 Tata Steel decided to make E-Procurement
mandatory for its suppliers.
However, less than 35% suppliers were using the solution.
3000

-
Procurement solution.
2500
No of Vendors

2000

1500
There are some big vendors, NGOs and research labs, that
continue to use old paper based systems.
Getting them to use the E-Procurement solution a challenge
1000

500 Tata Steel needs to develop a strategy to on-board them to

0
E-Procurement
Jan' 02 M ay' 02 Jun' 02 July' 02 Aug' 02 Sept ' 02 Oct '02 Nov '0 2 Dec'02 Jan' 03

Month

E-Procurement Portfolio MetalJunction.com Architecture

Tata Steel has adopted four E-Procurement solutions. Partner
Bank
Consortium sponsored metaljunction.com Information Seller
Metaljunction.com, an e-market promoted by a consortium about buyers The
Internet
s

of SAIL and Tata Steel Leased line/Dialup

Connection
Dedicated
Internal E-Procurement solutions MetalJunction.com
Connection Buyer
s
An internal E-Bidding solution
The Internet
E-Negotiation solution
Fax/Telephone
VMI register
SAIL TISCO

Information
Flow Inventory and Finance Flow Credit Flow

Internal E-Procurement Solution MetalJunction.com

It charges different fees for different services offered. Fees
E-Procurement
range from a low of 0.1% to a high of 7.5% of goods
application
Firewall
sold/procured.

E-
Procurement
The
Internet
total steel production.
database Enhancing market opportunities is possible with
metaljunction.com and enables Tata Steel to reach to a
Interface RFQ, GR and
pushes Order Payment
broader supplier base.
data Placemen Informatio
SAP t n
Database Interface
(ORACLE)
Today, Metaljuctioon.com provides E-Procurement, E-Selling
(ORACL
E)
Suppliers and channel finance services to Tata Steel and has saved INR
Interface
pulls data 53.7 million (USD 1.07 million) or approximately 5.96 per
cent of total procurement cost.

4
 Internal Solutions E-Bidding and E-Negotiation
All cross-organizational elements of the inbound supply chain An internal E-Bidding solution was developed that has been
are covered and transacted through this site. This includes integrated with internal ERP systems.
Enquiry/RFQ details
Online and offline quotation logging To avoid any conflict of interest with MetalJunction.com
Order placement
Existing suppliers of Tata Steel allowed to participate.
Delivery compliance monitoring
Order amendments
Material receipt and payment tracking E-Negotiation solution facilitates one to one negotiation with
multiple suppliers simultaneously.
Offers three kinds of E-Procurement solutions Suppliers cannot see the lowest bid offered by other
E-Bidding; E-Negotiation, and VMI register. suppliers.

Manual Process The E-Procurement Way

Indenter Indenter
(Internal Customer) (Internal Customer)
Procurement Supplier Procurement Supplier
Division Division
Quotations
Immediate delivery
Schedule delayed
Delivery
Immediate delivery Out Going Docs
Schedule delayed Enquiries
Userid Created. delivery Orders
Quotation Opinion Delivery Orders
Receipt Details
Out Going Docs Out Going Docs Payment Details
Immediate delivery
SAP R/3 Schedule delayed Delivery.
SAP R/3
Incoming Docs
Incoming Docs (Quotations)

E-Procurement Solution Quotation Opening Process(Manual)

Update Quotation
SAP
Raise
RFQ/Enquiry
Update
Quote
Place
Order
Challan Payment
Entry
Thru
entry) Mail/Fax

Purchase Clerk
Commodity manager
Open Display (Opens the Quotation)
Display Display Display
Quote / Quote/ Online Display Imminent/
E-Proc RFQ/Enquiry Receipt Payment
Bid Accept Negotiate Order Delayed
Or Auctions details. Status
Bid PO Sched.
Online Site Demo ERP
Quotation Entry

5
 E-Quotation Opening Process Negotiation (Manual)
Quotation Supplier
Thru E-Proc
Supplier

Procurement
Division

Purchase Clerk
Commodity manager
(Electronically Opens
the Quotation) Supplier
Supplier

ERP

Negotiation (New) VMI (vendor managed inventory) Register

Supplier

Procurement VMI integrate customers in supply chain planning

Supplier
Division customer regularly sends stock and sales to vendor
VMI initiated with suppliers
Enable sharing of inventory information between buyer and
supplier.
So far only one supplier implemented this system.
Unlike other E-Procurement solutions, VMI requires
Substantial investment by suppliers in web servers and
Supplier
operating costs are also high for the suppliers.
Supplier Internal solutions differ in level of integration and number of
suppliers.

The E-Procurement Portfolio: Conclusions The E-Procurement Portfolio: Conclusions

The choice of E-Procurement solution depends on
Product Characteristics
system but the number of suppliers participating is
significantly higher. Complexity of description
Volume uncertainty
Technological uncertainty
participants but high on integration with internal system. Supply Market Characteristics
Trust on suppliers
Metaljunction.com is preferred when the volume is quite high
and the buyer feels a need for scanning the entire market. Competitive intent of suppliers
Market variability
Reverse auction has a diminishing impact on price reduction. Bargaining power
Age of relationship

6
The E-Procurement Portfolio: Conclusions
Consortium sponsored E-Procurement is used when
Technology uncertainty is low
Trust with existing suppliers is low
Average age of relationship with suppliers is low

Reverse auction is preferred when

Complexity of description is low
Volume uncertainty is high

Market uncertainty is high