E-Procurement

A Beginner’s Guide To E-procurement

PurchTips Edition #451

What is eProcurement

Procurement is a vital function of any business that sells, processes, or creates physical goods or services. Many companies operate as machines that transform materials into products. For that process to run smoothly, the inputs are as important as the outputs. Inefficient, inadequate, or unreliable procurement and supply chain management can prevent businesses from achieving their strategic goals.

An estimated 32 million employee-hours are wasted each year because of inefficient procurement and supply chain management. Manual data input and poor process control consume employee time, introduce data errors, and burn through budgets. Lack of insight into procurement processes opens the door to rogue spending and fraud.

E-procurement helps businesses to improve key procurement metrics such as purchase order cost, purchase order cycle time, compliance rate, and supplier defect rate. It allows procurement professionals and managers to exert greater control over procurement and to leverage data to better understand and optimize procurement processes.

What is E-procurement?

E-procurement software facilitates the buying of supplies, equipment, and services through a software interface. E-procurement isn’t limited to eCommerce-like functionality; modern eProcurement applications can be used to manage every part of the enterprise procurement workflow.

Today, E-procurement platforms are typically implemented as a software-as-a-service application that employees use through a web browser.

E-procurement platforms digitalize and centralize procurement tasks such as vendor and catalog management, ordering and order approval, invoicing, and contract management. E-procurement creates software processes that were once confined to paper and email, providing much greater control and insight into procurement and spending than was possible with traditional methods.

Consider a modern, ideal E-procurement workflow. An employee wants to buy 500 widgets that are used to manufacture a particular product. They log in to their company’s E-procurement platform and select the vendor from a list of pre-approved suppliers. They then choose the widget from the supplier’s catalog. A requisition order is automatically created and sent to the relevant manager. When the order is approved, a purchase order is sent to the supplier, who fulfills the order and automatically invoices the buyer via integration with their E-procurement or ERP platform.

Compared to traditional procurement processes conducted over the phone or via email, E-procurement has several benefits.

  • Data and documents are automatically made available to the relevant stakeholders, whether that’s the employee, their manager, the supplier, or the buyer’s accounts payable department.
  • All data related to the order is available during the procurement process and afterward for analysis.
  • The vendor and the catalog are pre-approved by procurement professionals, reducing the risk of rogue spending.

Automation is a key benefit of E-procurement. Businesses can implement procurement policies that are automatically enforced by the platform. The errors associated with manual data entry are eliminated. When integrated, supplier eCommerce and buyer E-procurement platforms can exchange data without human intervention.

The brief description above covers the basic features of an E-procurement platform. More advanced features include:

  • Spend and procurement analytics.
  • Inventory management.
  • Contract management.
  • Payment management and financing.

In short, E-procurement platforms such as Coupa, Jaggaer, and SAP Ariba offer a complete procurement and spend management solution for businesses that buy from other businesses.

A Brief History of E-procurement

Businesses and the government (including the military) have used electronic systems to manage procurement and supply chains since the early years of computing, but what we know as E-procurement originated in the 1960s and 1970s with the development of in-house systems for managing suppliers, orders, and for stock keeping.

Of course, there was no internet in the early days, so electronic procurement systems were isolated and required a lot of babysitting and manual data input. EDI can trace its origin to the 1960s when computer systems acquired the ability to exchange data with each other.

In the 1990s, electronic catalogs became more widely adopted, allowing businesses to browse supplier catalogs “online,” although, in the pre-web era, these catalogs offered limited functionality compared to modern eCommerce-based PunchOut catalogs.

Once the web began to grow exponentially in the late 1990 and early 2000s, the eProcurement platforms that are familiar to today’s professionals began to appear. The stranglehold of traditional enterprise software was loosened as the advent of applications such as Salesforce’s customer relationship management platform normalized the SaaS model.

It wasn’t long before companies like SAP Ariba and Coupa created eProcurement and spend management platforms based on the same model. Today, the E-procurement software space is estimated to be worth $4 billion.

Why Adopt E-procurement?

E-procurement empowers businesses to streamline and exert control over procurement processes. It reduces the cost of procurement, and the cost savings can represent a significant percentage of overall procurement spending. As businesses seek to reduce operational spending, procurement is the obvious target, and E-procurement is the proven strategy.

  • Streamlined purchasing with PunchOut catalogs. E-procurement platforms can be integrated with supplier commerce applications to speed up purchasing and automate the exchange of purchase orders, invoices, and other procurement data.
  • Reduced rogue/tail spending. Rogue spending occurs when employees make purchases that aren’t managed or monitored by an organization’s procurement department. Rogue spending happens for many different reasons, but the organization-wide implementation of E-procurement can help to bring a greater proportion of spending under a single managed system.
  • Fewer errors. Inaccurate procurement data costs U.S. businesses millions of dollars per year. Human error is responsible for inflated costs, with causes that range from mistyped order quantities to overpaying on invoices. E-procurement automates many instances of data exchange and removes the need for manual intervention, significantly reducing human error.
  • Increased transaction speed. Electronic data exchange, well-designed interfaces, and efficient procurement workflows accelerate the procurement cycle.

In summary, E-procurement empowers businesses to reduce procurement spending while enhancing the efficiency and operational effectiveness of this critical business function.

NLPA Library: Looking for authoritative procurement templates, tools, webinars, and more? Stop trying to create resources from scratch and start taking advantage of having exactly what you need right at your fingertips in the NLPA Library.

Want a More Rewarding Procurement Career?

Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.

Earning your SPSM® Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential.
Download the SPSM® Certification Infopack today to learn how to get started on your journey to a more rewarding procurement career!

Download

Procurement Leader’s Guide to a More Successful Team

Are you frustrated with the results of your purchasing department? You’re not alone. Developing a team to deliver measurable results and exceed goals can be challenging. The key is having a plan to identify and act on opportunities for improvement.

Learn the seven steps for transforming your team’s skills and you’ll achieve greater results more easily.

Download


Copyright 2020. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

Brady Behrman is the CEO and founding partner of PunchOut2Go. As an entrepreneur with experience and proven track record in building technology businesses that focus on client success innovation, Brady and his team help organizations of all sizes around the globe adapt to the ever-evolving, complex B2B Commerce & eProcurement technologies.

This is the Web-based version of this article. Click here for the printer-friendly version.

final

Want to get more procurement articles by email?

Members of the NLPA get great articles just like this by email every month. As a member, you will also get access to:

  • The Procurement Training & Certification Starter Kit
  • The latest Purchasing & Supply Management Salaries Report
  • Leading-Edge Supply Management™ magazine
  • Live webinars
  • Access of Purchasing Community
  • Access of NLPA BLogs
  • Access of Library (Webinar Replays, Procurement Templates & More)
  • Access to All 20 Express Courses worth $380.00
  • And more!

Sign up today and enjoy access all of the benefits that come with the NLPA Premium membership.

Procurement Courses
Over 281,000 purchasing professionals have joined the Next Level Purchasing Association! So, what are you waiting for?



 
 
 
 
Webinar