The cost of supply chain disruptions to businesses in the United States exceeds $200 million annually, according to Statista. This is why resilient procurement is essential for suppliers, buyers, and in fact, any business in today’s world. Modern disruptions in trade are just one symptom of the lack of automation and outdated processes that derail procurement projects. Why does this happen? How can businesses save time, prevent financial losses, optimize profitability by introducing new procurement technology to their day-to-day processes? Continue reading to learn about the eight ways your business can benefit from e-procurement.
Procurement is one of the most business-critical activities; yet, it’s also one of the most undervalued. Many business owners consider procurement a supportive process. However, as the stats show, its impact on the organization’s performance is exceptionally high. The result of procurement's activities not only affects the entire organization but the economy at large. Thus, this process must be effective, economical, and speedy.
One of the problems of procurement is the system of management. The main issue is with the current way of ordering supplies and equipment. Even within one corporation, two or three people can take control over the same order. With so many systems involved, too many people manage the process, and not enough of those who do the work. This situation needs drastic change, and automation is a solution. Modern systems of e-procurement automation can significantly simplify this process and help company directors boost their businesses.
For example, a business that processes 1,000 requisitions and 2,500 invoices monthly would usually have two or three purchasing agents, a payable clerk (or two), and a manager. A simple calculation shows that automation can save you up to 50% of your annual procurement costs. How? By lowering your CPPO (cost per purchase order) and CPI (cost per invoice). That’s how much you can save with e-procurement and automation.
Electronic procurement, shortened as e-procurement, is the business-to-business process of requisitioning, ordering, and purchasing goods and services over the internet. E-procurement streamlines supplier-customer interactions through bids, purchase orders, and invoices.
Companies that are already leveraging e-procurement, creating a unified procurement information system and database, gain an obvious competitive edge in rapidly changing markets. The Bain & Company research illustrates that e-procurement implies $12 million in annual procurement headcount savings from the companies with a spending base of $1 billion to $3 billion. The research proves that e-procurement has become profitable, and the cost of its implementation pays off by several times.
Still, the statistics picture shows that today “fewer than 10% of companies have deployed procurement solutions based on key technologies such as the Internet of Things, Big Data, and blockchain technology”. These small figures show the reluctance or fear of many companies to introduce new technologies, which leaves them on the fringes of the market. Let’s dive into the mechanism of e-procurement to see how it works and what benefits it brings.
Below, we take a look at some e-procurement tools that make the procurement process more effective:
An EDI is used to transmit information and messages between partner companies, streamline invoicing and order logistics. The communication channels established by EDI solutions guarantee security, and trust is key to well-functioning procurement.
Online-based ERP systems integrate supply chain functions and other business activities. It includes such components as supply chain management, storage, accounting, and more.
Internet-based tools and resources simplify the process of procurement as well. The most common e-procurement tools and online platforms are as follows:
E-informing increases supply chain performance by gathering and distributing purchasing information both from and to internal and external parties using the Internet. It collects information on suppliers’ previous clientele, consults references for product/service quality, distributes information about pricing, and more.
E-tendering takes you step-by-step through the tender and usually has very prescriptive questions, making it easier for the buyer to process the required information and reach a better and well-informed decision. Major e-tendering systems even provide a progress bar with percentages, which comes in handy for project managers.
E-auctioning involves real-time competitive bidding of suppliers where the buyer solicits RFQ. It provides procurement professionals with competitive prices for their products, among which they can choose the lowest one. It also saves time since each supplier is not required to submit a full proposal.
E-sourcing involves collecting and comparing information about several suppliers to select the preferred one. It enables companies to generate savings from their supply chains, increase the visibility of crucial business information, and save time on day-to-day tasks.
E-ordering is the electronic application added to the electronic ordering catalog, from which employees can request and order. It improves the supply chain performance as you get a better overview of what each department needs, and you bundle all purchases in one invoice from one supplier.
If a company wants to succeed in today’s business climate, it needs to keep its costs low. It includes reducing the costs of its materials and services by procuring from low-cost sources. Modern systems of e-procurement can significantly facilitate purchase order management.
But what benefits does e-procurement bring?
Under the new automated E-Procurement system, staff can view any contract at any time, check all terms and conditions, and ensure all performance is up to standard. Also, with no means of changing data, it helps prevent anyone from misusing the system.
Supplier ratings are another transparency-enhancing tool. Having cooperated with one of the suppliers, buyers can rate them. In this way, the system creates the ratings of suppliers' reliability, visible when choosing a company. The higher the rating, the greater the chance of finding a worthy partner.
The e-procurement software may also include lists of violations. They allow you to find out what violations the selected company committed quickly.
Every business purchase has the potential to result in costly mistakes. Manual input is vulnerable to human error, and these errors can negatively affect the productivity of a business. By implementing automated e-procurement systems, you can minimize such risks and focus on other day-to-day business tasks. E-procurement helps avoid mistakes in budgeting, communication between buyer and seller, data transfers between platforms, and accountability.
For example, using the history of purchases, the software will select the best suppliers of the necessary goods, and in addition, it will save you from errors in conducting accounting. In this way, the implementation of e-procurement simplifies the procedure for all participants, increases the level of control, and reduces possible human mistakes in qualifying and selecting the required supplier.
The new e-procurement strategy makes it possible to cut your buying departments’ expenses and staffing levels by as much as 50%. This will allow you to reinvest the savings into other areas – like new product development – and avoid the need for layoffs. The company will need a minimum of qualified employees to manage the software.
Being able to see all price options from all suppliers simultaneously, procurement managers can procure goods at a lower cost. An additional benefit of a modern e-procurement system is that it provides a visual analytics Dashboard to review your expenses, allowing you to control budget flow and alerting you if a request is over budget.
It is no longer necessary to prepare new documents from scratch for each supplier since the e-procurement software files all reports, assignments, draft contracts, and other documentation automatically and in electronic form. This will free up time for the team to spend on more strategically significant functions and tasks.
Besides leveraging e-procurement, companies can create templates for contracts. You just need to choose the type of contract you want, indicate its subject and the sum of money. As a result, managers can avoid additional paperwork and reduce the number of human errors. By correctly filling out the templates and organizing them, employees can quickly open the necessary ones without checking the contracts every time.
There are unpleasant situations when the supplier fails to complete the order within the deadline, delivers goods of inadequate quality or in the wrong quantity. Thanks to e-procurement, companies can choose another supplier at any time. It is enough to choose from the list – there are many offers on the market from companies trying to build their reputation.
The use of e-procurement expands access to advanced technologies and products, new suppliers, alternative offers, and innovations in the market. Companies already taking advantage of e-procurement can manage risks faster and more efficiently and respond to new market challenges. Remember, e-procurement is far from being widely adopted, so being one of the first will give you the first-mover advantage.
Utilizing the e-procurement software, companies can minimize the chances of transaction disputes. The factors that make it possible are as follows:
Taking into account all the benefits mentioned, embedding automation in procurement improves the overall operational efficiency. The procurement team can choose the delivery dates and control the quality of goods. This results in more favorable dates for production start, higher quality of the procured goods, and an increase in the company’s productivity.
All in all, including e-procurement into your spend management processes, has multiple benefits. It increases your bottom line, boosts productivity, enhances buyer efficiency, and helps lower operational costs.
Once you have learned how to use your e-procurement system, your procurement process becomes cost-effective and less time-consuming than traditional procurement. The e-procurement applications will enhance vendor/supplier relationships, reduce the time for tedious tasks, increase employee efficiency, scale your business and increase profit margins.
Automation is revolutionizing the procurement sector as time progresses. Equipped with state-of-the-art technology and machine learning, some procurement platforms can now predict risks and anomalies in users’ spending behavior. Through these initiatives, businesses can save a lot on their expenditure, invest in growing their market share, and increasing competitiveness.