e-Procurement Saves Money and Relationships

Nov. 1, 2004
Not all that long ago, companies began to realize that getting rid of paper-based purchasing could save them money. Executives discovered that electronic procurement could eliminate human errors and speed up business processes, allowing them to improve margins, gain efficiencies and preserve relationships with suppliers that are an integral part of business.

e-Procurement streamlines and automates the purchasing process by eliminating paper or faxed purchase orders (POs) and supplier responses. Standardized electronic documents reduce human errors and dramatically speed up PO processing, cutting time from days or weeks to minutes. Purchasing cycle times may be cut by 75 percent or more.

Efficiency gains

In short, procurement becomes more efficient. People who once shuffled paper can be assigned to higher-value procurement activities such as purchasing analysis or supplier relationships. Departments can get immediate visibility into the status of all orders and requisitions, saving on urgent phone calls and faxes. In addition, reporting can provide data to purchasing managers to help analyze performance. Conducting this type of analysis allows companies to optimize their supplier relationships, retaining only their best ones.

For a good e-Procurement solution, the first principle is to distribute purchasing decisions (when to buy and how much to buy) to authorized users in operating units. This can reduce maverick spending. Enforcing rules set by purchasing management on preferred suppliers, approved items, terms and other aspects can greatly improve margins and reduce costs.

Second, a good system must provide tools for central purchasing to aggregate demand from throughout the organization so it can negotiate better deals. That requires centralized visibility into purchasing activity throughout the enterprise. You can’t get a better deal if you don’t know how much you’re buying.

Third, procurement is not a stand-alone activity, and e-Procurement must be integrated with existing back-end financial, accounts payable and invoice management applications. Make sure the connections are easy. Does it allow for eXtensible Mark-up Language (XML) dispatching of POs and change orders? Does it integrate easily with supplier hubs?

Fourth, a good e-procurement application addresses invoices and receiving with a complete sourcing-to-settlement solution, or it links easily to an enterprise’s existing capabilities.

Fifth, the value a company gains from an e-Procurement system depends mightily on how many employees use it to make purchases. Ease of use, intuitive interfaces and powerful search features will boost compliance.

Sixth, look for catalogue management tools and services. Catalogues change, so insist on management tools to keep listings up-to-date.

The success of an e-Procurement system is also influenced by the number of suppliers using it. Just because a supplier is online doesn’t mean it can use your system. Look for a network that not only has many suppliers—but also a network to which many of your suppliers already connect. Those suppliers will be immediately available to you. For suppliers not on the network, you should be able to simply to invite them to join, and then expect easy access.

Finally, be sure to consider total cost of ownership. Is the software licensed, or are there hosted applications or an on-demand solutions provider? What maintenance will be required? Will there be significant integration issues requiring IT resources?

For companies who are still doing all or part of their purchasing and supplier management manually, the case is clear—investing in an e-Procurement solution can significantly improve their purchasing processes.

Ian Sullivan, [email protected], is vice president of product strategy at Perfect Commerce, a supplier of on-demand supplier relationship management solutions located in Lee’s Summit, Mo.