E-procurement streamlines the acquisition of goods and services through digital technologies. It eliminates manual business processes, promotes information sharing, refines data management, and enhances decision-making. As a result, it significantly improves supply chain efficiency and effectiveness.
This article presents an overview of e-procurement, detailing the overall process, types, and key benefits. It also discusses tools businesses can use to digitalize procurement processes.
What is E-Procurement?
E-procurement is the sale of goods or services between businesses, businesses and consumers, and businesses and governments through the internet or other networking systems, including enterprise resource planning or a company’s intranet.
Modern e-procurement systems eliminate manual paper processes such as creating paper-based purchase orders. They also automate various activities of the traditional procurement cycle with workflows. This automation allows businesses to improve productivity and reduce associated costs.
The E-Procurement Process
The e-procurement process corresponds with the traditional procurement cycle. There are five main digital processes involved in e-procurement. These processes coincide with traditional procurement cycle stages: requirement definition, sourcing, solicitation, evaluation, contracting, and contract management.
E-informing coincides with all stages of the traditional procurement cycle. It also overlaps with all digital processes of e-procurement. E-informing involves a two-way exchange of proprietary information. The exchange occurs between internal parties within the organization and with external parties, allowing the organization to optimize its e-procurement processes.
E-sourcing is the initial phase of e-procurement, coinciding with requirement definition and sourcing. It involves pre-qualifying potential suppliers based on the procuring company’s requirements to shortlist vendors for the evaluation stage.
E-tendering coincides with solicitation and evaluation. It involves requesting information, proposals, and quotations from the shortlisted vendors. This helps the procuring organization with analyzing and assessing the suppliers. In this stage, the procuring organization uses tools to ensure transparency during selection.
E-auctioning or E-reverse auctioning
E-auctioning or e-reverse auctioning is associated with evaluation and contracting. In this stage, the parties involved negotiate pricing and contract terms. After reaching an agreement, the procuring organization buys the goods or services from the vendor.
In e-auctioning, many buyers compete to contract with one supplier by offering higher prices. However, in e-reverse auctioning, many suppliers compete to contract with one buyer by underbidding.
E-ordering coincides with the contracting and contract management stages. It involves creating and approving requisitions, placing orders, and receiving the ordered items. In this stage, completed on-call contracts are indexed in a digital catalog. Employees can access this catalog and place an order at any time.
Types of E-Procurement Tools
Online tools and platforms
Modern online tools and platforms are commonly used to support e-procurement. These applications replace the traditional procurement process.
Online procurement tools and platforms may support some or all of the main processes involved in e-procurement. That is, e-sourcing, e-tendering, e-auctioning, e-ordering, and e-informing. They may offer additional functionalities and customization to ensure a seamless e-procurement process.
Organizations may also use other internet tools to support the traditional procurement process. These tools include electronic mail (e-mail), Extensible Markup Language (XML), and the World Wide Web (WWW).
Various electronic systems are built to support the traditional procurement process. These include Electronic Data Interchange (EDI) and Enterprise Resource Planning (ERP).
EDIs support information exchange between organizations electronically through computer programs. The messages are typically about orders, confirmations, invoicing, and so on. These applications operate on an intranet, which is a closed network, rather than the internet, which is an open network.
ERP systems integrate supply chain functions and other business activities. This includes sales, delivery, billing, production, procurement, inventory management, and accounting.
As part of their functionality, ERP systems assist with managing procurement processes. They allow businesses to create purchase requisitions, approve purchases, place orders, and more. These systems also provide feedback mechanisms throughout the procure-to-pay process to improve efficiency.
What are the Benefits of E-Procurement?
Digital procurement processes eliminate errors associated with handling paperwork and manual orders. The procurement department can focus more on strategic sourcing and less on redundant tasks like processing purchase orders and invoices. Eprocurement results in lower administrative costs and overhead for the procuring organization. It also enables competitive sourcing and increases cost savings.
E procurement lets businesses match online invoices with purchase orders (2-way matching), and also receiving reports (3-way matching), if applicable to the purchase transaction. This saves significant payables time and reduces costs.
Enhanced spending control
E-procurement lets businesses more effectively track spending, purchasing budgets, and incoming deliveries. E-procurement solutions usually provide dashboards that track these metrics in real-time. Companies reduce maverick spending (tail spend) and improve spend management. These systems also generate purchase reports that help businesses lower supplier fraud.
Improved transparency and visibility
E-procurement improves transparency and visibility across all procurement processes by enhancing information sharing.
Companies can decentralize procurement processes (sourcing and approval, purchase requisition and order, delivery and receipt, and invoice verification and payment) and centralize their strategic procurement processes (product specification, procurement planning, supplier selection, request for quotation, assessment of quotes, and negotiation) to significantly improve supply chain efficiency.
E-procurement platforms automate redundant activities such as purchase order tracking, supplier evaluation, invoice processing and matching, and requests for documents such as proposals and quotations. Employees can access and browse online catalogs of the company’s approved preferred suppliers from anywhere. As a result, approvers can authorize purchase orders at any moment, reducing turnaround time.
Improved internal and external relations
E-procurement software improves information sharing across internal departments and with external stakeholders. It provides an information repository to store vendor details, purchase reports, transaction history, supplier contracts, etc. End users can more easily identify and prioritize products based on their requirements and compare items from several suppliers simultaneously with e-purchasing.
Online supplier portals are ideal for information sharing, from onboarding supplier contact information to contracts, purchase orders, delivery, and payment status. Sharing information more effectively improves relationships with suppliers and enhances efficiency throughout the supply chain, resulting in better supply chain management.