Ready to modernize your purchasing process and reduce your AP workload through automation? Let’s dive in.
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.
Companies depend on their procurement procedures to expand their business operations and increase revenue; they also undergo digital transformations to streamline their workflows onto efficient software or web platforms, moving away from traditional manual and paper-centric methods.
The merging of these trends has given rise to electronic procurement, or e-procurement, which encompasses tasks such as streamlining purchase requests for approval, generating purchase orders, and supplier management.
This shift has been so significant that the U.S. Bureau of Labor Statistics predicts a decrease in the hiring of procurement specialists in future years as organizations transition towards automation, using online technologies for these functions.
Instead of being phased out completely, however, these professionals are expected to adapt by taking on more specialized roles – such as sourcing better deals within specific sectors or brainstorming innovative ways to mitigate risk.
E-Procurement: Then and Now
The inception of modern e-procurement can be traced back to the 1980s Electronic Data Interchange (EDI) era – a simple file-sharing medium that revolutionized document sharing previously confined to paper or phone-based systems. By the 90s, EDI evolved into enterprise resource planning (ERP) systems capable of generating supplier catalogs online.
More recently, however, dedicated e-procurement software solutions have emerged to offer smart features and to centralize all related activities on one platform.
Key features include vendor management (collecting data and building supplier relationships), market research for supplier comparison, online communications for information requests and contract negotiations, online transactions for order creation and processing, and spending analytics to inform future business decisions.
Increasingly popular are cloud-based “e-procurement-as-a-service” solutions, which offer easy deployment and updates since most technical aspects are handled by the service provider.
What are the Benefits of E-Procurement?
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 workflow, which allows businesses to improve productivity and reduce associated costs.
Let’s take a look at the key benefits associated with moving to e-procurement.
Reduced costs
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. E-procurement 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 receive 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 spending) 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 improve supply chain efficiency significantly.
Saved time
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.
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
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
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
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
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.
Other e-procurement processes include managing vendors and catalogs, integrating purchase orders, e-invoicing, and e-payment.
Want more efficient AP and invoice processing?
Discover a better way to handle your accounts payable workload and simplify your invoice processing. With our solution, you can automate and streamline your AP tasks, allowing you to focus on more strategic initiatives. Start optimizing your accounts payable workflow and experience the benefits.
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).
Electronic systems
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.
Addressing the Challenges of E-Procurement
While the adoption of eProcurement should be a straightforward decision given its advantages, it’s crucial to acknowledge the potential challenges that come along with this technology. This will provide you with a comprehensive understanding of how it can impact your teams.
Not Suitable in All Situations
Though ideal in most situations – particularly for indirect procurement (i.e., the transactions made that don’t directly involve the manufacturing of products) – e-procurement might not always be suitable.
Certain mission-critical items requiring inflexible procurement procedures or products sourced exclusively from specific suppliers might pose challenges. Additionally, complex negotiations needed for some purchases may not align well within an automated process framework.
E-procurement may not be ideal for:
- Purchases that require intricate customization or involve complex specifications. Products or services that demand extensive tailoring or intricate negotiations may be better handled through traditional procurement methods.
- Collaboration with small suppliers. E-procurement heavily relies on collaboration with suppliers through online platforms; less technologically advanced ones may face challenges in adapting to the e-procurement system.
- Procuring mission-critical or high-value items. These items often require meticulous evaluation, extensive due diligence, and personal interactions with suppliers to ensure quality, reliability, and adherence to specific standards.
Ensure that you carefully consider the implications of transitioning to e-procurement for your specific situation.
Stakeholder Resistance
Convincing stakeholders about the benefits and need for eProcurement can pose a significant challenge. Resistance to change, lack of familiarity with digital platforms, and the need for comprehensive training can affect the smooth transition and acceptance of the e-procurement solution.
Employing change management strategies and providing robust user training and support are essential to mitigate these challenges.
Software Implementation Hurdles
Implementing new software always comes with its share of difficulties. The transition from traditional procurement methods to a digital platform requires careful planning and technical expertise; it often entails dealing with data migration issues or initial resistance from users who need time to adapt to the new system.
Legal Compliance
International regulations, particularly those regarding data privacy, impact the operations of e-procurement solutions. One example is Regulation 22 of the Public Contracts Regulations 2015 in the EU, which has to do with transparency in information exchanges in public sector organizations.
There are many laws that impact business software in general. Thankfully, many service providers do cover international legal compliance. Choose a solution that is SOC 2 certified and supports all the leading SSO services, as well as being enterprise-grade compliant with all its cybersecurity features.
Types of Organizations that Benefit from E-Procurement
Online marketplaces or e-procurement solutions can revolutionize the purchasing processes of different organizations, offering cost and time benefits. Here’s a quick look at various entities that stand to gain:
Corporate Enterprises
Large corporations can leverage e-procurement for significant savings in money and time, making procurement activities efficient and freeing resources for other tasks. E-procurement platforms allow corporations to transact business from a centralized platform with features like online catalogs, order tracking, invoice processing, and automated approvals.
Governments & Public Institutions
With vast procurement needs, governments can use e-procurement to streamline spending processes while ensuring compliance with regulations. Automated bid management facilitates efficient evaluation of bids from vendors, accelerating project timelines.
Non-profit Organizations & NGOs
E-procurement enhances workflow efficiency for organizations that need judicious resource utilization for their missions as well as smooth internal operations. The data storage capabilities foster transparency within the organization aiding decision-making.
Education Sector
Universities requiring diverse goods and services can efficiently manage bulk purchases on smaller budgets through automation offered by e-procurements systems. Standardized tracking reports ensure greater budget transparency while connecting financial data, such as PO status updates, directly with core accounting systems.
Healthcare Industry
Transitioning from manual systems to fully automated e-procurements provides substantial cost savings along with secure data management and record-keeping capabilities. Electronic procurement platforms eliminate pricing discrepancies by providing detailed supplier comparisons.
Logistics & Supply Chain Services
Automation provided by e-procedures reduces communication costs between suppliers enabling effective stock management via a single platform. Integrated features like GPS shipment tracking offers operations managers more informed decisions based on expenditure insights.
Say Maersk Line – the world’s largest container shipping company – makes use of Ship Engine, an e-procurement platform that makes it easier for managers to track and modify orders, further improving overall operating efficiencies.
FAQs
What constitutes e-procurement?
E-procurement comprises electronic catalogs, purchase order systems, vendor and accounting management, inventory control and tracking systems, contract negotiation and management platforms, payment processing tools, and business intelligence software.
What’s the primary aim of e-procurement?
The chief purpose of e-Procurement is to centralize procurement processes across organizations for cost reduction by eliminating traditional methods’ costs and improving accuracy by removing manual data errors.
Can you explain how e-procurement functions?
E-procurement digitally connects all parties involved in a standard purchasing cycle. It automates the entire process from product or service search to delivery and payment. Key features include online catalogs; electronic order generation; supplier response capturing; delivery monitoring; dashboard-based activity tracking; online contract management; electronic payment approval; secure audit trail record-keeping system; performance KPI measurement via data analytics.
Could you provide an example of an e-procurement process?
An instance of e-Procurement could be a company buying office supplies. The agent finds quotes from various suppliers, chooses one based on cost-effectiveness and quality, and issues an electronic purchase order to the supplier while keeping track of delivery status with email alerts when orders are dispatched or received. They can also analyze spending vs budget through reports, track payments using automated systems online, and devise cost-saving strategies using data analytics.
E-Procurement System – Is It Worth It?
E-procurement is a revolutionary approach to the procurement process that harnesses digital technologies to streamline and enhance business purchasing.
With key features such as vendor management, market research for supplier comparison, online communications, transactions processing, and spending analytics all centralized on one platform, it brings about improved efficiency and productivity while reducing costs. It also enhances transparency across all procurement processes enabling more effective tracking of spending.
As with any shift towards digitization or automation, potential challenges like stakeholder resistance or software implementation hurdles need careful consideration.
Despite these potential barriers, though, organizations ranging from corporate enterprises and governments through non-profit organizations and educational institutions right down to healthcare industry players stand to gain immensely from adopting e-procurement.
Simplify your accounts payable process and save valuable time that can be spent on growing your business. Our solution offers a comprehensive set of features designed to reduce manual tasks, increase efficiency, and improve accuracy. Sign up for free and see how you can transform your AP workflow.
