Sourcing and purchasing goods, materials, and services consume a significant proportion of the operational costs of most organizations. Businesses that don’t control and streamline procurement face problems that range from overspending to fraud, to the narrowing or elimination of profit margins.
Businesses are eager to exert control over procurement and spending. Traditional procurement is primarily focused on cost reduction, but it faces challenges around data visibility, policy enforcement, and supplier onboarding. eProcurement leverages digital technology to streamline procurement processes, enforces procurement policies, enables integration between buy-side and sell-side platforms, and reduces error-prone and time-consuming manual work.
Purchasing vs. Procurement
Purchasing is simply the buying of goods and services as the need arises. For example, a sales department manager notices that stationary stocks are getting low so she goes online, Googles for a supplier, and places an order. Alternatively, the manager of a pharmaceutical manufacturing production line receives a bulk order for a product, consults internal documents for the required ingredients, and sends an email asking for a quote from a supplier she is familiar with.
Throughout most of the history of business, this is how purchasing was done. Many smaller companies still do it this way. But ad-hoc purchasing without strategy or oversight is expensive, error-prone, and open to abuse. The business has no real control of relationships with suppliers or how money is spent.
Procurement, on the other hand, aims to rationalize and strategize purchasing. It is a professional field that consolidates and controls purchasing, enforces policies that reduce spending, accelerates the purchase cycle, and ensures that the business maximizes the operational benefit of its procurement budget.
Typical procurement processes over which procurement professionals seek to exert control and implement best practices include:
- Sourcing and vendor selection: The research and assessment of potential suppliers and the selection of preferred suppliers
- Bidding and tendering: Soliciting bids and quotes from multiple suppliers to get the best deal for their organization
- Catalog management: The provision of catalogs from approved suppliers that should be used by departments throughout the business when procuring goods and services
- Requisitions and purchase orders: The management and approval of requisition orders that include detailed procurement requirements and purchase orders that are sent to suppliers to initiate a purchase
- Supplier performance management: The monitoring of suppliers to ensure they maintain the timelines and standards the business expects
If the pharmaceutical manager in the example above were to follow procurement best practices, she would contact the sales department of a supplier that had already been vetted and approved by the procurement department. After discussions, she would create a requisition order detailing the products her production line needs to fulfill the order. The procurement department or another manager would assess and approve the requisition order and use it as the basis for a purchase order, which is then sent to the supplier.
The traditional procurement process typically involves communication via phone or email, and may even involve the physical transfer of printed documents.
How eProcurement Overcomes The Challenges of Traditional Procurement
Traditional procurement improves on ad-hoc purchasing, but procurement professionals face numerous challenges. As you can see, traditional procurement involves many personal interactions. Managers and procurement professionals create, send, and receive numerous documents, from quotes to invoices, none of which are available to all stakeholders without painstaking entry into spend management platforms.
There is no integration between buy-side and sell-side platforms, and, even if a supplier offers eCommerce and the buyer uses spend management or enterprise resource planning applications, data and document exchanges remain resolutely siloed. Furthermore, it is not difficult for employees to circumvent procurement policies and engage in rogue spending.
Although we have focused on the example of a single transaction, small and medium businesses may make thousands or even tens of thousands of transactions with suppliers each year. The cost of monitoring and managing this many transactions may consume a non-trivial proportion of the business’s operational budget.
eProcurement is the digitization of many of the processes we have discussed. EProcurement platforms such as Coupa, SAP Ariba, and Jaggaer offer a cluster of services for managing procurement processes digitally. Additionally, the combination of eProcurement on the buy-side and eCommerce on the sell-side creates possibilities for integration and automation that go far beyond what is possible with traditional procurement.
To consider just one part of the procurement process, an eProcurement platform such as Coupa simplifies and streamlines requisition order and purchase order management.
Employees choose products from a pre-approved list of vendors managed by the procurement department. The platform automatically creates a procurement order and alerts the individual responsible for approving orders. Once approved, purchase orders are automatically generated. The entire process takes place within an intuitive interface. Data is consolidated on a single platform and is available for analysis.
Many eProcurement platforms include additional features such as fraud detection, inventory management, contract management, and more.
eProcurement Integration and Automation
Integration and automation are perhaps the most appealing benefits of eProcurement as opposed to traditional procurement. By integrating supplier eCommerce applications with their eProcurement platform, buyers can leverage a host of B2B automation tools that automatically transfer data between platforms, enabling a comprehensive procure-to-pay workflow that accelerates procurement and reduces procurement costs.
With procure-to-pay integration, a buyer can select products from approved PunchOut catalogs—eCommerce catalogs with contracted products and pricing managed by the supplier—from within their eProcurement platform. A requisition order is automatically created based on the selected products and, when the order is approved, a purchase order is transferred to the supplier’s eCommerce application or backend order management system. Similar automation exists for other parts of the procurement process, including quote and invoice automation.
Procurement’s evolution over the last decade has been a process of digitization and integration, culminating with end-to-end B2B automation. Businesses that embrace eProcurement integration and automation solve many of the cost reduction, data availability, and control challenges that traditional procurement was unable to address.
About the Author: 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.