The Benefits of E-Procurement

One of the key areas of debate currently in the procurement sector is the how e-commence can be harnessed to improve the efficiency of organisations and thus can be used to support the drive for organisation profitability.

E-Procurement Defined

Electronic procurement, commonly referred to as e-procurement, defines the automation of procurement and supply chain processes using internet based applications and technology. This expands the idea of enterprise resource planning (ERP) systems, allowing the automation of internal business processes, thus providing a platform that supports automation at a global level. It allows procurement professionals across the world to communicate information simply and efficiently, streamlining the global procurement process; reducing time and costs without compromising on standards and quality

E-Procurement Advantages

There are many benefits to be found from using e-procurement within an organisation, and the following are just some of the key points:

Reduced Transaction Time: individual business activities (transactions) can be completed much more quickly; they are not restricted by office hours and may not even need human intervention, thus increasing the capacity to complete transactions on a real-time basis. This means that downstream processes are not constrained by waiting for transactions to be completed.

Electronic catalogues: the development of e-catalogues has enabled organisations to market their product offer electronically, this has been a fantastic marketing tool for sellers and for buyers, there is price transparency (you can easily see how much items cost) and buyers can compare offers from various e-catalogue vendors.

Increased Standardisation: With the electronic catalogues mentioned, there has been a move by some suppliers to offer a more standardised offer, thus allowing buyers to easily compare the offers from e-catalogues, however care must be exercised in these comparisons as it is difficult to assess the quality of products without samples. If in doubt request samples and take time to make your own assessment.

The great news is that most catalogue sites operate in a very similar way, and they are very easy to set up allowing multiple business users to undertake some of their own procurement…this keeps the business running, sourcing the day-to-day needs of the business and allows procurement people to continue to develop great value-adding relationships.

Wider Spread Supplier Bases: Because the virtual e-procurement portals are web-based, buyers can search suppliers worldwide, meaning a wider selection of products and services are available to the organisation meaning that when items are not available locally, it is still possible to source these. It is important to remember the time and cost of shipping goods, but it’s great to know that it is possible to source items from somewhere in the world!

Simplified Global Procurement: With the e-procurement applications supporting various languages, currencies, international taxation and financing, shipping regulations and more, it is simple for buyers and suppliers in different countries worldwide to communicate and co-operate.

Increase Productivity: As e-procurement automates some of the procurement and wider business processes typically handled by employees, this will free up time for the team to spend on more strategically significant functions and tasks. For example with automated matching of invoices, goods can be ordered, processed and paid in a matter of minutes; the key however is to ensure that the supplier is set up in the buyers systems support as much automation as possible.

Simple Configuration and Scalability: E-procurement applications can be configured to suit the individual needs or both the buyer and the supplier, and can grow with the organisation as needs be. It is important to select suppliers for both the current requirement as well as possible future need so gaining an understanding of the technical infrastructure development plans of suppliers will help buyers to select possible longer term partners.

Creation of Trading Communities: Because the e-procurement applications are internet based, they allow for both vertical and horizontal trading communities to be developed. This means buyers can consolidate buying power and it also opens up opportunities for new supply chains. The opportunity to consolidate the requirements of smaller buyers via consortia or trading communicates has enabled smaller business to access prices historically reserved for bigger buyers, thus fuelling a fast developing SME sector. Many Chambers of Commerce and other local business organisations operate such buying communities.

More Cost Efficient: With the time reductions and increased supplier selection, development of trading communities, more opportunities for purchasing surplus goods and services at below market price, and much more, it isn’t surprising that e-procurement proves to be much more cost efficient than traditional procurement.

How E-Procurement Affects The Bottom Line

Among e-procurement’s many benefits, it has a positive impact on the profits of the organisation.

Savings From Increased Preferred Vendor Purchasing: E-procurement makes it easier to purchase products and services from preferred vendors. The more you purchase from the same preferred vendor, the more you typically save at a unit cost level as they often apply quantity discounts. In addition you have confidence about your sources of supply, making sure you have the right quality for you needs.

Consolidation of Preferred Vendors: Some low-volume vendors may eventually become eradicated from the network of suppliers via e-procurement, resulting in more purchases being directed to preferred vendors and increased discounts becoming available. However specialist suppliers are better able to continue to operate in an e-procurement environment due to lower transaction costs.

Spot Discounts: Reduction of excess inventory by suppliers for a limited time can easily be applied with the dynamic nature of online pricing, meaning large organisations can take advantage of significant savings by purchasing at the right time. Key here is to keep close to the market, setting up alerts to highlight significant changes.

Reduced Time/Cost of Transactions: Because e-procurement automates a large chunk of the procurement process, it reduces the time and money spent on the purchasing cycle as a whole.

The following table, courtesy of www.materialsmanagement.info, shows the vast time difference between manual and e-procurement throughout the procurement process. Nearly 80% of time and therefore cost is saved by e-procurement:

Process Step Manual/EDI (Minutes) eProcurement (Minutes)
Product Selection     3 20
Availability/Price Check    10   1
Requisition Creation    11   2
Requisition Approval    21   3
PO Generation    11   0
PO Approval      3   0
Send PO to Vendor   14   0
PO Confirmation     4   0
Status Check   11   1
Receive Shipment   12   2
Match Invoice, Receipt, etc     8   5
Process Exceptions     8   3
Payment Approval     4   3
Payment Generation     8   5
Process Returns     5   3
Total Minutes/Purchasing Cycle

 

If you would like to learn more about the how  purchasing and supply can impact your business, including how to develop and use e-procurement, the Oxford College of Marketing Faculty of Procurement and Supply offer CIPS qualifications for procurement professionals at all levels. We have tutors with commercial experience in procurement, all are FCIPS or MCIPS qualified and are passionate about helping businesses to be better.

To find out more about what the Chartered Institute of Purchasing and Supply courses cover and to apply for a free two week trial, visit our website. Alternatively, you can call our friendly support team on (0)1865 515 255 to find out more about the CIPS courses available.