The process of e-procurement is becoming increasingly common as it involves the procurement of goods over the internet. It essentially uses the internet to create open lines of communication between a company and a supplier which can be used to place bids, issue orders and other exchanges that need to be made. Over the years, e-procurement has changed the manner in which companies obtain the goods and services they require from respective suppliers. Almost all of these changes have been positive for both the company and the supplier.
10 Benefits That Accompany E-Procurement
A company is capable of capitalizing on the following benefits of E-procurement:
- Decreased Transaction Durations
Transactions undergo the most change when a company utilizes E-procurement software because everything is digitized. For example, the invoices are paperless, payments usually take place through wire transfers or even payment gateways. In addition to this, companies also verify their payments quickly with the digital requisitions and orders automatically generated.
For some businesses, the procurement department carries out the process of three-way matching. This can take a long time but is an essential part of the verification process. With e-procurement, the time it takes to complete this matching is less.
- Digital Catalogs
A catalog in the procurement system is created by a vendor or supplier. They hold all the goods and services available for potential client companies to procure the desired products from the vendors. Through e-procurement, vendors are capable of compiling digital catalogs to advertise their services better. In addition to this, it can also give companies an objective look into the pricing of the services.
Clients are also capable of comparing the goods and services of one vendor to another. In many cases, the e-procurement platforms themselves house several catalogs from vendors in one place so comparison is easier.
E-procurement systems depend heavily on automation. The introduction of automation into procurement has several benefits involving a reduction in the procurement cycle and human error in general. In fact, studies have found an 83% decrease in PO processing time with e-procurement systems. The same study also found that a completely or partially automated procurement system can eradicate human error completely.
Therefore, it will reduce the risks that usually accompany such kinds of errors. Data entry can be done automatically in addition to other tasks. For example, the approval process that needs to be carried out can also be reduced drastically as the documents reach the concerned parties at the right time.
- Eliminate Rogue Spending
Rogue spending refers to the spending that occurs when a company purchases goods that exceed the agreed-upon amount in a contract, or is spending on non-contracted items or vendors. Maverick spending essentially means the same thing. Both these forms of spending can mean that a company will not be able to benefit from the discounts that suppliers usually provide as outlined in the contract.
Through e-procurement, organizations are capable of developing proper data collection regarding the spending or even cancel unnecessary orders. In addition to this, the software allows only specific groups of people to input orders and approve. Therefore, the chances of rogue spending occurring is very low.
- Easy Audits
Organizations are also required to know the number of goods and services which were purchased from suppliers during a period. Companies that use legacy systems to carry this out will have to sift through papers and long spreadsheets. Even then, there may be information that is missing.
Therefore, e-procurement completely eliminates the process of analyzing and auditing paper receipts and documents. The software will record any alterations that were made to the original order along the way. Thus, an auditor is capable of determining why and where the alterations were made.
- Eradicate Approval Bottlenecks
There are several bottlenecks that crop up in the procurement system as a result of the complexity of the entire process. That is, at several points in the procurement process, the productivity falls below the demand. For this reason, the cycle will be longer or companies will be under immense pressure to hasten through the rest of the cycle. Thus, there are chances that the procurement team may not have the time to comply with all the protocols.
E-procurement can prevent this from happening as all the requirements like approvals, accurate requisitioning, and payments are streamlined. Therefore, the company will be able to procure the goods they require within a particular time period.
One of the reasons why the procurement process is complicated is because there is only so much that a company can track using legacy systems. However, e-procurement can help to make the process more visible as all the documents are digitized and stored in one place. In case an order has been made, the procurement team can track the invoice, delivery times, and more. When approvals are made, it will be logged in the system as well. One can even look to find new vendors with more profitable options if necessary. The company will drastically cut down on unauthorized or authorized spending that was unnecessary.
- Track Suppliers
Supplier management is probably one of the more beneficial aspects of using e-procurement. This is because the procurement software generally displays all orders that are taking place in one region only. Therefore, it is easy to determine which orders are yet to be fulfilled and which vendors require compensation for their deliveries.
Procurement teams can carry out practices like creating a preferred list of vendors and subsequently receive discounts or price reductions. In case, vendors from a non-preferred list are required, that will be recorded as well. Thus, it is possible to exert control over all the activities of the procurement cycle.
- Remove Data Silos
The procurement process also includes a range of individuals belonging to different departments. For example, there are vendors, finance departments, requisitioners and inventory managers. Each of these parties have their own databases where information is stored. These databases are usually known as data silos which tend to be more common in legacy systems.
Data silos create potential for miscommunications along the way. However, e-procurement solves this problem by creating a centralized database of all the information required during a procurement cycle. All the individuals or teams involved in the procurement system will be able to access the data recorded during the process.
- Create Budgets
E-procurement makes it possible for a procurement team to analyze all the aspects of the process, from the requisitioning to the payment. The data that is collected along the way can be used to implement more cost saving strategies in the future. Thus, companies are able to fit their procurement system within smaller budgets as the software can predict how much spending will go towards that particular order. For this reason, companies can prevent the payment of hidden or unnecessary payments that may go over-budget. According to recent studies, the e-procurement system has made it possible for companies to attain a 40 to 60% increase in productivity due to the automation of several aspects of the process. In addition to this, there is a 65% drop in operating costs. Therefore, this system makes it possible for companies to not only simplify their procurement but save revenue along the way as well.