E-procurement is the electronic purchase and sale of goods and services, usually through an Internet-based platform. It is a tool designed to improve the purchasing process transparency and efficiency and help companies capture savings.
Why is e-procurement better than traditional procurement methods?
Traditional procurement methods involve running requests primarily over the phone, through snail mail, or via face-to-face meetings. In the past couple decades, companies have begun using email and Excel as well. Traditional procurement methods, including email and Excel, are notoriously inefficient due to the time requirements needed for manual data entry. Lack of process transparency and data visibility are also problems with traditional procurement methods; information on current and past requests is hard to access and audit.
Modern e-procurement tools make the process vastly more efficient; buyers save time and management can easily access the data from a centralized and visualize the outcome based on information from past events.
While e-procurement does include electronic purchases performed via an EDI (electronic data interchange) or ERP (enterprise resource planning) system, the most efficient and cost-effective tools available today are cloud-based. Also known as software as a service (SaaS) solutions, these tend to have a shorter time to value since nothing needs to be installed on premise, and implementation can occur within hours or days, rather than weeks or months.
Why do organizations move to e-procurement?
Given the vast benefits of e-procurement over traditional procurement methods, the reasons organizations have for moving to e-procurement can generally be divided into two main categories: the need for process efficiency improvements and the need to improve process compliance.
Improve process efficiency
For companies still stuck with email or other traditional procurement methods, the move to e-procurement is often due to a desire to improve their purchasing process efficiency. E-procurement will streamline their processes.
These companies will see:
- an improvement in oversight,
- a decrease in request-to-purchase cycle time, and
- an increase in the number of events per buyer.
Companies with clear processes already in place have reasons for moving to e-procurement that fall into this category. Perhaps they are already using an incumbent e-procurement tool, but they still have issues with buyer compliance due to the tool’s cumbersome nature. By implementing a more flexible, intuitive cloud-based e-procurement solution, these organizations can improve compliance, thereby bringing more spend under management and increasing their cost savings.
These companies will see:
- improved data visibility and management,
- increased RFP process transparency, and
- spend optimization.
What role does e-procurement play in strategic sourcing?
Strategic sourcing is an essential part of procurement.
In an effort to get the most value out of the procurement function as possible, organizations are moving away from reactive and tactical sourcing to strategic sourcing. According to CIPS, strategic sourcing means, “satisfying business needs from markets via the proactive and planned analysis of supply markets and the selection of suppliers with the objective of delivering solutions to meet pre-determined and agreed business needs.”
E-sourcing is essential to strategic sourcing.
While strategic sourcing can be put in place without e-sourcing, numerous studies have shown that it is impossible to reap the full benefits of this process without the implementation of an e-sourcing tool. By implementing an e-sourcing tool along with their strategic sourcing processes, companies can anticipate savings of 15% and more, better manage their spend, and see an ROI in a matter of days or weeks.
What challenges do organizations face when implementing e-procurement?
Implementing e-procurement is, at its core, an exercise in change management. As with any major organizational changes, upper management buy-in is key. The values of e-procurement must be clearly communicated to all stakeholders, from the CEO on down, or else you run the risk of trying to make changes without the proper authority, which, in turn, will lead to high levels of non-compliance.
That being said, the other barrier to implementation organizations used to face was the high upfront cost for installation and licensing along with the extensive training required to use the tool. However, this is no longer the case. The growing number of cloud-based procurement solutions has lowered the barrier to implementation to the point that even small businesses can take advantage of all the benefits e-procurement has to offer.
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