What Is E-procurement?
Electronic procurement (e-procurement) is the business-to-business process of requisitioning, ordering, and purchasing goods and services over the world wide web. E-procurement mainly streamlines supplier-customer interactions through bids, purchase orders, and invoices.
The main elements of e-procurement include managing suppliers and catalogs, e-payment, e-invoicing, and integrating purchase orders.
Before we dive into the benefits and steps of the e-procurement process, it is important to know what the elements of e-procurement are and what they entail.
Types of E-procurement
The different types of e-procurement are as the following:
Direct Procurement
Direct procurement is purchasing items directly impacting a company’s final product, such as raw materials, procurement software, or services.
Indirect Procurement
This involves purchasing items that don’t directly contribute to the production of the company’s end product, such as office supplies, equipment maintenance, or consulting services.
Goods Procurement
This type of procurement includes the material procurement of material items, such as office supplies or raw materials.
Services Procurement
Services procurement procures people-based services to help run businesses, including software purchases to hiring contractors.
Benefits & Objectives of E-procurement
Transparency
E-procurement improves transparency across all procurement processes by making information and data transfer between the company and the supplier more transparent.
For instance, companies can decentralize procurement processes and centralize their strategic procurement processes to improve supply chain efficiency significantly. Furthermore, this information can be used to view purchasing behaviors, control non-compliant spending, identify opportunities to consolidate suppliers, and leverage buying power.
Error Reduction
E-procurement can help a company save substantial money by eliminating costly errors when handling manual orders and paperwork. In addition, the company can use the money they save for other initiatives, like marketing and advertising.
Automatic Procurement
It is possible to sustain more consistent and cost-effective operations by automating e-procurement processes. This will help lower the need to perform monotonous data entry and analytics activities. As a result, the procurement department can focus on strategic sourcing and less on redundant tasks like processing purchase orders and invoices, resulting in lower administrative costs and overhead for the procuring organization.
Shortened Procurement Time
E-procurement platforms automate redundant activities such as purchase order tracking, supplier evaluation, invoice processing, and matching. In addition, employees can access and browse online catalogs of the company’s approved suppliers from anywhere and anytime. As a result, approvers can authorize purchase orders whenever they can, reducing turnaround time. The benefit of this shorter process cycle is the ability to obtain the goods and services much faster, helping to limit operation downtime and increase productivity, saving costs and, thereby, increasing profits.
Streamlines Operations
This is an essential benefit of using e-procurement because it helps you save time and increases productivity. In addition, having all your online purchasing and selling processes functioning seamlessly creates a more uniform system and makes it easier to identify and resolve problems before they escalate.
Vast Product Selection
Because all the transaction and e-procurement processes occur online, you can choose from a broader range of products and services. This variety enables you to compare what’s available and select the best and most cost-effective goods for your company.
Enhanced Spending Control
E-procurement lets businesses track spending, purchasing budgets, and incoming deliveries more effectively by providing dashboards that track these metrics in real-time. These systems also generate purchase reports that help businesses lower supplier fraud. As a result, companies reduce maverick spending and improve spend management.
Maverick spending describes when an individual procures products that aren’t within the parameters of the designated contract and negotiations. Limiting these actions helps ensure that all e-procurement processes meet compliance regulations set between the company and supplier.
Five Steps of E-procurement
Here are the five primary steps and e-procurement examples used in the procurement process:
Sourcing & Approval
Amongst the multiple types of e-procurement, the first step of the e-procurement process is online sourcing. In online sourcing, a company pre-qualifies all potential suppliers by determining location needs and submitting a purchase request by identifying the need for a product, material, software, or service a company requires. Once the needs of a company are identified, individual business managers can now submit purchase requisitions to the procurement team. This second stage coincides with defining business requirements by the company’s executive and procurement figures.
Tendering
Tendering is when the company requests information, quotes, and proposals from its shortlisted suppliers. This is the stage where the company analyzes and assesses potential suppliers better. The company can implement strategies during this stage to ensure its assessment is transparent.
The company can then find potential suppliers and submit a request for a quote and proposal with a detailed list of the items needed and an approved purchase requisition.
Auctioning & Negotiating
Online auctioning is when all parties set the contract terms and negotiate prices. Once a company has decided which supplier to work with, the negotiation process begins.
First, the procurement team will work with the supplier’s sales rep to establish certain contract terms, not only including pricing but the whole process, such as delivery timelines, potential damages, and other terms and conditions. Then, after both parties agree, the company purchases the goods or services from the chosen supplier.
Purchase Order
Online purchase ordering is the final step in the e-procurement process. A purchasing order describes the goods and services, total costs, and quantity. This is when the company places its orders and then receives them by the estimated date.
If both parties are content with the contract terms, the procurement team creates a purchase order and sends it to the supplier.
To finalize the process, the company indexes the contracts in a digital catalog so employees can access them later and place a new order.