A Guide to eProcurement for the Utilities Industry
Reducing Utilities’ Cost Pressures with Advanced eProcurement Software
Written by: PayStream
Underwritten in part by: Paramount WorkPlace
Q3 2017 | Featuring insights on:
- Current Market Trends in Procurement Processes Among Utilities Organizations
- The Benefits of Procurement Automation for Utilities
- Features and Functionalities of Leading eProcurement Solutions
In the past several decades, the utilities industry has experienced major changes. Shifting demand for energy has caused fluctuation in companies’ profit margins, but not in their operational costs. Energy consumers are changing their preferences—sometimes of their own volition, and sometimes after being offered incentives to switch to more sustainable energy sources. Amidst these and other changes, companies in the industry are trying to save money wherever possible to stay afloat.
Many utilities companies cut costs by automating their back office financial processes, such as procurement. Manual procurement processes tend to involve high volumes of paper, limited visibility into purchasing activities, slow purchase-to-payment cycles, and high overall processing costs. Electronic procurement (eProcurement) streamlines the full Procure-to-Pay (P2P) lifecycle, helping companies maintain control over employee spend and reduce processing costs. Implementing an eProcurement tool in the back office helps reduce cost pressure on the entire organization and improves the bottom line.
However, utilities companies operate within a unique industry with distinctive requirements. Therefore, they need eProcurement software that can meet their specific needs. These needs include a high degree of transparency across spend data and purchasing activity, both for compliance with regulations and for managing project- and budget-based purchasing. Fortunately, some eProcurement tools are specifically tailored to the needs of the utilities industry.
This report looks at current market trends in utilities procurement management, which includes organizations in energy sectors. This report also offers a high-level overview of eProcurement solutions’ features and services that are best suited for utilities companies.
Procurement in the Utilities Industry
In order to identify procurement trends among North American organizations, PayStream Advisors surveyed over 400 organizations across a variety of industries and market segments. PayStream’s research indicates that slightly more than one-half of North American organizations have procurement automation in place, see Figure 1. Figure 1 also shows that procurement automation adoption has risen substantially since 2016; PayStream attributes this growth to a wider knowledge of these solutions’ value, and to an increase in options affordable for companies in lower revenue segments.
Despite the growth in eProcurement adoption, 47 percent of companies are still operating under manual procurement processes. While a lack of automation leads to problems for organizations in any industry, for utilities the high processing costs of manual procurement dip into these companies’ already shrinking resources.
Manual procurement also creates blind spots in purchasing activity, which has the potential to be more harmful for utilities companies because of their business structures. Survey results show that utilities organizations tend to have less centralized procurement processes than organizations in other US industries, see Figure 2. Decentralized procurement sometimes leads to lower spend visibility and more inefficiency between purchasing and accounting, especially when a company does not have an eProcurement solution in place.
The combination of low automation and disjointed procurement processes limits a company’s visibility into spend data and purchasing activities across different teams and locations, which results in higher rates of purchasing-related issues and data discrepancies. PayStream’s research confirms this problem—when asked about their hopes for procurement process improvement, organizations in the utilities industry were most focused on improving spend visibility and data accuracy, see Figure 3.
The fact that visibility and data accuracy are the greatest concerns for utilities companies is not surprising, considering the industry’s tendency to rely heavily upon budget- and project-based purchasing strategies. Keeping budgets and projects aligned requires high degrees of transparency, control, and communication among requesters, approvers, and suppliers. Fortunately, PayStream’s research shows that eProcurement automation can bring about many of the procurement improvements utility companies seek, including control and visibility across the procurement process, see Figure 4.
There are many other ways eProcurement can improve a utility company’s processes, such as by offering comprehensive purchase order management tools that incorporate internal budgets controls. The following section explores eProcurement software that is specifically tailored for utilities companies.
eProcurement for Utilities
Leading eProcurement technology features include requisition creation and workflow tools, access to supplier product catalogs, purchase order creation tools, order lifecycle management, and integration with accounting and ERP systems. Today’s eProcurement software offers extensive controls in many areas of P2P, including approval workflow. This control allows administrators to create detailed routing and approval structures to send documents quickly while maintaining the security of sensitive financial data. Organizations can also configure roles-based access to the system or restrict certain purchases by spend category.
In addition to providing control over spend, eProcurement solutions offer full visibility into all activity conducted on the platform. Audit trails are logged throughout requisition and purchasing lifecycles, and administrators and approvers can gain real-time insight into the status of approvals and orders at any time. This eliminates the blind spots in the P2P lifecycle that often arise from manual processes, and aids in compliance during any future audits.
eProcurement solutions are also simple to adopt, with many offering extensive API capabilities for integrating with existing financial systems. As users create requisitions, they can leverage information that is already in the ERP, such as department, GL account, and vendor data. Organizations can also control which account codes can be used and set defaults, which reduces data errors from the beginning of the order lifecycle.
The following items detail more ways in which eProcurement features can improve utilities companies’ procurement operations.