Exploring the Value of Consolidating Spend with Electronic Procurement
Written by: PayStream
Underwritten in part by: Paramount WorkPlace
Q2 2018 | Featuring insights on:
- Current Trends in Procurement Processes
- Features of Leading Electronic Procurement (eProcurement) Software Suites
- eProcurement Adoption Best Practices
- A Leading eProcurement Software Provider
IntroductionOrganizations can use many strategies to improve their back-office processes; approaches may vary based on the complexity of the process, the urgency of the problem, and the current state of the department. When automating Accounts Payable (AP), for example, organizations can often easily pinpoint the greatest issue, such as high paper volume, and move forward with a plan for fixing this problem with the appropriate change management strategy or automation technology. However, when it comes to Procurement, organizations’ purchasing processes often involve complex approval workflows, many different budgets, thousands of suppliers and supplier contracts, mountains of data, and millions of dollars of spend that must be managed in a controlled manner. The widespread nature of the procurement process and its interconnection with many other back-office departments makes it much more difficult to assess the current state or determine where and how to start with improvement.
Research Overview: Current State of North American ProcurementIn order to properly understand the value of automating procurement, it is important to understand the drawbacks of a manual current state. PayStream Advisors recently surveyed more than 400 organizations to determine current trends in procurement management. When organizations without cloud-based eProcurement software were asked about their top pain points, the primary problems were procurement processes that differ across locations or departments and outdated or inadequate technology, see Figure 1. Other common procurement problems include frequent off-contract or off-budget spending, too much paper, the use of several disjointed procurement systems, and a lack of visibility and control over spending.
Figure 1: eProcurement Software, Disparate Processes and Outdated Technology are Organizations’ Top Procurement Pain Points
“What are the greatest pain points you experience in your procurement process?”
Figure 2: Almost Half of Organizations Do Not Have Centralized Procurement
“How would you best describe your current procurement process structure?”
Figure 3: Organizations Report Varied Methods for Managing Procurement Spend Against Budgets
“How does your procurement department monitor and comply with indirect spend budgets?”
Figure 4: Organizations Report Varied Methods for Managing Spend Against Non-Procurement Budgets
“How does your company monitor purchases against non-procurement budgets (i.e., other departments)?”
Figure 5: Many Organizations Process Purchase Requests Within Individual Departments
“How are purchase requests typically submitted?”
Figure 6: Most Organizations Send POs to Suppliers Via Email
“How do you send the majority of your POs to suppliers?”
Figure 7: Many Organizations Don’t Check Purchases Against Supplier Contracts
“Describe your procurement department’s relationships with supplier contracts.”
Figure 8: Most Organizations Use Procurement Software Built Into Their ERP Systems
“What type of procurement automation tool do you use?”
Figure 9: Reduced Cycle Time Was the Greatest Benefit from Procurement Automation
“Which of the following improvements have you seen in your procurement process since implementing a solution?”
Figure 10: A Lack of Executive Sponsorship is Organizations’ the Greatest Barrier to eProcurement Adoption
“What is the greatest barrier to procurement automation implementation in your organization?”
eProcurement Solution Features and Functionality
Electronic procurement software can integrate requisitions, purchase orders (POs), receipts, and invoices into one system. This enables users to view the entire process within a single interface, increasing visibility into transaction data and allowing it to be used to enhance operations.
Requisition and Approval
eProcurement software’s purchase requisition creation and workflow tools enable organizations to control employee spend from the beginning. Users can search an online catalog for items, add them to a configurable requisition template, and send the completed requisition through a rules-based approval workflow. The template can incorporate controls linked to company policies, budgeting, and inventory data. Built-in controls prevent rogue spending by flagging noncompliant purchases based on predetermined rules, such as on price or vendor before requisitions are routed to the appropriate approver. Requisition tools also enable users to access frequently purchased items, compare multiple products, and save favorite searches.
The software provides advanced approval workflow tools, which can be configured according to spending category, dollar threshold, business needs, geographic location, supplier category, and other custom parameters. The workflow functionality can include escalation procedures to ensure timely approval, out-of-office forwarding capability, and workload balancing for approvers.
Electronic catalogs function as online marketplaces that give users extensive details and competitive pricing on a variety of goods. Most eProcurement solutions include support for the following catalog types: static, or hosted; external, or punch-out; hybrid, or advanced; and specialized.
- Hosted catalogs usually operate directly within eProcurement software. They categorize items by supplier or item type. They require supplier registration and maintenance to ensure that product information, pricing, and shipping details are correct.
- Punch-out catalogs are hosted and maintained by suppliers, are integrated with the user’s ERP software, and quickly transfer purchasing information to the supplier’s system.
- Advanced catalogs are hybrids that combine features of hosted and punch-out catalogs.
- Specialized catalogs are tailored to specific industries’ needs, such as catalogs of laboratory products.
Many eProcurement systems provide interactive, user-friendly catalog shopping in order to compete with Amazon. They allow the creation of requisitions and POs from catalog selections but offer more accuracy and compliance than manual requisitions because they are integrated with supplier contracts and/or maintained by suppliers.
Many eProcurement software suites automatically create a PO from an approved requisition and transmit the order to the supplier. This gives an organization visibility into the status of the order throughout its fulfillment and eases communication with the supplier. Solutions may also allow users to batch multiple orders from a single supplier, or send orders to several different suppliers from a single requisition. Solutions can also support blanket orders and partial shipment orders, update contract terms or POs as shipments arrive, and allow suppliers to send advanced shipment notices (ASNs) when an order is ready for delivery.
Receiving and Reconciliation
Once a shipment is received, eProcurement software allows users to confirm the delivery and create a goods receipt. The receipt is checked against the PO to ensure that the right items and quantities have been received. Some software suites support returns or enable users to hold part of a payment.
After goods are received, many solutions automatically convert the PO to an invoice for the supplier. The system can then match the PO, goods receipt, and invoice for reconciliation, and may also match against contracts. Some systems include a summary report on the order, with all related documents (requisition, PO, etc.), to ease reconciliation.
During reconciliation, procurement software can integrate with a client’s existing AP processing system or forward the invoice through its own AP module. eProcurement software facilitates better collaboration with other departments, including budgeting, compliance, treasury, and inventory. An eProcurement solution’s AP module will likely include invoice approval, exception management, and connectivity to electronic payments.
Most eProcurement software includes advanced self-service supplier portals that enable suppliers to communicate with buyers. The portals allow suppliers to accept POs, send ASNs, check on the status of invoices and payments, and update their profile and payment information. Some portals also allow suppliers to manage catalogs, choose how they want to receive their POs, and submit legal, tax, and validation documents. Many portals include dispute management features to send queries about current transactions and provide an online dispute management help desk. Supplier portals strengthen relationships with buyers and provide insight into the value of each relationship.
Reporting and Analytics
As an organization works to improve purchasing decisions, it must consider costs, benefits, and vendor performance trends. eProcurement analytical capabilities allow managers to examine expenses by type, department, and region, and to prevent rogue spending.
eProcurement reporting software often includes both out-of-the-box report templates and the ability to generate custom queries and reports. Some solutions offer benchmarking to industry standards. Advanced eProcurement solutions include configurable dashboards that allow users to see information on process times, budgets, and suppliers, including spending reports, POs, active invoices for approval, graphs, and analytics widgets and tables.
eProcurement Adoption Best Practices
The following section describes ways for companies to implement an eProcurement solution while improving spend control and supplier relationships and minimizing implementation costs.
Evaluate the costs, pain points, needs, and goals of the organization’s current and future procurement processes and systems. Include processing times, error rates, prices that differentiate from those specified in a purchase order or available elsewhere, maverick spend, labor costs, and total costs. In labor costs, include time spent by non-procurement employees on procurement processes, as well as time spent by procurement employees. It is important to understand the current state before trying to move into a future one.
Develop a checklist of top-priority needs and goals. This list should contain the current state pain points and goals the company would like a new eProcurement system to address. It should be ranked by importance and organized by type. For example, a list could identify the highest costs areas and the order in which the organization would like to try and reduce these costs, as well as the areas of greatest process pains and the order in which these should be addressed.
Gather information on new systems and providers. Focus on the costs and capabilities of cloud-based eProcurement software options, as well as on providers’ reputations and reviews. Talk to industry peers about their experiences with eProcurement implementation. It is important to gain a clear picture of an eProcurement provider’s reputation for smooth implementation, reliable service, and strong customer support—particularly for companies of similar business structure and needs.
Consider starting small and scaling over time. Given the company’s budget for procurement process change, choose one or more procurement functions to automate first with cloud-based eProcurement software. This will help achieve long-run automation goals at a pace that fits the budget.
Compare total costs of ownership. After narrowing down the list of potential eProcurement providers, compare total costs of the company’s current system with the total cost of ownership of an eProcurement solution. These costs should include implementation, integration, and change management costs.
Build a case for automation with internal stakeholders. Key benefits organizations can use to build a business case for automation include saving time and money, reducing risk, and improving the productivity among procurement staff and throughout the organization. Take the time to achieve buy-in from colleagues at all levels of the organization, from the C-suite to requisitioner, as this will pay dividends later by motivating the staff to more quickly learn the new system. C-suite managers will be most affected by a new system’s potential for cost and risk reduction, technology staff by ease of implementation, and procurement personnel by ease of use and the automation of low- value, manual-heavy tasks.
Choose a solution provider that offers strong support and varied training options. Look for services like availability of on-site group training, “train the trainer” workshops, remote training, and a 24/5 or 24/7 help desk that will boost employees’ comfort level with the new system. Depending on the needs and culture of the organization, ongoing access to a toll-free help desk (versus access that is limited to an implementation window) increases the value of an eProcurement solution.
One of the Procurement department’s primary goals is to support the organization’s purchasing needs while keeping its financial stability in consideration—a task that can become more difficult the more widespread and uncontrolled purchasing processes are. With procurement automation initiatives, the task not only requires implementing a dynamic solution that fixes existing problems—it also involves changing internal habits, strategies, and attitudes around spend from the very beginning. The following profile highlights a leading software provider that can support a company’s transition from inefficient to automated procurement processes.