According to a study by Mordor Intelligence, the global online procurement market is expected to grow increasingly between 2021-2026, at a CAGR of 10.2%. In the wake of industries in verticals like healthcare, retail, and MRO all set to reach greater heights, it has become imperative for businesses to adapt to the latest technologies in their procurement practices to compete and remain relevant.
Challenges Associated with Procurement Management
One of the significant challenges that most businesses endure in procurement management is bringing down purchasing and business operations costs.
Most procurement companies have started to think about procurement management as a top priority. This is because this segment makes up a large chunk of any company’s overall expenditure. Typically, even today, most organizations continue to follow manual procurement practices. However, while easy to practice, manual procurement practices are both time and revenue-consuming, which is why businesses are slowly adopting digital practices to revamp their procurement functions to keep pace with evolving business demands.
Today, organizations are implementing an effective procure-to-pay process and embracing efficient technology solutions to get fundamentals right. However, simply revamping their procurement strategy and implementing top technology products is not enough to make a business’s procurement functions optimum. When it comes to optimum expenditure and managing internal costs, it comes down to digitization and taking procurement practices online.
Here, we discuss everything from online procurement to its benefits and advantages, as well as the best e-procurement tools to help businesses ace their procurement game.
Online Procurement – The Future & Its Advantages
Online procurement, aka electronic procurement (e-procurement) or supplier exchange, refers to selling and purchasing services and supplies undertaken through a web interface.
E-procurement technology is designed to centralize or automate interactions between and amongst an organization, its customers, and other channel partners. The result is to enhance the speed and efficiency of overall procurement practices.
Today, less than 10% of businesses and organizations have already deployed procurement solutions resulting from key advanced technologies such as IoT, blockchain technology, and big data. According to various studies, higher than 60% of companies either use no procurement management tools or rely on systems primarily based on Microsoft Office to handle their procurement solutions, including workflow and supplier relationship management.
Analyzing Your Procurement Process Performance
Understanding what constitutes a good purchase requires you to get the hang of how the purchase cycle works. Several factors come into play in this respect -
Compliance with existing policy rates and contracts is essential to understanding an organization’s legal standing. If an organization’s compliances are on a downward spiral, its indirect expenditure automatically goes up. For example, without compliance, the rate of disputed invoices or quoted prices can go higher.
The accuracy of a purchase order and a supplier’s defect rate are important metrics that affect the overall quality of the procurement order. Supplier defect rates help in evaluating a supplier’s individual quality. In this case, a purchase order’s accuracy becomes inversely proportional to a business’s operational costs. Better purchase order accuracy helps companies ensure efficient delivery from suppliers within tight timelines and adhere to deadlines.
One of the significant aspects of improving delivery involves handling emergency purchases. Emergency purchases are unplanned orders acquired to prevent a shortage of products or services. Automation tools help businesses lower their rates of emergency orders and thus, save costs to reduce supply risks. E-procurement tools also help in lowering the supplier lead time. This refers to the time a supplier takes to receive an order and ship the item - the supplier’s lead time. This is an important KPI to measure while analyzing the performance of an ideal procurement automation tool.
Money spent by an organization on each purchase varies from order to order and client to client. An organization that follows a manual approach typically experiences higher processing costs than organizations that use automation. Costs become essential in respect of expenses in terms of procurement management.
Undertaking Contract Management
While most procurement teams undertake a negotiation process at the sourcing stage itself, these negotiations remain to have the potential to unlock more negotiation value. One of the biggest challenges that most organizations face is undertaking contract management thoroughly. According to studies, as high as 81% of organizations continue to undertake contract management manually instead of using a software. This causes several hurdles, including continuity of supply chain and the lack of consistency in drafting and negotiating contracts.
A seamless remedy to avoid procurement pitfalls involves using e-procurement software to shift contract management to the cloud. This allows organizations to draft, store, and maintain a repository of centralized information, giving them the power to leverage expenditure optimally. E-procurement and cloud contract management in such cases also helps reduce expenses and mitigate risks.
Contract management automation solutions give organizations a quick fix to ensure higher performance monitoring, automation of notifications and reminders, and create a configurable interface that allows employees and staff to extract and access data effortlessly.
Benefits of Using Procurement Tools
Procurement focuses on the management of several orders, identification, and negotiation with suitable suppliers, managing budgets and expenses, and completing purchases within timelines. In this respect, organizations typically endure roadblocks like dealing with competitors, bringing down costs, fluctuating supply chains, and market volatility. To sustain against such a dynamic ecosystem, it becomes essential for businesses to integrate e-procurement softwares. E-procurement helps businesses remain flexible and allows them to meet policy requirements. This can improve the overall efficiency of a business’ procurement operations.
Let’s take a look at some benefits of using e-procurement tools and softwares
Since procurement processes revolve around several stakeholders such as finance teams, supply chain vendors and suppliers, inventory managers, etc., collecting data in silos tends to make simple tasks complicated. Data silos can often lead to complications in the payment process.
In this regard, e-procurement solutions allow businesses to undertake transactions and communications easily and update relevant managers with purchasing needs to ensure supply chain continuity. They help streamline the procurement processes and manage all functions such as supplier identification and sourcing, negotiating, invoicing, and payment processing.
- Improve poor supplier performance
Tracking supplier performance and operations can be daunting, especially since it is a time-consuming task. Through automated processes, vendors can collect, store, and display updated information to procurement teams in real-time, which helps in easing time-associated constraints. Collected and properly stored data allows organizations to analyze supplier performance with increased efficiency quickly.
- Reduction of delays and redundancies in the payment cycle
Organizations also face challenges associated with their payment procedures, including delays in payment collection and invoicing. Furthermore, pricing quotes and invoice terms need to match purchase orders. This makes e-procurement automation tools a necessary tool to integrate, which ends up improving organizational compliance and reducing invoice processing time.
- Mitigation of dark purchasing
Dark purchasing or manual procurement management leads to redundancies, delays, and unnecessary risks in the procurement process. Handling procurement processes manually leads to risks, especially in terms of excess expenditures.
- Enhance self-servicing concerning suppliers
Automated procurement allows vendors to enhance their offerings by giving them greater visibility on their payments and internal communication. E-procurement tools help businesses to track, monitor and undertake accurate payment processing seamlessly.
- E-procurement allows getting rid of hurdles in the procurement process
Automation in procurement helps to address purchase risks associated with accountability and role-based accessibility. This helps in protecting sensitive and confidential information. E-procurement solutions also allow businesses to reduce a team’s workload on the whole.
- Mitigate procurement risks
E-procurement tools help to facilitate document exchange reliably and securely. This helps to reduce operational risks and off-catalog purchases. E-procurement tools help enforce several policies to ensure that the buyers abide by budgets and restrictions, leading to mitigate risks in procurement.
Looking for Ideal E-procurement Tools
When choosing an e-procurement tool, what is it that a business should ideally look at? Let’s find out -
When it comes to automation, it helps to choose a procurement management solution that offers organization in terms of workflows, handling purchases, receiving approvals, tracking and reporting, etc.
Another essential tool that e-procurement solutions provide is the easier management of budgets. Tools allow businesses to gauge real-time oversights, team and project budgets, and compare pricing strategies with previous purchases.
Typically, organizations are forced to undergo an entire email chain. Each purchase means more work for the whole team. Using e-procurement tools helps companies track multiple notifications, expenses, etc., associated with various purchase orders.
Another important factor that businesses should ideally look for in their e-procurement automation tools is the ability of their employees to collaborate. Considering employees within a single organization have different experiences in their procurement process, using tools can ease the onboarding and workflow process.
Finally, integrations allow smoother collaboration. Your e-procurement solutions tool should have the capability to facilitate communication among employees and have social and other integrations to allow for a seamless procurement process.
While some of these procurement best practices may seem familiar and straightforward, others, especially those in terms of e-procurement, may be novel. In such cases, it becomes crucial for procurement teams to test out e-procurement tools to ensure they are practiced and integrated into the business efficiently.
Cloud-based digital procurement tools or e-procurement tools have become imperative among businesses and form the first step towards building a sustainable, internal procurement strategy. Most companies have begun integrating comprehensive procure-to-pay tools to take care of their procurement processes and make them more streamlined and efficient.
To understand more about e-procurement tools and the procurement process, we would love for you to get in touch with our experts. At Procol Technologies, we have worked with several clients to make their procurement strategies and processes more streamlined and help them integrate digital tools to compete with players in the market and remain on top of their supply chain game.