Procurement is an essential part of any business, in any industry.
Whether it’s the manufacturing industry where raw materials are needed to function or the service industry where indirect procurement provides necessary equipment and supplies. The procurement process often involves managing numerous suppliers, documents, and other aspects where inefficiencies develop and details can be missed.
Procurement automation provides an easier way to manage details involved in the procure-to-pay cycle. By using e-procurement software you can automate routine tasks, and store and analyze your most essential data.
With e-procurement, purchase requests are routed to the appropriate team members for approval. Once approved, purchase orders are automatically created in your ERP system then sent to the vendor. Supplier invoices are then matched to the procurement request, eliminating the need to get approval to pay.
Not only does this eliminate waste, it can also lead to early pay discounts when offered.
In this comprehensive guide, we’ll cover everything you need to know about procurement process automation so you are one step closer to implementing it into your organization and, by doing so, benefiting greatly.
What Is the Procurement Process?
A solid procurement process is essential if you’re looking to streamline purchasing at your company. By doing so, you can ensure you save time by choosing the most reliable vendors, pay the best price for goods or services, and minimize mistakes subsequent unavoidable order delays.
Unfortunately, there is no one-size-fits-all procurement process. All companies and industries have different needs.
Some industries demand a strict, formal process to align with the complexity of their industry. This is often the case with government and education. In those industries, vendors must comply with strict guidelines. By veering away from these guidelines, there could be penalties, fines, or other punishments.
Let’s briefly look at an example of a typical procurement cycle from the perspective of a purchaser.
Find the Goods or Services That You Need
The procurement process begins when a company has a need for a good or service. We can break these goods down into two simple categories:
- External, i.e. materials that your business will sell.
- Internal, i.e. raw materials or sub-assemblies required to manufacture your products.
In this first stage, since you are deciding on goods and services required to purchase to run your company you are also focused on setting a budget.
For example, let’s say your organization manufactures plastic hose and tubing for gas grills. At your manufacturing plant, you are running low on a particular raw material needed to produce your product. In this stage, you would determine the type of raw materials needed, how much, when they need it to arrive, and how much it should cost.
Search and Select Vendors
Next, you focus on finding a potential supplier(s) and determining their ability to provide the best value and quality. It’s important to find suppliers who not only deliver high-quality raw materials for a competitive price, but who have a strong reputation. Ideally, you would build a beneficial relationship that can last long term.
Using our hose manufacturer and supplier client as an example, during this stage, you would develop a short list of all the various companies that provide the raw plastic materials you need to produce your tubing product. You would make your selection based on the cost, quantity, speed of service, dependability, and customer service.
Submit Purchase Requisition
Next in the procurement process is getting approval from the internal department that controls finances to purchase your goods or services. This includes creating a purchase request document and submitting it to that department.
Important: You’re not actually ordering anything from the vendor. At this point, you’re getting the internal approval to do so.
Create a Purchase Order (PO)
You now want to focus on the actual purchasing. Once the purchase request has been approved, your procurement automation solution automatically creates a PO that is sent to the vendor.
Purchase orders are typically created using ERP systems such as QAD. These enable businesses to track POs and submit them electronically.
If there are no contracts involved, POs are considered legally binding documents.
Receive the Inventory
Next comes receiving your inventory. A solid receiving procedure is an essential step in the procurement process. You must properly inspect all incoming raw materials, mark them with tags, and record them as having been received.
Along with your inventory you will receive your order receipt. This is the proof of payment and delivery. An order receipt is included by the vendor with goods that have been delivered to the purchaser. An order receipt details exactly what is in the shipment or order. They typically include the same information as in the invoice, as well as the method of payment.
Receive the Invoice
At this step in the procurement process—receiving the invoice—the vendor sends an invoice to the purchaser which precisely describes what the order includes. The invoice confirms the sale and reaffirms exactly when the payment is due.
When the purchaser receives the order, they have a limited amount of time to notify the vendor of any issues with the goods or service. Fifteen to thirty days tends to be the industry standard for most organizations.
You now have three documents—purchase order, order receipt, and vendor invoice. Accounts Payable or departments in charge of finances often use “three-way matching” to manage financial risk and control company spend. These serve to highlight any discrepancies in your procurement process up to this point. You can ensure that what you are being charged matches what you have received.
Pay for Goods or Services
Next, after the receiving the order as described, you—the purchaser—send payment to the vendor within the timeframe specified on the invoice.
If you have automated your accounts payable process, even better!
Automating your accounts payable system is fairly simple and comes with a wide array of benefits. In order to automate accounts payable most effectively you’ll need to clearly define your need and your goals, know what to look for in a solution, and understand how to evaluate whether it meets your needs. You can learn more about accounts payable automation here.
Record for Audit
The final stage in the procurement cycle is vital for well-rounded bookkeeping and for auditing purposes.
Auditors require you keep comprehensive documentation of all purchases. It is essential for all relevant documents from purchases through invoice to be stored in one central location. You will not only facilitate potential audits but also make your purchasing department more organized, efficient, and effective in the process.
How Procurement Automation Fits into Your Procurement Cycle
So, how can automation fit into your current procurement cycle?
For starters, e-procurement software helps streamline virtually every stage in the procurement process. Automated vendor catalogs make searching for sellers far easier than spending time on the internet, manually searching for hours on end.
Purchasers are automatically linked to all vendors that have been previously selected company-wide. This helps maintain consistency across the purchasing company’s locations and ensures you’re getting the best bang for your buck.
“How else can e-procurement software help?” you might ask.
Requisitions can be generated, delivered, and approved all in one place.
The same goes for purchase orders and invoices.
When purchase orders and invoices come in they can be automatically processed with an Automated Accounts Payable solution. Storing this information in one central, online location makes communication easier and faster between all parties.
A full audit trail is kept for every order from requisition through invoice. This makes it easier than ever to ensure accountability. With an e-procurement system, you can keep track of every detail related to an order, but without the hassle of traditional paperwork.
Additionally, following these procurement process steps can help control company spending. Choosing an e-procurement system, instead of relying on Excel and email to manage your procurement process, makes purchases faster, requires less time, and saves you money.
In the next section, we’ll examine the key benefits of procurement automation to further evaluate whether it right for your organization, regardless of your industry.
Benefits of Procurement Automation: How It Can Optimize Your Organization
As we previously saw, procurement is focused on processing the purchase of goods and services. In its process, you can find many redundant manual processes and “bottlenecks” that can be corrected with an automated process.
In order to be competitive in their respective industries, companies like yours are placing more emphasis on the strategic value of their procurement organizations.
Automation is essential to increasing its value and its strategic importance in your company.
Here are the top benefits of implementing e-procurement in your operation.
Improved Speed & Efficiency
Automation speeds up the procurement cycle. It can reduce the purchase order cycle by up to five days and reduce supplier lead time by two days.
Because of the increased speed that comes along with automation, one of the most obvious advantages of automating procurement processes is that it saves time.
Repetitive tasks that previously had to be done by a person can now happen automatically. This frees up time to perform more complex work and reduces the amount of labor needed to handle procurement.
All of Your Contracts are Available from One Place
Having contracts spread out across the company in the hands of different divisions or subsidiaries is a compliance nightmare waiting to happen.
You want to do everything in your power to avoid duplicate contracts.
Harnessing the power of technology and creating a central digital repository for all company-wide contracts is one important key to staying compliant. Centralizing and consolidating will allow you to get control of duplicate or overlapping contracts to avoid trouble down the road.
Automating how you handle all your contracts will provide full visibility into your contracts.
Also, potential compliance issues can be flagged. With e-procurement, alerts can be set up prior to contract expiration dates to allow for planning in negotiating of new contracts with more favorable terms.
An enormous benefit to procurement automation software is its ability to significantly increases visibility in every part of the purchasing process.
It makes it easier to identify issues such as high costs or other efficiencies. With immediate access to analytics, it’s possible to assess and react quickly to problems and unexpected setbacks and determine the appropriate course of action.
Instant Access to All Documentation
There are multiple documents involved in the procurement process, and many companies still keep paper copies of every single one. This creates extra waste and also takes up a considerable amount of space.
Procurement software can securely create, deliver, and store electronic versions of these documents, reducing costs and improving your environmental impact.
Working with electronic documents rather than paper ones can also speed up interactions within the supply chain.
Better Inventory Management
Automated procurement software has the additional advantage of being able to monitor stock levels and automatically reorder items once inventory falls below a specified level.
It is expensive to both run out of stock or to carry too much at one time. E-procurement can, therefore, reduce inventory expenses by keeping a closer eye on total inventory, with limited human error involved.
With immediate access to every document, as well as built-in analytics solutions, budgeting becomes easier and more efficient. It’s possible to generate in-depth reports and have a granular view of all expenses.
This allows for more accurate predictions for future budgets and helps identify places where costs can be cut.
Procurement Professionals Can Focus on High-Value Purchases
When procurement professionals are too involved with low-value purchases, it’s taking them away from more important tasks.
Procurement professionals are trained to get the most out of purchases as it relates to corporate policies, compliance, and pricing guidelines. You want to ensure you are optimizing your purchasing department and efficiently using them to their full capacity.
By setting up an e-catalog system, non-procurement company employees can make their own purchases on low-value items.
With e-procurement software, employees operate as an extension of the procurement leadership. This frees up procurement professionals to perform more critical higher-value functions.
Working with multiple suppliers means that there are a lot of details to keep track of: Contact information, contracts, payment terms, and products are just some of the information that needs to be managed.
This can be challenging when working with many companies. But a benefit of procurement software is that it can streamline this process.
Best Practices for E-Procurement: How to Automate Procurement Effectively
As we’ve seen, the goal of procurement automation should be to speed up processes and free your employees from repetitive time-consuming tasks. This will enable staff to focus on higher-value tasks. In procurement, a high percentage of the processes are repetitive, which makes them ideal for automation.
So how can you automate procurement effectively?
Let’s look at 5 best practices for automating your procurement process.
Evaluate the Requirements of Your Procurement Process
The first step in automating procurement in any organization is understanding the requirements of your expert buyers.
- What are the problems and concerns of my procurement experts?
- What problems do they regularly face and how can they be fixed by automating procurement?
- Where does the process work and where does it need to be made more efficient?
- How would they like to be able to evaluate bids, enforce processes, analyze data, and manage their suppliers?
By first evaluating these factors you will adopt an automated process deliberately, for the right reasons.
Communicate with Your Supplier(s)
An efficient sourcing process can only be achieved if the suppliers are on board, so make sure to communicate properly and get their input.
Automation can—and should—be a benefit for you and your suppliers. Your goal should be more effective, real-time communication and reduced manual workload for both parties.
If procurement automation is done right, then your suppliers should be able to respond to bids more quickly. They should also have easy access to contracts and other essential order information. Buyers should be able to track orders more effectively. And finally, an automated system should also enable records of orders to be kept.
Access to More Reliable Data
One of the benefits of automating procurement is that if you do it right, you should have access to better and more reliable data, such as supplier profiles, order history, and contracts.
But, the data you have available to you already should be your starting point.
What story is your data telling you? The data you have enables you to measure where you are at now so that you can track any improvements that are achieved by the automation process. You might also need to gather data about the procurement process, even if it is a difficult manual process, to justify the need to implement automation.
Some common problems data collection might highlight include:
- Inconsistent prices from the same suppliers
- Inconsistent track records of suppliers
- Failure to enforce compliance
- Not able to recognize when volume discounts could be applicable
- Identify areas where cost savings can be made
Define Your Procurement Process
The next best practice is to define your procurement process.
Flow-chart software can map out the process from end to end. It can help you focus on areas which need to be sped up or highlight where administrative tasks are the most burdensome.
To automate processes it is important to make your processes consistent and repeatable.
However, it is also important to identify areas where you need to keep flexibility.
Common problems in the procurement process that can be fixed by automation include:
- an approval process that is manual and time-consuming
- no standard or consistent processes
- contracts are not accessible or shared
- the sourcing process is too slow and difficult
Choose the Right Technology
Technology is the enabler that will allow you to automate your procurement. Making the right choice is key to automation working for you!
However, making the wrong choice could cause your business to be stuck with an inflexible process and limited buy-in from staff.
Choosing the best fit for your organization is important. The right fit is the solution that will increase your procurement process efficiencies, encourage a positive experience for your staff, and lead to cost savings which will show a substantial ROI.
Evaluating solutions can be tricky but any procurement automation solution you consider should at least have the following features:
- Cloud-Based – a cloud-based e-procurement solution is important for any organization with multiple offices and/or remote workers. It allows your employees to have 24/7 access to real-time data, accessible from anywhere.
- User-Friendly – look for an automation solution with an intuitive user-friendly interface. This lowers the learning curve, minimizes the time needed for staff training, and encourages staff buy-in.
Automating your procurement process is just not just a “convenient option,” but rather a modern-day necessity.
Automation via e-procurement is the answer to transforming the way you do business!
If you want your company to be competitive in its industry, the procurement organization must not be solely transactional, but strategic as well.
There are many benefits to automating your procurement process, but the main takeaway should be that increased organization of data and the freeing up your procurement team from low-value tasks will allow you to zero in on the more strategic corporate vision activities that significantly increase your bottom line and company growth over time.
Taking the key first steps to automate your procurement functions will put you on the road to reaping the benefits listed here and more—in line with the primary objectives of reducing risk, saving money and eliminating waste.
If you would like to learn more about e-procurement and automating your procurement process with DocLib visit us today!