E-procurement: What you absolutely need to know
November 10, 2020
Living in a digital world, you have probably heard of e-procurement. E-procurement enables companies to automate business processes and transactions using internet technology. If you are an entrepreneur, understanding how it works and how to implement it can be a huge asset for your business. In this article, you will learn more about what e-procurement is, what the e-procurement value chain is, how e-procurement software works and what the main ones are.
What is e-procurement?
E-procurement is a business process in which business transactions are done through electronic means, with the ‘e’ in e-procurement standing for electronic. In other words, the buying and selling of goods and services are done via the internet. E-procurement can be done at any stage of the transaction, whether that be at the start with the sale arriving to the purchaser or through to the end with invoicing and payments.
The arrival of the internet has led many entrepreneurs to only sell their goods and services via computer technology. E-procurement doesn’t only benefit companies, it also makes it easier for customers to make purchases. It gives customers a much wider range of goods and services to choose from which they can access from their own home or workplace. They can relatively easily find the most affordable and available goods.
E-procurement, more than just purchasing and sales, also allows businesses to advertise and market their products more easily and cheaply than ever before.
How does e-procurement work?
E-procurement enables the streamlining of regular procurement processes. E-procurement means you can avoid doing things such as exchanging contracts, filling out supplier onboarding questionnaires and sending out tender documents manually. The whole process is automated. E-procurement also blends elements of finance and procurement together, thus smoothening the operations between both.
There are a few components to the e-procurement process:
- Source-to-contract (S2C) – S2C is the end-to-end process a company goes through when selecting and sourcing goods or services. It orchestrates strategic sourcing operations and manages contracts. S2C generally consists of eSourcing (eAuctions and eTenders) and contract management.
- Purchase to Pay (P2P) – P2P describes the ordering process of services or goods from a supplier, through to the company paying for services rendered.
- P2P is made up of product orders, supplier requisitions, budget authorisation, receipt of delivery and invoice processing. P2P software can help businesses with improving efficiency, savings, spend management and transparency across the entire purchasing lifecycle.
- Supplier management, which refers to the buying company taking care of the suppliers’ information, performance, relationships and interactions. Supplier management means having a complete overview of the information, ongoing performance and interactions of an entire supplier database.
- Supplier management most often comprises two different elements – Supplier Information Management (SIM) and Supplier Relationship Management (SRM).
- Analytics – most tools used by companies include some sort of analytics platform, with eProcurement being no exception. Generally, analytics allow finance and procurement departments to analyze and reevaluate spend measures for the business.
The e-procurement value chain
The e-procurement value chain consists of indent management, e-Informing, e-Tendering, e-Auctioning, vendor management, catalogue management, Purchase Order Integration, Order Status, Ship Notice, e-invoicing, e-payment, and contract management.
E-informing is not directly included in the purchasing process as it actually comes before the purchasing. E-informing describes the process of researching and distributing purchasing information from and to external and internal departments, using the internet.
Information sharing describes how much important or proprietary information is shared with one’s supply chain partners. This will have an impact on the performance and efficacy of the supply chain. Information quality is also considered with timeliness, accuracy, credibility and adequacy of information exchanged taken into account.
The e-informing process takes place especially in Enterprise Resource Planning (ERP).
The aim of e-tendering is to improve and streamline the tendering process for the procurement of specialised goods, services or operations of low volume but high value.
E-auction describes the process of organising an auction to sell natural resources, assets or other products via online competitive bidding. As opposed to a physical auction, an online auction offers transparency and makes it possible for more people to participate.
Vendor management happens when a contractor strives to drive service excellence, control costs or mitigate risks. This is done to increase value from their vendors throughout the procurement process. Contract management teams are generally set up to make sure that only the most efficient deals are made.
Catalogue management denotes the strategic process that begins with suppliers publishing their product portfolios online and making their products available to customers so as to procure products and services electronically. It comes into play when coordinating the product catalogue to make sure that the quality of the product date is up to standard across all sales channels. The product content can be presented by the supplier and/or the buyer.
E-purchasing is the opposite of e-tendering in that it is used for the procurements of services and products that are low in value but high in volume. The e-purchasing process simplifies through electronics the buying process of these services and products.
Catalogues are of the most important elements for this type of procurement. Some of the elements of this system are often complex, meaning system development is often necessary. The process begins with the publication of goods by suppliers online, and goes through to electronic selection, order, reception, and ends with payment by the party making the purchase.
E-ordering describes the process of creating and approving purchasing requisitions. That means placing purchase orders but also receiving services and products that were ordered. All this is done through IT-based software systems which smoothen the supply chain performance.
When considering e-ordering, the goods and services ordered are most often not product-related. They are indirect. With Enterprise Resources Planning (ERP) the products and services ordered are products related.
E-invoicing describes all the different electronic methods used to invoice customers. In large businesses, accounts payable teams are in charge of approving, processing and paying invoices.
E-contract management describes the management of payments, receivables, contract variations, contract settlements, performance securities, and auditing and control activities. As opposed to normal contract management, e-contract management is done electronically.
How public procurement is changing
Just like the world of business as a whole, the world of public procurement is also going through a digital transformation. The EU has launched initiatives to support the remodelling of public procurement processes to accommodate new digital technologies. Their aim is to make it easier for companies to use them and for the public sector to manage them. Such initiatives will also enable the integration of data-based approaches throughout the procurement process.
There is an intrinsic link between digital procurement and eGovernment. Indeed, digital procurement is one of the key drivers toward the implementation of the ‘once-only principle’ in public administrations. This is a fundamental principle of the EU’s Digital Single Market strategy.
Within the current world ruled by big data, digital procurement is vital to allowing governments to make decisions about public spending based on solid data and evidence.
Digital tools can make public spending a lot more effective, as it will be more evidence-oriented, transparent, streamlined, optimised and adapted to market conditions. This is why e-procurement has been one of the main additions to public procurement in recent EU directives.
There are many benefits to using electronic tools within public procurement:
- Greater innovation
- Increased transparency
- New business opportunities which will come from the improvement of the access of companies of all sizes to public procurement markets.
- Less red-tape and administrative burdens
- Sizeable savings for all parties
- Shorter and simpler processes
What are the benefits of e-procurement?
There are many advantages to e-procurement. Here are a few:
- Joining ERP and your external supply chain: Information can be exchanged in real-time between finance systems or ERP and supply chains. This will lead to the better overall visibility of transactions with and information from suppliers.
- Streamlined procurement workflows: E-procurement enables end-users to serve themselves instead of needing staff support. It also leads to decentralisation in which control occurs through company-approved catalogues and easier processing of supplier payments and staff requisitions.
- Transparency and accessibility of the company’s purchasing behaviour: E-procurement allows you to gain a better understanding of how and where it spends its money. This information is invaluable and will help you better manage spendings, avoid wasting money, leverage power during negotiations, and spot areas for consolidation of suppliers.
- Automation of long and tedious tasks: Within any business, there will always be some tedious tasks that need to be taken care of, such as managing purchase order documentation, selecting suppliers, negotiating prices or filing supplier contacts. However, it is possible to automate all of this between a supplier and a company, meaning the business can be done a lot quicker. This then gives staff more time to take care of other important tasks.
Who is e-procurement for?
One will generally consider e-procurement for four specific levels within a company:
– The purchasing department, which is in charge of determining and improving procurement strategies
– End users, which are the basis of the needs and who are the ones placing the orders
– The approver, who has the authority to approve or reject orders
– The accounting and finance departments, who deals with the orders and invoicing as well as making payments.
How e-procurement software works
In order to start implementing e-procurement within your organisation, you first need to choose and install e-procurement software. Of course, different providers will offer different functions and features. However, there are some general functions that they will most often offer.
E-procurement software enables staff to go through online catalogues and choose the products they need online. However, there is more to e-procurement than just online shopping. Staff can also manage their own purchases by determining user permissions when the software is set up. The process starts with a purchase requisition which can then be approved or dismissed by the user who has the authority to do so. If the user doesn’t have the authority, then the request is automatically sent to an employee who does.
The software will store a range of products from suppliers that the procurement team has already accepted. Most often, these will be suppliers with already existing relationships and contracts already established. The software will generally allow the contracts and payment terms to be stored so that they are easily accessible.
E-procurement software also stores different products and the suppliers who stock them. This makes it possible to avoid having anyone buy anything that is outside of the company budget, or that doesn’t fit in with the company requirements.
Once an order has been placed, the software will automatically change it into a purchase order, which will then be sent to the supplier electronically. When the supplier has delivered the products ordered, these will be marked as received in the e-procurement system. This will then generate an invoice, which is sent to the accounts payable department to await payment.
What are the major e-procurement tools?
There is a range of processes and tools which can be used for e-procurement. Here are a few key ones:
Electronic data interchange systems
An electronic data interchange (EDI) is used to share and swap information and data between different electronic devices. Information and messages from other parties, partners, and external companies are exchanges and stored via EDI. This enables the streamlining of order and invoicing processes.
Internet applications and platforms
Companies use a whole range of e-procurement tools and online platforms to facilitate daily operations such as e-tendering, e-auctioning, e-sourcing and e-ordering. Email is of course also used a lot, as well as XML-based data exchanges.
E-ordering and purchasing tools
The most widespread tools related to product purchasing include digital mechanisms for e-auctioning and online-based ERP.
Web3 is used within the purchase to pay process. It gives procurement teams clearer insight into purchase patterns across various devices. It also enables important savings throughout the supply chain.
How CONNECTS can help with your e-procurement strategy
If you are interested in e-procurement or are already doing some form of e-procurement, then CONNECTS is the perfect platform for you. CONNECTS is the online business matchmaking platform which enables you to conduct business wherever you are. You can find new suppliers, distribution partners and customers across the world from the comfort of your home.
Working with Chambers of Commerce means all the businesses on our platform meet the high standards set by the Chambers. We provide access to business opportunities you can trust.
If you found this article interesting, you might also want to read our article about How You Can Use an Online Platform for Lead Generation Post-COVID-19.