Procurement is a process in which an organization requisitions, orders and purchases goods or services. The typical procurement flow involves defining a need; seeking approval for a purchase; identifying the most suitable, well-priced product; and managing the logistics of the order until fulfillment. This process grows more or less complex depending on an organization's business structure, size or industry, but for any company, the ultimate goal is to procure a product at the greatest value and the best possible price.
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
In traditional procurement, an organization would handle purchasing with manual methods, allowing limited control and visibility into the buying process or the logistics of the order. However, with the rise of technology and the increasing focus on cost control in B2B activity, innovative organizations are now using electronic procurement (e-procurement) software to complete this process faster and more efficiently. The e-procurement tools available today allow purchasing departments to better control how items are purchased, to build more strategic relationships with suppliers and to have full visibility into the lifecycle of their orders.
Procurement process made efficient by e-procurement software
Developers designed e-procurement software in the late '80s to accommodate an increasingly globalized business environment, one in which organizations had greater need for speed and efficiency in order to maintain competitive advantage. The original intention of the software was to speed up processes and increase visibility in purchasing. However, after the recent economic recession, new operating challenges among businesses have caused e-procurement software to become more versatile and more focused on cost control. Businesses are increasingly turning to automation software to control spend and maintain secure, cost-effective supplier relationships.
Leading e-procurement software include features for creating and managing requisitions, hosted catalogs and punch-out (supplier hosted) catalogs, purchase order (PO) management, and receiving and reconciliation. E-procurement software enables employees from many different departments to order the items they need using a centralized, controlled system; this includes configurable approval workflows to ensure that non-procurement staff are still purchasing according to company guidelines and budgets.
Users can build and optimize catalogs with competitively priced items, both through hosted catalogs that are maintained in the buyer's systems, and punch-out catalogs that integrate with suppliers' external product lists. When orders are placed, the e-procurement system will allow a user to monitor the PO throughout its lifecycle. When shipments are received, the system will facilitate automatic goods receipt creation, order reconciliation, and match invoices to POs and receipts to ensure items and payments are correct and in sync.
What e-procurement is
Procurement is a core function of the purchase-to-pay (P2P) process. Therefore, e-procurement is a vital element of P2P automation software suites, which include tools for purchase order management, supplier information management, accounts payable, payments and spend analysis. Some providers offer a holistic P2P platform that streamlines the transition between each of these processes, while others focus on individual functions. In the latter case, the standalone systems will be designed to easily integrate with other P2P tools.
And what e-procurement isn't
It is important to draw a distinction between e-procurement and another type of purchasing software, electronic sourcing (e-sourcing). An e-sourcing tool offers functionality for creating RFx (request for information, proposal or quote) to distribute to suppliers, as well as for hosting reverse auctions that award an RFx event to the supplier with the most competitive price. While e-sourcing helps identify suppliers for projects and contracts, or for cooperation in e-procurement catalogs, e-procurement software facilitates intelligent and controlled purchasing from these suppliers.
The evolution of e-procurement software
The changing economy and the rise of technology in the workplace have changed the way e-procurement software is designed and packaged. For example, the first e-procurement tools were primarily on-premises systems that were maintained by internal parties, and they were mostly only realistic for the budgets of large enterprises. Now, cloud-based software is available at more reasonable prices and is more accessible to the middle market. Cloud technology is also a much better option for organizations with many locations and decentralized processes, and the solutions require very little internal IT involvement. In addition, punch-out catalogs give users real-time access to suppliers' inventories of goods, allowing them to get more accurate prices and order information than was available with on-premises, hosted catalogs.
Another aspect of e-procurement software that has changed in the last decade is the software's emulation of modern e-commerce platforms, and its use of big data to enable more strategic purchases. For example, many hosted, punch-out and hybrid catalogs offered with today's solutions are designed to look and function very much like an Amazon-type online marketplace. An e-procurement system will also draw from clients' internal purchasing data to optimize procurement with item suggestions and specialized searches, such as suggesting a complementary or similar item to one that a user frequently orders.
In all, e-procurement can be seen as the wave of the future in back-office efficiency. E-procurement software has the ability to allow organizations to save millions in costs, having a direct impact on business revenue. It also enables a company to transform their purchasing department from merely a cost center into a strategic powerhouse.
Procurement and finance departments need to work together to reach company's goals.
Read about the pros and cons of SaaS and on-premises procurement software.
E-procurement player SAP Ariba discusses the challenges of integrating with SAP's Business Network.