What is E-Procurement and Why is it Important to Your Business?
The way we purchase has drastically changed in today’s distributed workplace. Paper forms are now a thing of the past and businesses turn to technology to help fulfil purchase requests. To do this effectively, though, you need a robust e-procurement strategy in place.
But what exactly is e-procurement? And how can it help your business?
Here’s what you need to know
What exactly is e-procurement?
Our friends at the Chartered Institute of Purchasing and Supply (CIPS) have cobbled together a terrific overview of e-procurement.
According to CIPS’ website, e-procurement is:
“The combined use of electronic information and communications technology (ICT) in order to enhance the links between customer and supplier, and with other value chain partners, and thereby to improve external and internal processes. E-Procurement is a key component of e-business and e-commerce.”
In other words: e-procurement, because of its technological foundation, improves both customer/supplier relationships and business processes, and could also offer significant cost savings.
But, where did e-procurement come from? Surely the development and subsequent adoption of e-procurement software wasn’t an overnight phenomenon…right?
The history of e-procurement
The origins of e-procurement or “electronic procurement” begin in the 1980s, with the development of electronic data interchange (EDI). This development, while ancient by today’s standards, was groundbreaking for the time. EDI allowed customers and suppliers to send and receive purchase orders (and invoices as well) using call-forward networks, and eventually email.
In the 1990s, technology, as it tends to do, improved and software companies began to develop online catalogues specifically for use by vendors. Since e-procurement software has become an amalgam of the two: a platform for sending and receiving electronic orders (as well as myriad other expenses such as travel) and various catalogues.
Marketplaces have also proven to be a popular addition to e-procurement software. Marketplaces, to borrow CIPS’ definition, are virtual marketplaces for partners, suppliers, distributors, agents and customers.”
The benefits of e-procurement
So, we’ve already said – in broad strokes – that e-procurement improves customer/supplier relationships and strengthens internal business processes. But for a more nuanced look at those benefits (and for a list of other positives), CIPS has compiled a very detailed list of e-procurement benefits.
Here are some of my favourites:
- The automatic processing and auctioning of orders (electronic POs, e-invoicing etc.) and of related trading documents and data, thereby enhancing the speed and certainty of doing business at a lower total cost;
- Improved workflow of the internal procurement process – this enables end-user self-service and decentralization, with control through company-specific catalogues;
- New functionality such as e-requests for quotation and online bidding in auctions using electronic bids;
- Connectivity to external supply chains, and the allowance of shared real-time information for enterprise resource planning and supply chain management;
- Improvement in supply chain mechanisms, leading to mutual benefit for all using e-procurement software;
- Knowledge of your purchasing process – e-procurement software will give you the visibility you want into your spending. The data e-procurement software gives you is absolutely critical.
Choosing the right e-procurement software
Of course, not all e-procurement software options were created equal – some have many features and are geared toward huge corporations, while other e-procurement options are lighter on features and marketed for small- and medium-sized firms.
So…how do you choose? Well, here’s a list of some really great questions from CIPS. Below, again, is a list of my favourites.
Before beginning an e-procurement ask yourself (and, by extension, your organization) these questions:
- Agree on clear objectives with senior management on what your business needs;
- Define the value chain and then the key business and procurement processes, including those that will benefit from e-purchasing;
- Define the applicable computer systems, applications and databases involved;
- Carefully examine issues of security (potential data corruption, hacking etc.).
Not all questions, of course, apply to all organizations interested in e-procurement software. Always tailor your e-procurement questions to suit the needs of your business. Make sure it is a good fit for you.
E-procurement software, in most cases, can do as much or as little as you need it to do. If you are just looking to create POs, e-procurement software can do that. If you work in a large, bustling organization and you want software that handles travel expenses, tracks inventory, offers real-time analytics and the receipt of all goods, e-procurement software can do that as well.
Finally, do you need remote access? Is a mobile app important for your business? If so, ensure you investigate – and test – e-procurement solutions that offer those features. Typically, remote access and mobile apps are standard features from companies that host their software on the cloud.
The future of e-procurement
So, where does e-procurement software go from here? In broad strokes, it becomes more nimble and more mobile.
According to CIPS: “Mobile technology has enabled improved access, delivering and sharing at other personal and enterprise levels. This is transforming procurement by enabling better connections and collaborations between buyers, suppliers, customers and other trading partners.”
One critical future trend: the evolution of cloud-based applications. Cloud-based procurement software solutions remove cumbersome technological infrastructure and, in many cases, eliminates lengthy training courses. E-procurement is indeed becoming agile.