Purchasing Automation: What It Is and Why It Works
There’s a simple, hard truth that many employees encounter in the procurement world, which is that they are often required to perform repetitive tasks which are inefficient, costly, and slow. Fortunately, purchasing automation can solve this burden.
Automation of procurement has been proven to solve these problems after years of research and case studies, and businesses are finally responding. The American Productivity and Quality Center’s Open Standards Benchmarking in procurement report revealed that 82% of organizations who took part in the survey used some form of e-procurement, with 6% or organizations looking to add this tool in the next two years.
Before we dive deeper into automation, we need to understand the purchasing process, or what is called the procure-to-pay cycle. RPI consultants have defined this as the “entire process by which organizations buy and pay for goods and services”. Typically this involves:
- The issuance of purchase orders
- The receipt of purchase orders
- Matching of purchase orders
- Making payments
“Procurement process automation is simply the management of the entire procure-to-pay cycle using technology instead of the traditional manual method,” adds Majida Kanaan, a project manager at Writemyx and Brit student.
Automated purchase order aystem vs automated procure-to-pay cycle
Purchase orders are still an integral aspect of the procurement process, and many organizations may still employ a process that sees staff complete these documents by hand. In 2019, this is quite clearly an antiquated system.
There are software interventions that automate this time-consuming aspect of the process, allowing for a central repository of data that streamlines the process, makes it easy to reorder, eliminates the human error factor, and can even link to accurate real-time supply chain information.
Yet a procure-to-pay automated system links those all-important elements of invoicing and payment, further streamlining the process to its natural close. The benefits of procure-to-pay cycle automation can be summarized as follows:
Firms that employ a successful procurement software solution manage a two-day purchase order cycle, in comparison to the seven-day cycle experienced by businesses that still utilize the old-fashioned way of doing things.
And that’s the best performing firms, too – this does not even consider the full cycle including requisitions, invoicing, and payment, not to mention the speed at which information can be accessed for the purposes of auditing and forecasting.
Increased efficiency of processes has the desirable consequences of saving money and freeing up resources (in this case, procurement staff capacity) to invest in other, more strategically-focused activities.
You shouldn’t solely consider the increased efficiency of staff. Suppliers too can react quicker to orders by responding to requests such as when discounts would be applicable to bulk orders, or the ability to reference previous contracts in the case of queries. The buyer and supplier relationship is therefore enhanced.
Control and visibility
In times of internal and external audits, information is readily available at a click of a mouse. But key decision-makers have this powerful data analytical tool available at any moment in time.
“Then there are the added benefits of accurate budgeting and forecasting driven by data, something which is mightily difficult to achieve without the presence of a technology that allows for an automated purchasing system,” states Karen Wilson, a procurement manager at 1day2write and Next Coursework.
Stakeholders who benefit
An automated purchasing system can add value in many ways. It streamlines systems, makes them more efficient, and maximizes resources. You can pay suppliers on time and retain control over the process. These benefits are company-wide, yet also apply to specific key stakeholders.
From a management perspective, the element of control extends far beyond maximizing the efficiency of team members. An automated purchasing system can provide a whole host of analytical information on areas such as:
- Vendor performance;
- spend data; and
- cost analysis.
Staff can perform other activities. And suppliers, as we have seen, benefit from an increased clarity in requests.
Select the right technology
There’s a lot of options to consider when looking into purchasing automation software. Factors vary, but perhaps the two most important considerations for businesses should be:
- How user-friendly the software is; and
- the cloud.
These dual traits ensure fast onboarding times. They also allow you to access the information from multiple locations, which is vital if your business operates. Finally, ensure all key stakeholders and involved in the selection process.
Written by – Adelina Benson, Marketing Professional for AcademicBrits
Adelina Benson is a specialist marketer and a major contributor to Origin Writings and AcademicBrits. When she isn’t developing effective marketing approaches and executing successful campaigns, she turns her attention to the editing and proofing of all company literature, and she also enjoys blogging on these topics at PhD Kingdom.