What is e-procurement?
For most organizations, tracking payments and transactions in today’s marketplace has become needlessly complex and labor-intensive. With mountains of paperwork, manual processes, and the constant risk of human error, your traditional procurement process is probably not as streamlined or effective as you might think. As we move into an era of increasingly streamlined technology and AI-driven automation, businesses are mitigating this risk by creating a quicker, more cost-effective approach by utilizing e-procurement software systems.
Essentially, the definition of e-procurement is the process of buying and selling goods and services via a digital platform or software system operating on the Internet.
The e-procurement approach opens up direct, real-time communication between a company and a supplier by creating a direct link to facilitate interactions such as bids and purchase orders. And the beauty of an e-procurement system is that all documentation and communications are kept in one central place so no more inefficiencies due to lost documents.
Let’s dive into the nuances of e-procurement and discuss the key advantages and disadvantages that may sway your decision-making when choosing an e-procurement software system for your organization.
How does an e-procurement system work?
The main benefit of an e-procurement system is that it streamlines your regular procurement processes. By utilizing an online digital software platform, both parties can avoid handling manual processes like contract exchanges, resulting in a process that is automated, efficient, and at greatly reduced risk. An e-procurement software platform also helps to smoothen the operations between your finance and procurement departments, creating a collaborative process between all parties.
Your e-procurement process consists of several components:
- Source-to-contract (S2C) — S2C is the end-to-end process of selecting and sourcing goods or services. This component of your e-procurement process engineers strategic sourcing operations and organizes and manages your contracts. Generally, S2C comprises contract management and e-sourcing strategies.
- Pay-to-purchase (P2P) — P2P is the cycle from when an order is processed for goods or services up till the moment payment is received. The P2P cycle is composed of transaction tracking, data and invoice management, and budget oversight. When organizations utilize P2P software, they can improve efficiency, increase savings, monitor spend management, and deliver more transparency across their entire purchasing cycle.
- Supplier Relationship Management (SRM) — We’ve discussed at length the need for reliable and consistent supplier relationship management. Compiling and organizing your supplier information, performance, and interactions helps create a positive and insightful database of suppliers, creating a more efficient procurement cycle.
- Analytics — Nowadays, most tools used by organizations offer some sort of analytics platform. To do their job, your finance and procurement teams need access to the right data–and quickly. With enhanced analytics, you can evaluate your procurement process to identify barriers or costly aspects to save money and increase efficiencies. Your group can make strategic decisions and reassess spending to find ways to cut costs.
What are the advantages of using an e-procurement platform?
Procurement for your organization should be as simple as any other everyday purchase. With the support of the right e-procurement platform, you can gain added visibility into your transactions and more control over your spending. Organizations that have embraced an e-procurement platform or software have seen a range of added value to their procurement processes.
Some of the advantages of e-procurement include:
- Saving money — E-procurement offers an advantage for organizations by enabling them to control their costs and maximize performance. When organizations implement e-procurement processes, they can eliminate “dark purchasing”, thereby reducing their spend on unnecessary and/or duplicate items.
- Automation capabilities — Let’s shout it from on the top of a mountain: Automation saves! When organizations implement e-procurement strategies, they can reduce overhead and paperwork trails, save everyone time in ensuring compliance, organize data, and reduce invoice time, sometimes by up to 72%. The streamlined online procurement process makes for a faster cycle and allows you to create a larger pool of products and services.
- Shorter purchasing cycle — Reporting on orders, payments, and requisitions can be incredibly time-consuming. With e-procurement, organizations can streamline this process by centralizing their transaction tracking. With electronic access, buyers and sellers have instant access to a large pool of available products, services, and prices.
- Reduction in human error —When you rely too heavily on manual processes, you open the door to increased human error. Using a robust e-procurement system, you can reduce your team’s workload by automating administrative tasks like field-level arithmetic calculations, approval routing, and deadline adherence.
- Added transparency for all parties — Contrasting systems and data silos can negatively impact the quality of your procurement process, resulting in longer cycle times, unnecessary spending, and missed opportunities. A unified e-procurement system simplifies data management and centralizes your communication and business functions.
The right e-procurement system:
- Enforces accountability
- Addresses potential purchase risks
- Protects your sensitive information
- Keeps the procurement cycle moving forward
Like every business function, e-procurement requires strategic thinking and preparation to ensure your process is efficient, repeatable, and as risk-free as possible. While you cannot eliminate all potential risks from your procedure, you and your team can brainstorm contingency plans for potential barriers that can arise.
What challenges does e-procurement introduce into the business?
Like every business function, e-procurement requires strategic thinking and preparation to ensure your process is efficient, repeatable, and as risk-free as possible. While you cannot eliminate all potential risks from your procedure, you and your team can brainstorm contingency plans for potential barriers that can arise. Some common risks that organizations encounter include:
- Dark purchasing — The procurement process should be well-defined and established in your organization. When you spend outside of these set parameters, you are partaking in what’s known as “dark purchasing”. Organizations that frequently utilize dark purchasing open the door to potential redundant or unnecessary purchases. If you don’t take the time to create a system that encompasses all kinds of spending within your organization, you can face increased financial risks.
- Long cycle — One issue many organizations face is that the actual lead time and procurement cycle are usually longer than anticipated or scheduled. Organizations need to have plans in place to help mitigate the risk incurred from a lengthy cycle. Common delays include:
- Preparing technical specifications
- Creating the terms of reference
- Making the statement of work
- Failure to start the process promptly
- Extensions in the timeline to submit proposals
- Setbacks in contract negotiations
- Inaccurate data — The importance of real-time and accurate data cannot be overstated. To work productively and strategically, leaders need access to insightful and verifiable data. When organizations make decisions based on inaccurate information, companies open the door to risks including:
- Inventory shortages
- Excess inventory
- Procurement challenges that impact your bottom line.
- Supplier relationship management challenges — For your procurement process to work smoothly, you need to successfully manage your supplier relationships. Without proper oversight and support, your procurement process can quickly become complicated. When you put in the effort to create positive supplier experiences, you help to limit the risk incurred in your procurement practices.
Bonus: Read our advice for tackling supplier relationship management positively and productively.
Bonus Material: Check out our advice for tackling supplier relationship management positively and productively.
How does Tradeshift help?
Tradeshift Marketplace helps you to shift your procurement strategies to a digital and easy-to-use platform. Tradeshift’s E-Procurement network makes purchasing easy, granting buyers access to a wide range of suppliers for products and services. Your organization can fill your supply chain marketplace with offers from your chosen vendors, enabling you to sort, evaluate, and make purchasing decisions in real-time with insightful information. This makes purchasing for your teams simple — your employees can order supplies as easily as they would buy things for their own homes.
Tradeshift’s B2B supply chain network gives buyers access to thousands of products and offers with negotiated pricing. On the Tradeshift network, you can rest assured that all our suppliers are pre-vetted. With the availability to add suppliers as you go, you can quickly expand your market and customize your supply chain efforts. Digital transformation has allowed organizations greater control and management of their company expenses. This digitization enables organizations to push P2P from simple transaction processing to a strategic business capability.
Tradeshift Marketplace isn’t only convenient for your procurement teams. It also helps you to be more strategic. By automating purchase requests and invoices, our digital tool reduces tedious work, giving your employees more time to act strategically within their roles. And, with Tradeshift Engage, you can generate real value for your suppliers with onboarding and supplier relationship management tools, creating a robust, resilient procurement process. Our Engage platform consolidates all your information and communication into one place, creating an easily accessible and integrated experience that suppliers love.
Tradeshift is in the business of providing solutions to your supply chain’s needs. With our user-friendly and digital platforms, suppliers and buyers can create a more transparent, reliable, and profitable relationship than ever before. Our team of experts is continuously looking for ways to improve our users’ experience and support the areas where your supply chains struggle the most.
For more information about how we can help you make a positive shift in your e-procurement and supply chain processes, reach out to one of our specialists or sign up for a demo now.
e-Procurement - FAQ
E-procurement, or electronic procurement, is the process of an organization securing goods and services they need to function via an online procurement platform or marketplace. E-procurement actively works to reduce the manual effort of procurement teams and connects buyers and sellers on a single digital platform.
E-procurement works swiftly compared to traditional procurement because it leverages an online platform, as opposed to regular procurement, which is the procurement of goods and services through more manual functions.
An e-procurement software system or solution, assists organizations through the steps of finding, sourcing, ordering, and purchasing services and goods with tools online via a cloud-based platform.
There are 5 recognized steps of e-procurement, lightly based around the same tenets of procurement with the addition of online features, these include:
- Online information transferring, or when you are able to quickly and securely share documents, data, or otherwise valuable information on an online platform
- Online sourcing or e-sourcing is the act of finding vendors via the Internet and essentially creating a shortlist of vendors an organization wants to work with.
- Online tendering, also known as e-tendering, is naturally the next step in this process, where an organization requests information from its now filtered list of potential vendors.
- Online auctioning, or an e-auction gives vendors the ability to competitively bid for the purchaser’s trade online
- Online product ordering is the final step in this process, where a vendor has been chosen, requisitions are made and approved, the organization places their orders, and then receives their goods.
There are a few different types of e-procurement platforms you can choose from. The categories include:
- Enterprise resource planning (ERP) systems are platforms that intend to centralize, streamline, and integrate various business functions, including HR, accounting, sales, etc.
- Electronic data interchange (EDI) software: this software is lauded as one of the most impactful technologies used in the supply chain and serve to securely and quickly share valuable data and information via a paperless process.
- e-Procurement software: Simple enough, procurement software is a series of tools that allow organizations to organize, automate, and modernize functions like sourcing, purchasing, and approvals in the procurement cycle.
In addition to more clarity and flexibility, the benefits of an e-procurement marketplace extend to reduced errors, strengthened security, more insight into spending, reduced or eliminated paperwork altogether, and a faster process overall.
The advantages of adopting e-procurement include higher visibility, streamlined transaction processes, and increased productivity. Disadvantages may include challenges in user adoption, a potential lack of buy-in from executives, and supplier integration. However, these challenges can be overcome by preparing your team for the transition to e-procurement as much as possible. You can achieve this by creating an implementation plan grounded in strategy and crafting contingency plans for common issues that may arise.
Implementing the e-procurement process is simpler than one may think. Once your organization’s needs for e-procurement have been established and analyzed, businesses can better pinpoint which e-procurement software would be the best fit, secure executive buy-in, and implement the new system. Transition to the new software will accelerate as your team sees the overall benefits of using e-procurement.
The seven principles of public procurement are:
- Transparency in procurement refers to the availability of information for all stakeholders, including buyers and sellers. However, some information may not always be permissible, even under the expectation of transparency, like proprietary information.
- Integrity. In public procurement, integrity is needed in both the procurement process itself and among the stakeholders. Integrity, in this context, is the amount of trust or reliance stakeholders can have in the procurement process and those facilitating it.
- Economy: In terms of public procurement, is the ability to function as efficiently as possible with the best utilization of resources.
- Openness: In contrast to transparency, openness refers to the ability to request and receive information from actors within the supply chain.
- Fairness: In procurement, fairness is practiced by upholding equality for all parties involved and the absence of favoritism within social and economic relations.
- Competition: Similar to fairness, competition is an assurance that all participating in the procurement process have equal opportunity and access among vendors. Essentially, with competition in procurement, any vendor making a similar bid would be equally considered.
- Availability: Vendor availability is the responsiveness of vendors/suppliers when problems arise or in case of emergency.
Our in-house experts recommend that before you transition to e-procurement, you should identify your business needs, then shortlist several e-procurement platforms that meet your requirements, get approval from your team, and then create a plan to start learning and using the platform chosen.