Electronic procurement, also known as eProcurement, refers to using digital platforms and technologies to automate and streamline purchasing goods and services.
It's big business. According to Digital Commerce 360's 2023 B2B e-commerce Market Report, e-procurement sales grew by 18% yearly and topped $1 trillion for the first time.
What is eProcurement?
E-procurement encompasses the entire business-to-business process of buying and selling products and services digitally, over the internet or through an internal network.
It uses multiple tools and technologies, including:
- Electronic data interchange system (EDI). An EDI supports exchanging data between electronic devices. Orders and other communications can be transmitted and stored via EDI to streamline invoicing and order logistics.
- Cloud systems. Cloud-based platforms facilitate the day-to-day supply chain management work, including sourcing and ordering. Cloud technology is a vital part of e-procurement work because the cloud enables integration between different systems and applications.
- Data analytics. Modern procurement systems usually include data analytics features for monitoring metrics and key performance indicators (KPIs). These tools help business leaders make informed business decisions and identify areas for improvement.
eProcurement vs. traditional procurement
E-procurement differs from the traditional procurement process, which typically relies on manual processes such as paper-based documentation and person-to-person negotiation.
Traditional, paper-based procurement processes are often inefficient and don't provide easily accessible insight into spending or supplier management. They're also inefficient when it comes to data storage and retrieval.
Despite these differences, eProcurement still follows the same steps as the traditional procurement lifecycle. Those steps include:
- Identifying required goods and services
- Selecting preferred suppliers
- Completing purchase orders
- Accepting delivery of goods and services
- Invoicing
- Processing payments
By leveraging eProcurement, businesses can enjoy a more organized, efficient, and transparent procurement process.
Key benefits of the eProcurement process
E-procurement can deliver several benefits for your organization. Here are some of the most common ones:
Cost savings
eProcurement systems reduce costs by minimizing manual handling of orders and receipts, decreasing the need for physical storage and paper-based systems. Additionally, they often include price comparison features that ensure competitive pricing.
Increased efficiency
Technology allows for the automation of many procurement practices. This automation speeds up procurement processes, reduces errors, and eliminates redundancy.
Many eProcurement systems integrate with enterprise resource management (ERP) and accounting software platforms, reducing duplicate data entry and errors.
Streamlining workflows through integration and automation results in quicker turnaround times and less administrative burden.
Better visibility into spending
Digitally tracking expenditures provides clear insights into spending patterns.
For example, the system can flag non-compliant spending or inform stakeholders when the company is nearing spending thresholds. This facilitates better budget management and sound financial planning.
Enhanced vendor relationships
E-procurement platforms often include tools for managing supplier contracts, monitoring vendor performance, and facilitating communications. These features support better collaboration and partnerships between organizations and vendors.
Scalability and flexibility
For small businesses, scalability and flexibility are vital features of any e-procurement system. As your business grows, your procurement needs will evolve. A flexible e-procurement system can accommodate additional product lines, more complex approval hierarchies, and increased transaction volumes without requiring a complete platform overhaul.
Challenges in implementing an eProcurement system
Moving from manual procurement processes to an e-procurement process can be challenging. However, your organization can overcome these common challenges with the right knowledge and tools.
Change management
Shifting from traditional to electronic systems often requires significant changes in procurement teams' habits and workflows. This can meet resistance from employees who are accustomed to paper-based processes.
Clearly communicating the benefits and providing comprehensive training and support can help you overcome your change management issues.
Integration with existing systems
Integrating new eProcurement software with your existing ERP systems or accounting software can be complex and requires careful planning and execution.
When selecting a new system, look for one that integrates with the tools you're already using. Working with a solution provider that offers implementation support can also make the transition much faster and smoother.
Data security
Data security is a concern whenever you digitize a process or implement new technologies, including procurement software.
According to a report from the cybersecurity firm Mandiant, supply chain compromise accounted for 17% of cyber intrusions in 2021, compared to less than 1% in 2020.
Despite the risks, electronic data storage is much more secure than analog procurement records, which are vulnerable to theft, fire, and other natural disasters.
These risks are another reason to select your solution provider carefully. Implementing comprehensive security measures to protect your data and your employee, customer, and supplier data is also essential.
Best practices for adopting eProcurement
Keep these best practices in mind to improve your chances of a successful eProcurement implementation.
Start with a clear strategy
The first step in any technology decision is to define specific goals and outcomes for what you wish to achieve with e-procurement.
For example, do you want to reduce procurement costs by a certain percentage or improve procurement cycle time? Having a clear idea of your goals can help you when requesting and evaluating bids from potential solution providers.
Choose scalable solutions
Select e-procurement software that can grow with your business and adapt to changing needs. This ensures long-term usability and value from the investment.
Train and support your team
Provide comprehensive training to ensure your procurement department and other potential users are familiar with the new systems. Successful adoption depends on clear communication and ongoing support.
Monitor and optimize
Regularly review the performance of your eProcurement system to identify any issues or areas for improvement.
Some procurement KPIs to consider tracking include:
- Number of invoices disputed
- Variances in price quotes versus the price paid for good
- Accuracy in quantity and rate of defects in delivered goods
- Average time to ship an order once received
- Ratio of emergency purchases to the total number of purchases
- Average order cycle time
- Average cost per invoice
- Percentage of invoices sent electronically
- Percentage of single-source suppliers for critical goods and materials
Collecting feedback from users to continually refine and improve your processes is also helpful.
E-procurement vs. traditional procurement: An example
Let's examine a hypothetical example to illustrate how moving to an eProcurement system might benefit your business.
Say a small business currently uses traditional procurement processes.
Before eProcurement
The company employs manual methods for sourcing, involving numerous phone calls and paper-based purchase orders. Each order requires several approvals, all handled via physical documents. As a result, the company has a cycle time of about two weeks per order.
After eProcurement
Switching to eProcurement results in significant efficiency gains and cost savings. After transitioning, the business uses a cloud-based e-procurement system. It manages suppliers through a centralized platform, placing orders electronically and automatically routing approvals.
Real-time analytics provide immediate insights into spending and supplier performance. With increased visibility into the entire supply chain, the company can monitor metrics, look for trends, and identify areas for improvement.
Best of all, the company reduces the procurement cycle time from two weeks to just a few days.
Conclusion
E-procurement offers a valuable opportunity for small businesses to improve their procurement processes, saving time and money.
While digital transformation is rarely without its hiccups, applying the best practices outlined above can help you overcome obstacles, reduce procurement costs, and improve efficiency and transparency.
By choosing scalable and flexible solutions, you can ensure your procurement processes grow along with your operational needs.
If you're ready to automate your purchase order workflows, BILL's Purchase Order feature offers an efficient and less error-prone way to manage your workflows from invoicing to payment and reconciliation.
To learn more, schedule a personalized consultation.
