Eprocurement | Definition, Function, Benefit, Process, Solution
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Understanding E-procurement in Business
In today's digital age, procurement is no longer confined to traditional, manual processes. In this article, we'll explore what e-procurement is, the functions of e-procurement, process and e-procurement solutions
The article is written by ElectGo team with contributions from Mr. Colin Koh, an industrial educator and industry leader in smart manufacturing and automation.
1. Definition of e-procurement
E-procurement also known as electronic procurement uses digital technology to facilitate, manage, and streamline the procurement process over the Internet. It encompasses electronically acquiring goods, services and works from suppliers, and sourcing, negotiation, ordering, and payment.
E-procurement integrates with an organization’s procurement strategy to automate and optimize procurement activities, enabling greater efficiency, transparency, and cost savings. This digital approach is particularly effective in managing supplier relationships, ensuring compliance, and providing real-time data insights to support strategic decision-making.
2. What are the functions of e-procurement?
The primary functions of e-procurement are designed to automate and improve various stages of the procurement process. These functions typically include:
Sourcing
Enable organizations to identify, evaluate, and select suppliers electronically. Tools like e-tendering and online auctions are used to solicit and compare bids from multiple suppliers, ensuring competitive pricing and terms.
Purchase requisition and approval
Employees can submit online purchase requests routed through a predefined approval workflow. This streamlines the approval process, reduces manual errors, and ensures all purchases align with the organization’s procurement policies.
Order management
Automate the creating, submitting, and tracking of purchase orders (POs). This includes automatic PO generation, order confirmation, and delivery tracking, which enhances order accuracy and fulfillment efficiency.
Supplier management
Facilitate better supplier relationships by providing tools for supplier evaluation, performance monitoring, and collaboration. Supplier portals allow for easy communication and information exchange, improving overall supplier management.
Contract management
E-procurement includes tools for managing contracts electronically, from creation and negotiation to execution and renewal. This function ensures contractual terms and conditions compliance, reduces risks and improves contract lifecycle management.
Invoicing and payment
The system automates the processing of invoices, matching them with purchase orders and delivery receipts to ensure accuracy before payment. This reduces the risk of errors, prevents fraudulent activities, and accelerates the payment process.
Reporting and analytics
Provide advanced reporting and analytics tools, offering insights into spending patterns, and supplier performance. These insights help organizations make informed decisions, identify cost-saving opportunities, and optimize their procurement strategies.
3. What is the e-procurement process?
The e-procurement process typically follows these key stages:
3.1 Requisition
The process begins with the submission of a purchase requisition by a department or employee, which outlines the required goods or services. The e-procurement system routes this requisition through an automated approval workflow based on pre-established rules.
3.2 Sourcing
Once the requisition is approved, the e-procurement system facilitates the sourcing process. This may involve sending out requests for proposals (RFPs) or quotes (RFQs) to prequalified suppliers, hosting online auctions, or accessing digital catalogs to find the best suppliers.
3.3 Supplier selection
Suppliers submit their bids or quotes electronically, which are then evaluated by the procurement team. The e-procurement system helps compare bids based on criteria such as price, delivery time, quality, and compliance with specifications. The selected supplier is then notified electronically.
3.4 Purchase order creation
After the supplier is chosen, the e-procurement system automatically generates a purchase order (PO) based on the requisition and supplier information. This PO is sent to the supplier electronically, confirming the order details.
3.5 Order fulfillment
The supplier fulfills the order by delivering the goods or services as specified. The e-procurement system tracks the order status, ensuring timely delivery and notifying the buyer of any delays or issues.
3.6 Receiving and inspection
Upon receiving the goods or services, the buyer inspects them to ensure they meet the specified requirements. The e-procurement system records the receipt and any discrepancies, if any, in the delivery.
3.7 Invoicing and payment
The supplier submits an electronic invoice, which is matched with the purchase order and receipt in the e-procurement system. Once verified, the payment is processed automatically, completing the transaction.
3.8 Reporting and analysis
The e-procurement system captures data throughout the process, generating reports and analytics to provide insights into procurement activities. This data can be used to evaluate supplier performance, identify savings opportunities, and improve future procurement strategies.
4. What are the benefits and drawbacks of e-procurement?
4.1 Benefits of e-procurement
- Increased efficiency: By automating routine tasks such as order processing, approval workflows, and invoicing, eProcurement reduces the time and effort required to complete procurement activities, allowing procurement professionals to focus on more strategic tasks.
- Cost savings: Achieve better pricing through competitive bidding, bulk purchasing, and improved supplier negotiations. It also reduces administrative costs by minimizing manual processes and errors.
- Enhanced transparency: Provide real-time visibility into procurement activities, ensuring compliance with procurement policies and reducing the risk of fraud. Audit trails and reporting features also enhance transparency and accountability.
- Better supplier management: Improve supplier relationships by providing tools for performance monitoring, communication, and collaboration. Suppliers benefit from streamlined processes, faster payments, and increased business opportunities.
- Improved compliance: Ensures that all procurement activities adhere to organizational policies and regulatory requirements. Automated approval workflows and contract management tools help enforce compliance and reduce risks.
- Data-driven decision-making: Provide valuable insights into procurement activities through advanced reporting and analytics tools. Organizations can use this data to optimize procurement strategies, identify cost-saving opportunities, and improve supplier performance.
4.2 Drawbacks of e-procurement
- Implementation costs: Can be expensive, especially for small and medium-sized enterprises (SMEs). Costs may include software licensing, customization, training, and integration with existing systems.
- Complexity: Can be complex to implement and operate, requiring significant changes to existing procurement processes. Organizations may need training and change management to ensure successful adoption.
- Dependence on technology: E-procurement system relies heavily on technology, making it vulnerable to system downtime, cybersecurity threats, and data breaches. Organizations must ensure their eProcurement systems are secure, reliable, and regularly updated.
- Resistance to change: Employees and suppliers may only accept transitioning from traditional procurement methods to e-procurement, especially if unfamiliar with the new technology. This resistance can hinder the system’s successful adoption.
5. What are the differences between e-procurement and procurement
| Factor | E-procurement | Procurement |
| Sourcing and acquiring goods/services | Digitally enhances this process by integrating technology to streamline and automate the procurement activities. | Involves sourcing, negotiating, and acquiring goods, services, or works from external suppliers. |
| Supplier management | Digitizes supplier management tasks such as supplier bidding and selection through automated systems. | Includes activities like supplier selection and contract management. |
| Order processing | Automates order processing tasks like purchase requisitions and invoice processing, reducing manual effort and errors. | Involves order processing, which is typically done manually or through paper-based methods. |
| Efficiency and transparency | Enhances efficiency, transparency, and data-driven decision-making by leveraging digital tools and real-time insights. | Aimed at managing the procurement process, though it may be time-consuming and prone to errors due to manual processes. |
Want to know more about procurement: https://electgo.com/resources/what-is-procurement
6. What are the common e-procurement solutions in the market?
The e-procurement market offers a variety of solutions, each designed to address specific procurement challenges and requirements. Some common e-procurement solutions include:
- Credit term solution provides a mechanism for managing financial transactions between buyers and suppliers, offering flexibility in payment and improving cash flow. It also enhances procurement efficiency and financial management, making them a valuable component of a comprehensive eProcurement strategy
- Punchout solution is a digital catalogs that allow buyers to browse and purchase goods and services from pre-approved suppliers. eCatalogs streamline the purchasing process, ensuring compliance with procurement policies and reducing maverick spending.
- Supplier portals: Online platforms that facilitate communication and collaboration between buyers and suppliers. Supplier portals provide a centralized hub for managing interactions, streamlining procurement processes, and exchanging information. Through these portals, suppliers can submit bids, manage orders, track payment status, and access important documents and updates. Buyers, in turn, can review supplier performance, manage contracts, and ensure compliance with procurement policies.
Additional e-procurement solution resources
Interested in knowing more about e-procurement solutions? Check out these available resources on ElectGo.
- Punchout solution - Digitalize the procurement process
- Credit term solution - Experience seamless B2B transaction
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