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March 24th, 2024
Keeping an ecommerce company’s warehouses stocked with products is hard — really hard.
Modern supply chains are highly complex systems that can have hundreds of variables that can impact some — or all — business processes. That means that efficiency is key. It’s also why electronic procurement — or eprocurement — has become so popular as a procurement strategy.
At its core, eprocurement refers to the use of digital solutions to purchase and manage the flow of goods and services within an organisation. It replaces manual, paper-based catalogues and procurement processes with automated, digital ones to speed up the purchasing process.
Eprocurement sales surpassed $1 trillion for the first time In 2022. Needless to say, this is a massive industry, but also one that comes with its own unique workflows and processes.
Eprocurement vs. traditional procurement
Traditional procurement has its place, but also has limitations. Eprocurement tools open up possibilities around automation and efficiency that traditional methods lack. This means less burden on procurement departments and providers.
Cost efficiency comparison.
Eprocurement software eliminates the need for paper documents as the entire process and can reduce the costs associated with printing and storing documents. Furthermore, through eprocurement, businesses can negotiate better deals with suppliers since they would have access to multiple supplier options.
Speed and time-to-purchase.
Eprocurement eliminates the need for manual processes and can actually automate the entire procurement process, from requisition to the final payment. This automation can save time and significantly increase productivity.
Accuracy and error rates.
Manual processes include the possibility of human error. By automating these processes, a business is effectively eliminating this possibility and saving on potentially costly errors.
Compliance and regulatory oversight.
Eprocurement provides transparency in the procurement process, which is not always available in traditional procurement. Eprocurement enables businesses to track and monitor the entire procurement process, including the order status, supplier payments, and contract management.
This provides complete visibility and helps allow for better solutions to comply with regulations and controls.
Scalability and adaptability.
In traditional procurement, scaling up likely means having to hire employees, train them, and then integrate them into existing workflows. Eprocurement removes this burden, making it much easier to scale or change to new market conditions.
Ease of use and user experience.
Traditional procurement can be highly complicated and can add unnecessary strain to an already complex system. Eprocurement eases this to provide procurement officers with better and more efficient processes.
Data analytics and reporting capabilities.
Ecommerce businesses can use data to make better decisions, optimise their procurement processes, and identify areas for improvement. Real-time analytics can also help monitor trends, supplier performance, and identify cost-saving opportunities.
How eprocurement streamlines business operations
Eprocurement means businesses can automate, standardise, and optimise the procurement process. This can mean savings in both time and money.
Centralised supplier management.
This means that organisations can automate and standardise the entire procurement process, from requisition to purchase order to invoice payment, through a single system.
With eprocurement, the procurement team can access the same platform, enabling efficient communication and collaboration.
Real-time budget monitoring.
Eprocurement offers real-time insights, including budgeting, allowing organisations to take swift and informed actions. Real-time insights enable organisations to identify areas of high spending or supplier risk, which can ultimately mean cost savings.
Automated approval workflows.
Manual approval processes slow down procurement and makes it far more likely that supply disruptions will occur. Automating these processes — while basing them on specific factors — will help keep warehouses filled.
Improved compliance tracking.
If you’re in a highly regulated industry (think healthcare), you know the importance of maintaining compliance with all rules and regulations. Being able to track compliance efforts, flagging issues, and being able to prove compliance helps reduce the burden on the organisation.
If you’re selling to state agencies or other government-affiliated sources, compliance throughout the procurement cycle is necessary.
Understanding the eprocurement workflow
From a high level, eprocurement and traditional procurement look mostly the same. However, eprocurement does include some unique steps in a typical workflow.
Requirement identification.
This all starts with the identification of a need. The eprocurement process begins when an employee sends a purchase request for goods or services required by the company.
Approval of purchase request.
A control — typically management — approves or denies the request.
Supplier identification and evaluation.
This could be a fairly involved process if you’re looking for a high-budget or complex product. Business-to-business supplier evaluations can help identify the best source for your specific needs. A preferred supplier is identified.
Quotation and proposal management.
Identify specifically what you need and in what quantity. This may be a simple request or it may require a more involved request for proposal. E-auctions might be involved.
Contract negotiation and award.
A price is agreed to and the order is filed with a specific supplier. E-ordering is done and supplier contracts are signed.
Delivery and inspection.
The good or service is delivered and the recipient agrees that the product meets the requirements of the order or rejects it. A regular auditing process will help ensure that key metrics around supply chain management are met.
Invoice processing and payment.
The eprocurement platform authorises payment to the vendor after the invoice has been verified for correctness. This is automated by integrating the procurement process with the company's accounting software.
Key challenges and risks facing eprocurement
Much like any procurement process, eprocurement comes with its own unique set of risk factors.
Complexity of integration with existing systems.
One of the biggest challenges is the integration of disparate systems and applications such as vendor management, purchase order processing, invoice management, and ERPs.
Connecting all of these systems together can be time- and resource-intensive. Embracing Electronic Data Interchange (EDI) will help standardise data.
Technical glitches and downtime.
The more complex an IT ecosystem gets, the more likely it is that something goes wrong. Having redundancies in place will help mitigate the impact of errors.
Change management and user adoption.
Success depends largely on the participation of suppliers. However, many suppliers might be hesitant to join eprocurement systems due to concerns about data security, the complexity of the system, and lower margins.
Incentivise suppliers to join by providing them with timely payments and offering better rates.
Limited customisation and flexibility.
Once you start down a specific path with eprocurement, it can be difficult to change course. Vendor lock-in is a concern. So is being able to effectively customise existing solutions to meet needs.
Grow from $1 million to $100 million
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The final word
The benefits of eprocurement are clear: cost savings, time savings, improved supplier relationships, enhanced visibility, and compliance. By adopting this approach, businesses can improve their procurement processes, lower costs, and gain a competitive advantage.