September 14th, 2021
When attempting to achieve a digital supply chain, one of the first steps an organization may take is to move from paper invoices to electronic invoices (e-invoices). But this isn’t where the journey to 100% supply chain digitalization stops, of course.
Automating the source-to-pay or procure-to-pay process is often the next step, and that’s covered by e-procurement. But what is e-procurement, and what benefits does it bring?
E-procurement is the digitalization of the entire buying and/or selling process, and it all happens over the Internet—say goodbye to sending paperwork by mail. Overall, e-procurement increases supply chain productivity and efficiency by cutting out highly manual procurement tasks and replacing them with standardized, automated workflows. It requires the use of a specialized e-procurement system, along with an ERP and EDI system that are capable of meeting its requirements.
How E-Procurement Works
How e-procurement works in practice varies per case. In general, however, there are two potential starting points: source or procure. To clarify, e-procurement can be utilized in the source-to-pay process when strategic sourcing is at play. But if there’s no strategic sourcing strategy in the gameplan or you’re not quite ready to optimize at that level, e-procurement can be equally beneficial when digitalization kicks in at the moment the need arises for goods or services. This refers to the procure-to-pay process from the buyer perspective.
E-procurement moves beyond the use of electronic invoices and other EDI documents, like purchase orders (EDI 850) and advanced shipping notices (EDI 856), but this is not to downplay the significance of electronic document exchange in the process as a whole.
Here’s what we mean by that: E-procurement software enables buyers and suppliers to conduct all of their business online. When strategic sourcing is the starting point, buyers are able to search for, evaluate, and connect with potential suppliers based on predefined criteria (AKA e-sourcing). From there, the bidding process and vendor selection can take place.
Once the buyer and supplier enter a purchase agreement, the buyer gains access to the supplier’s online catalog—similar to an e-commerce marketplace—where goods or services can be viewed and selected for purchase (e-ordering). This is where EDI comes in.
Just because the e-procurement “shopping” experience is comparable to what we’re used to from a consumer perspective when we browse any other online store, it’s still a business-to-business (B2B) setting (or maybe even business-to-government). That means there are most likely specific document exchange requirements in place that require a capable EDI solution, ideally one that has been fully integrated with the e-procurement software. Your EDI system will automatically convert orders, invoices, and other business documents into the appropriate electronic format so that the data can be automatically sent to your ERP and processed accordingly.
How Does E-Procurement Relate to Supply Chain Management?
Supply chain management (SCM) is the management of the entire flow of goods and services within a supply chain, from raw materials to finished products. Aside from the general oversight of day-to-day operations, SCM primarily consists of continuous process optimization. The end goal? A 100% digital (end-to-end) supply chain.
E-procurement is certainly involved when it comes to achieving this goal, but it’s a step-by-step process. From a SCM perspective, the first step is ensuring a solid foundation on which digital capabilities can be expanded. Moving away from a heavy reliance on legacy systems and adopting flexible, cloud-based ERP and EDI systems are a must. This takes time and effort, but the demands of modern e-procurement are much too advanced for outdated technologies. And, in the long run, the benefits are well worth the migration-related challenges.
Benefits of E-Procurement
As we’ve already mentioned, e-invoicing is often the first step towards a digital supply chain (after moving away from legacy systems, that is!). So if you’re already sending your invoices electronically, you’ll likely recognize some of the benefits we list here; these are only amplified by incorporating e-procurement into the mix. Plus, there are some benefits that you just can’t achieve with e-invoicing alone.
1. Cost Reduction: It’s often the case that many buyers are involved in making purchases from suppliers with little to no visibility into other buying activities. E-procurement enables alignment between buyers of the same organization, reducing costs associated with duplicate and unnecessary buying. Not to mention the costs saved from eliminating even more paper from your supply chain.
2. Time Savings: Online buying already increases productivity, but when purchase orders, invoices, and more are automatically generated and processed, all departments involved in the procurement process can spend their time optimizing other key areas. Manual errors are also reduced.
3. Spend Transparency: With an e-procurement system, all procurement-related data is stored in one place. From source-to-pay, everything can be traced and analyzed. This uncovers opportunities for additional savings and promotes greater alignment between finance, procurement, buying, and other related departments.
4. Standardized Workflows: When many buyers are involved in the procurement process, it’s hard to ensure that everyone adheres to the same buying practices. E-procurement software streamlines the process by enabling organizations to implement standard buying procedures.
5. Supplier Management: With an e-procurement system, as with spend data, all supplier data is likewise stored in one place. This provides greater insight and control over strategic sourcing initiatives and enables closer collaboration with suppliers.