Companies large and small are jumping on the e-procurement bandwagon. Most report savings in time, paper and postage. But few are enjoying the really large savings promised from creating a true end-to-end e-procurement system. E-procurement involves the application of information or electronic technology to streamline and enable the procurement activities of an organisation. It typically refers to Business-to-Business (B2B) activities sourcing and purchasing goods and services via electronic or Internet channels. The ‘end-to-end’ procurement process would include searching or sourcing the product or service, selecting the appropriate supplier, generating a purchase requisition, obtaining the required approval(s), issuing the purchase order, fulfilment (order receipt, accounting for the transaction in the back office, connecting to the supplier in relation to order tracking) and payment (invoice payment and reporting).
Generally e-procurement involves some element of self-service; a secure personal login to the relevant website would give the ability to browse an online catalogue, select the goods, get quotes and availability, create an online purchase order, get approval online, send the PO electronically to the supplier. All this can then be tracked online. The final stage relates to receipt of goods, and the reporting on procurement activities including supplier performance.
This technology is typically used in dispersed or multinational environments, including regional or global shared services operations, as a web-based tool to handle the purchase of indirect goods. Through these buy-side Internet applications, the procurement group organises, expedites and monitors the purchasing process, facilitating communication within the company as well as with the company’s suppliers.
Case Study: DIY Retail
Like all retailers this European home improvement retailer deals with many invoices, in this case around 15 million per annum. Its process for matching these invoices before an automation project was to deliver goods to each of their 400 or so stores, enter goods received data into their ERP application from the store, have the supplier send the invoice for the goods to the store (typically on paper), and finally have the store match the invoice to the goods received and approve it for passing to their accounts payable application.
One full-time equivalent (FTE) person was generally required for this for every two stores, resulting in 200 FTEs matching invoices and dealing with suppliers. Apart from the cost of 200 people performing this function, it was inefficient because any discrepancies were followed up with the supplier by each store. So a supplier with a faulty batch could receive 200 telephone calls from different stores. The invoice was also entered many times since it was on paper, and in addition for every two stores that opened, an additional FTE was required in store operations as well as support staff in Head Office.
When the retailer took the decision to automate this process:
• It implemented an automatic invoice matching system. Supplier invoices that correctly entered the transactional applications would be matched to the delivery documentation and passed to accounts payable ready for payment. There was no need to re-enter and no manual intervention for an invoice that was correctly received for goods correctly delivered.
• All suppliers were asked to transmit their invoices electronically so that there was no need to enter them manually. A second benefit ofthis is that each line on the invoice can be matched to each line on the delivery, allowing very precise control of under-deliveries and overcharging.
• An invoice-matching shared service centre was established where initially 32 central FTEs could complete the work of 200 FTEs in the stores.
Apart from the cost savings, the retailer achieved a faster turnaround on processing the invoices, producing a much more accurate view of accounts payable and cash flow. A further benefit was tighter control over supplier performance and margins.
The most popular form of e-procurement involves the use of software acquired from a third party vendor. In the classic case the buyer negotiates a contract with each ofits suppliers, agreeing to purchase certain indirect goods at discounted prices, then loads digital versions of the suppliers’ product catalogues alongside an e-procurement application such as Ariba Buyer or Commerce One Buysite. Employees use their browsers to search the catalogues, choose what they need and create requisitions. When a manager approves a requisition through a browser, the e-procurement system creates a purchase order, which is streamed directly into a supplier’s inventory application for processing. A third party can also host the e-procurement application for the buyer. Sometimes the application is purchased and operated by an e-marketplace, a website serving as middleman between multiple buyers and suppliers. Whatever the scenario, the benefits are twofold:
• Automated contract settlement, consolidation of suppliers, optimised prices and increased supplier collaboration together with better information to make more informed purchasing decisions.
• The end-to-end procurement process becomes much more efficient when requisitions and orders move around electronically instead of on paper, notes or faxes, circumventing the time-consuming processes that drain firms’ corporate assets.
Table 3.1 illustrates several of the deficiencies of traditional, paper-based purchasing and the benefits of e-procurement. In sourcing the goods or services, templates and personalised views of options replace the need to browse through large supplier catalogues. Also, most good websites will include search facilities, thus sparing the effort ofsearching through lists, menus or (in the case of manual systems) catalogues. The several levels of manual approvals may be replaced by systematic, automated approval based on business rules. Time-consuming and error-prone retyping oforder details by suppliers may no longer be necessary
as orders are transmitted electronically (and no longer by paper or fax) through a central hub. Analysis of supplier performance is also facilitated by e-procurement, as are payment authorisations. The automation of some elements of traditional order processing should free up time for the procurement person to do more analysis of supplier performance. Excessive focus on time-consuming manual order processing may mean that very little time is spent on supplier selection and evaluation.
