Digital technology has completely transformed the way business is conducted, not only in selling goods and services but also in sourcing supplies and materials. Most companies today adopt an e-procurement system for procuring goods. It is the same as traditional procurement, only the process takes place online. E-procurement benefits businesses greatly, especially in terms of cost and productivity. However, there are still challenges to fully digitalizing procurement. Let's dive in and learn more about this interesting concept.
E-Procurement Definition
E-procurement is the buying and selling of supplies, work, and services via the Internet. It can occur business-to-business (B2B), business-to-consumer (B2C), or business-to-government (B2G).
E-procurement means purchasing supplies, work, or services via the Internet.
E-procurement employs software and networking systems to source suppliers, track inventory, handle invoices, and trigger payments.
Here's an example of the e-procurement process:
Using e-procurement software, staff from the procurement department can browse online catalogs from a supplier’s website and select items they want to buy. After sending the request, they enter the supplier into the company’s system and wait for managers’ approval. Once the vendor is approved, the e-procurement system automatically sends purchase order (PO) requests to the supplier. If everything goes smoothly, the payment is triggered on receipt of the order invoice.
Compared to the traditional procurement method, e-procurement comes with various benefits, including:
- The automatic procurement process,
- Reduced paperwork,
- Spend visibility,
- Improved transaction transparency,
- Fewer human errors.
The software and information systems for e-procurement are part of the Procure-to-Pay process (P2P). Procure-to-Pay is the integration of purchasing and accounts payable to increase efficiency. It includes three main stages:
Selecting goods or services - the company will visit a B2B website to read the digital catalog and gather information about the supplier's offer, contract conditions, etc. Once the product has been selected, they can send a purchase request and include the vendor in the e-procurement system for approval.
Sending a Purchase Order - if the purchase is approved, an electronic form will be sent automatically to the supplier to place an order. The supplier then processes the order and prepares it for delivery.
Invoicing and payment - once the order is delivered and received, an invoice is created and sent to the buyer. An E-invoice (usually e-mail or PDF file) is often certified by a reliable third party. Payment for the order will be triggered after the invoice is reconciled.1
The Value Chain of E-procurement
The value chain is the full process of creating a product or service from start to finish. There are five steps to the e-procurement value chain:
E-procurement: e-informing
E-informing is the pre-stage of e-purchasing. It's the process where buyers and sellers exchange information using the Internet. Data sharing is a key component in e-informing. The data exchanged should be accurate, timely, adequate, and credible. E-informing often takes place in ERP (Enterprise Resource Planning).2
E-procurement: e-sourcing
E-sourcing is the process of selecting suppliers using procedures such as a request for information (RFI), request for quotation (RFQ), and request for proposal (RFP). It takes place before the ordering and purchasing of goods. E-procurement tools are important here as they can help the company communicate, evaluate, and shortlist potential suppliers.3
- Request for Information (RFI) - company sends pre-purchase questionnaires to gather information about suppliers and their products or service.
- Request for Proposal (RFP) - company requests proposals from the shortlisted suppliers. They will ask for the complete product description and how the supplier will fulfill their order.
- Request for quotation (RFQ) - company negotiates contract terms such as price, quantity, and discounts. The goal is to get the best price out of the deal.
E-procurement: e-tendering
When purchasing supplies, companies may encounter multiple vendors selling the same product. To find the best suppliers for the best price, they can accept biddings from different vendors and choose the one they prefer. This is known as tendering. When tendering takes place online, it is called e-tendering.
E-tendering is superior to traditional tendering as it removes paperwork and improves the security of the entire tendering process. However, this process may require a lot of staff training. There is also the risk of system breakdown, putting the tendering to a halt.4
E-procurement: e-auctioning
E-auctioning is part of the e-tendering process. It involves multiple vendors competing to obtain the buyer's contract. Some popular e-auction methods are:
- Class-reverse - the company sees all sellers' bids at once and chooses one that it prefers.
- English auction - bidders announce their bids in ascending order. The next bid value will be higher than the previous one.
- Dutch auction - the auction begins with a high price, then lowers it until a buyer accepts.5
E-procurement: e-ordering
E-ordering is when the company places an order. An electronic purchase order (PO) is sent to request goods or services from the chosen supplier. The platform that holds and manages POs is called electronic data interchange (EDI). It allows an automatic workflow, from ordering to delivering goods and invoicing.6
The Value Chain of E-procurement
E-procurement can lead to higher ROI. There are two reasons for this. First, e-procurement provides an automatic framework for businesses to source and manage vendors. This saves time, cost, and effort while increasing the security and transparency of the transaction. Second, the comprehensive data collected by the e-procurement system can help with ROI analysis and improve the company's future performance.
Check out our explanation of Marketing ROI to find out more about the importance of return on investment in marketing.
At a glance, it may seem that e-procurement has little to do with marketing. However, their link is more intimate than ever. An e-procurement system can integrate with marketing to enable instant information exchange and smoother, more flexible operations.7
Data from e-procurement can also be used in promotional campaigns to increase transparency and improve customers' trust. Thanks to the cheap costs of e-procurement, companies can lower prices for customers. Meanwhile, the risk of late delivery is minimized as inventory is closely monitored with an e-procurement system. All in all, effective e-procurement can streamline processes and make marketing activities more effective.
E-Procurement Example
Now that you know what e-procurement is, let's look at some examples of e-procurement functions and tools.
Examples of E-procurement functions
E-procurement has many functions in a company's purchasing process. Some examples are:
- Vendor onboarding - the process where the company sends questionnaires to gather data from multiple vendors.
- Spending analytics - all transactions are recorded on the e-procurement system. Companies can analyze this data to improve future buying decisions.
- Online information request - Companies can use request quotes and negotiate contract terms on an e-procurement platform.
- Online market research - The e-procurement platform makes it easy for the company to find and compare different suppliers. It can also shortlist potential candidates based on the set criteria.
- Paperless processes - since all transactions occur online, there is no paperwork. The transaction is faster and less prone to human error.
Examples of E-procurement tools
There are many tools that help companies source suppliers online. Here are some examples:
EDI (Electronic Data Interchange) - this is a platform for exchanging data between buyers and sellers. Companies can automate proposal requests, purchase orders, and invoices while storing messages & customer data for future usage.
Emails and EDI are the main communication tools in e-procurement, from e-sourcing to tendering and ordering.
A digital ERP (Enterprise Resource Planning) system can be integrated with an EDI to manage online ordering and purchasing.
Online marketplaces - there are many platforms for suppliers to upload their digital catalogs and product information - for example, Amazon, eBay, Etsy, and Shopify.
Some examples of e-procurement platforms:
Precoro is a total purchasing control tool that allows businesses to create purchase orders quickly, track the order, and assign payment on receipt of an invoice.
Promena is an e-sourcing tool for finding and managing suppliers. It also assists bidding and keeps them organized.
Orderhive is a procurement tool for e-commerce companies. Its main functions include tracking inventory, handling invoices & payments, and producing analytics & reports.
Difference between EDI & ERP
EDI and ERP may seem interchangeable, but they have minor differences.
- EDI stands for electronic data interchange. It is mainly used for data exchange between companies and suppliers. E-ordering and invoicing processes are often included in an EDI.
- Digital ERP is an online-based ERP system for managing the supply chain and controlling inventory. For example, an ERP system will notify a company when inventory runs low and triggers a new order.
The Difference between E-procurement and Procurement
We've covered a lot about e-procurement in this explanation. But how does it differ from the traditional procurement method? You will learn about their differences as well as the pros and cons in Table 1.
| Traditional procurement | E-procurement |
Features | Purchasing without the Internet Manual management—a lot of paperwork A lot of phone calls and in-person negotiations
| |
Benefits | | |
Disadvantages | | |
Table 1. E-procurement vs Traditional Procurement
E-Procurement Advantages and Disadvantages
Using digital software for managing the purchasing process, e-procurement certainly has many perks. However, there are still challenges when adopting an e-procurement system. This section will introduce you to the pros and cons of e-procurement.
Advantages of e-procurement
There are many benefits to an e-procurement system, including:
Streamline processes - an e-procurement system can automate orders, bidding, invoicing, and payment. This helps the company and suppliers save time on monotonous tasks and focus more on value-driving activities.
Inventory management - inventory is an important part of procurement. An e-procurement system aids inventory tracking and ensures enough stock for production.
Improved productivity - with transactions taking place online, companies can purchase and sell supplies with less time and transaction costs. They can also compare products and services to choose the ones with the best value. The reduced purchasing time minimized production delays and brought the company more profits.
Spending control - The E-procurement platform improves spending visibility. This is because all transactions are recorded for later review. The company can generate reports to analyze its spending and develop strategies to manage the budget more effectively.
Fewer human errors - Procurement paperwork can be troublesome as it leaves much room for human errors. With e-procurement, there is no paperwork. The transaction can be carried out with more accuracy and proficiency.
Higher transparency — Every process of procurement is recorded. This allows for a more honest and secure transaction.
Seamless collaboration - An internal system to collaborate easily and develop solutions with suppliers. This speeds up the problem-solving process and adds to the company's ROI.8
Global procurement - E-procurement software often includes multiple languages, currencies, shipping solutions, and international tax calculations. This removes the geographical constraints and allows companies to work with suppliers worldwide.9
A real-life application of E-procurement:
RPA (robotic process automation) is a spend analysis and procure-to-pay tool. IBM adopted it to resolve blocked invoices. Since employing the system, the company has managed to cut its resolution time from 32 minutes down to 90 seconds - a massive improvement in efficiency.8
Disadvantages of e-procurement
The main drawback of e-procurement is its heavy reliance on software and electronic system. This makes the company vulnerable to hacker attacks. Technology also requires regular updates and training for staff, which might incur extra costs. There is also difficulty getting all suppliers on board, especially older vendors who are not used to modern technology. For example, they might have a hard time updating digital catalogs.
E-procurement - Key takeaways
- E-procurement means purchasing supplies, work, or services via the Internet.
- The value chain of e-procurement includes five stages: E-informing, E-sourcing, E-tendering, E-auctioning, and E-ordering.
E-procurement can lead to more effective marketing.
Electronic Data Interchange (EDI) is a platform for transmitting information between buyers and sellers in e-procurement.
The main tasks of E-procurement include sourcing and managing vendors, ordering, invoicing and payment. This is referred to as P2P (procure-to-payment).
The main benefits of E-procurement include streamlined processes, effective inventory management, reduced costs, spending control, improved transparency, seamless collaboration, and global purchasing.
E-procurement's drawback is its heavy reliance on software and digital technology.
References
- SAP Ariba, What is Procure-to-Pay?, https://www.ariba.com/solutions/business-needs/what-is-procure-to-pay.
- Wikipedia, E-procurement, https://en.wikipedia.org/wiki/E-procurement#e-Informing
- Annalakshmi, What is e-sourcing?, https://nanonets.com/blog/e-sourcing/, 2021.
- Barbara Cook, https://tipalti.com/e-tendering/, https://tipalti.com/e-tendering/.
- Medius, What is an eAuction?, https://www.medius.com/glossary/what-are-e-auctions/.
- Edicom, What Are Electronic Orders? Benefits and Success Cases in Europe, https://edicomgroup.com/blog/what-are-electronic-orders-benefits-and-success-cases-in-europe.
- Rachel E. Diken, Why E-Procurement Makes Sense for Marketing Management, https://blog.procurify.com/2016/07/05/e-procurement-makes-sense-marketing-management/.
- Coleman Radell and David Schannon, Digital Procurement: The Benefits Go Far Beyond Efficiency, 2018.
- Oxford College of Procurement and Supply, The Benefits of E-Procurement, https://www.oxfordcollegeofprocurementandsupply.com/the-benefits-of-e-procurement/.
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