Advantages of e-procurement over the classical procurement

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Advantages of implementing E-Procurement

Let us take an example to see the merits of e-procurement, in contrast to traditional purchasing processes. Let us consider a sales representative who needs Rupees 5000 worth of office supplies to support a customer presentation.

In the pre e-procurement days....
In a manual, non-e-enabled procurement environment, the purchasing process typically is :

1. Product selection: The sales representative must search numerous vendor catalogs without knowledge of which vendors offer discounts. The sales representative may even be in the field with no access to the company’s product catalogs.
2. Check availability/prices: Calls may need to be made to the vendor to confirm pricing, quantity, availability, etc.

3. Create and approve requisition: A paper requisition with correct item numbers and prices needs to be created and approved, a process that often takes up to 3 days or more.

4. Generate and approve P.O. : Once the requisition is approved, the purchasing department splits the requisition into several purchase orders because the material requested must be supplied by multiple vendors.

5. Send P.O. to vendor: Purchase orders are eventually mailed or faxed to the vendors.

6. Vendor confirmation: The vendors confirm receipt of the purchase orders and promise delivery within three business days.

Typically, the promised delivery date ranges from 5-7 business days from the time the requisition is initially filled out. In the interim, our enterprising sales representative, knowing the delays and accompanying frustrations of the company’s purchasing process, has decided to buy the items at a local office supply superstore. This way, the representative acquires the necessary equipment without delay and with a lot less effort. Unfortunately, the company’s cost for paying retail price is much higher than necessary.

The E-enabled Way to Buy...

The benefits of e-procurement over manual purchasing are many and multifaceted. For example:

Streamlined processes reduce transaction time: Buyers can search electronic catalogs containing goods and services from multiple suppliers and compare products and prices on-line. Real time communication allows buyers to check current prices and quantities. Suppliers can provide instant PO status. Manual procurement is labour intensive and time consuming process. Switching to e-procurement helps companies to reduce employees’ cost, paper and redundancy and cycle times. Time saved of employee in procurement can be utilized in more productive work. Similarly reduction in procurement lead lime helps in reducing inventory levels. It is estimated that that switching manual procurement to e-procurement can reduce procurement processing cost by 80%.

Greater standardization of procurement processes: Electronic catalogs provide a standardized listing of items allowing for easier item comparison. Business rules governing all users and all transactions can be built into the application. Regardless of where they’re located, buyers can access catalogs using a standard web browser.

Greater access to suppliers: Using virtual e-procurement portals, buyers have access to suppliers around the globe, which translates into a wider selection of goods and services.

Global operability: E-procurement applications can support multiple languages and currencies, as well as international financing, taxation, and shipping regulations.

Ease of configurability and scalability: Web-based procurement applications can be configured to meet the unique needs of buyers and sellers and be scaled to grow as the organizations grow.

Building of trading communities: E-procurement allows the development of both horizontal and vertical trading communities offering consolidated buying power for the purchaser and increased range for new supply chains.

Lower costs: Cost efficiency results from a variety of factors including reduced time between order creation and order fulfillment, greater selection of goods and services from which to choose, formation of trading communities to consolidate buying power, the opportunity to purchase surplus products and services below market prices, and more !

Increased productivity: Automated procurement processes can yield significant time savings at all levels across an enterprise, increasing opportunities for employees to focus on more strategically important tasks and functions.

Increased opportunity to leverage preferred vendor relationships: According to a leading e-procurement systems vendor, 80% of indirect goods and services are purchased from vendors classified as “other.” This results from the frustrations and time delays inherent in processing paper-based purchases. This practice decreases the volume of purchases from preferred vendors and consequently drives up costs.

Reduction in errors:
Manual processes are always prone to errors. In manual processes as and when the information is transferred at many occasions it is re-written or re-typed at various stages. Since many people are involved in various stages of procurement approval processes. This can further increase the chances of errors at multiple data entry points In case of e-procurement data is transferred automatically with inbuilt securities.

Better compliance:
Non compliance or maverick spending occurs when goods and services are procured from the suppliers, who are not evaluated or selected by procurement department. This is also called off-contract buying as procurement happens outside the existing contracts.
E-Procurement systems facilitate purchasing from the preferred suppliers thereby reducing the non-compliance and maverick spend. Reduction in maverick buying in turn leads to lower transaction costs and greater leverage and pricing discounts with approved suppliers.

Enhanced Leverage:
A good e-procurement system helps the buyer to source the material strategically by leveraging the spend by consolidation. Consolidation can be consolidation of orders of or the quantities of categories from around the company to get the leverage with the supplier. Additionally e-procurement reduces off-contract buying by enforcing contracts thereby increasing the leverage of spend.

Improved Sourcing:
In manual procurement, it becomes difficult to search and select a supplier for an MRO material or specialized direct material in the supplier base. E-Procurement system helps the buyer to search the supplier from supplier base or through online.