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procurement

Benefits of automating the procurement process

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Businesses need to procure goods and services for their operations. The purchasing spend, a major component of businesses’ expenses, can exceed 50 percent of a firm’s revenues in many cases. Therefore, finding ways to reduce the procurement costs is critically important for firms to improve their profitability and shareholder wealth. And this spurs them to automate their procurement processes. 

Automation frees the workforce from performing repeatable, procedure-intensive, and time-consuming & routine tasks and facilitates them to focus on high-value work that leverages their cognitive abilities. Procurement automation helps companies to streamline and accelerate their procurement processes, eliminate human errors, reduce procurement costs, enhance efficiency, and productivity. By automating the procurement process, companies are able to obtain the required goods and services from the right source, at the right price, of the right quality, in the right quantity, and at the right time & right place – the six rights of procurement.

Procurement automation

Procurement automation is the process of enabling the procurement related functions / workflows to self-execute instead of being performed manually, typically with the help of software solutions. Some of the features of the software solutions are as follows:

  • With their help, one can create digital forms that auto-populate with the right information by accessing the appropriate databases. This ensures accuracy and speedy execution
  • They can be programmed to route the procurement document to the appropriate person for necessary action, for example the requisitions to the approving authorities
  • They can initiate and send notifications and reminders about the despatches, actions to be taken, etc.
  • They can automatically maintain the records of all transactions done and act as a central data depository
  • Their use can ensure statutory compliance and adherence to stipulated procedures 

Some of the procurement processes, whose automation greatly contributes to improving the efficiency and productivity of the organizations, are purchase requisition processing, order placement, invoice management, supplier management, record keeping & documentation. Software solutions are used for this purpose.

Purchase requisition automation

The purchase requisition process encompasses requisition creation and submission, its approval, and placement of order & follow-up. With the help of software solutions, receiving, registering, and acknowledging the requests for the procurement of the required goods / services can be automated. The software used for this purpose automatically initiates the approval & procurement process and facilitates tracking the progress and this results in the reduction of requisition- to-order cycle time, and elimination of delays and missteps.

Purchase order automation

Purchase order management entails the timely and error free generation of purchase orders and follow up actions to ensure timely and correct completion of orders. Automation of the purchase order process will result in relieving the workers of having to perform repetitive tasks, reducing the time and efforts required for placing the order on the supplier after obtaining the necessary approvals, and keeping all the stakeholders informed suitably.  It involves automating the purchase order creation and its submission to the approved suppliers, facilitating the purchase order status-tracking, and storing all the purchase orders related data and documents. By automating the purchase order process, organizations will be able to process purchase orders faster and the productivity of their procurement team will go up.

Invoice management automation

Invoice management involves processing of the invoices raised by suppliers for making timely payments to them after due verification. Before authorizing the payment, the invoice management software will automatically compare, for the purpose of tallying, the order details with other associated documents. While in the two-way matching, the supplier’s invoice data will be cross checked with the purchase order data, in the three-way matching the cross checking will additionally take into account the delivery receipt data as well. In four-way matching, the inspection information will also be taken into account. By automating the invoice payment process, organizations will be able to ensure correct and timely payment. This in turn helps organizations establish suppliers’ confidence and benefit from it.

Supplier management automation

Supplier on-boarding and management involves identifying the suppliers that are best suited to meet the organization’s needs for goods and services, building & maintaining relationship with them, and monitoring the suppliers’ performance. Evaluating and selecting the most appropriate supplier is important to ensure that the organization procures the goods and services that it needs for its operations at the lowest total cost of ownership, reliably, and at minimal risk. Automation helps in streamlining the supplier onboarding and management process.

It is important to monitor the supplier’s performance to ensure that it meets the contractual requirements. Regular monitoring will not only help identify supplier’s performance and take necessary corrective action but also minimize risks. Building a rewarding relationship with suppliers is highly beneficial. Maintaining effective communication and ensuring contractual compliance are crucial to build and nurture the relationship. Also, auto generated reminders and alerts will minimize the need to write repetitive messages. 

Record keeping & documentation management

During the process of procuring goods and services, various documents relating to the purchase requisitions, selection of potential suppliers, information gathered, such as proposals & quotations from potential suppliers, evaluation of offers obtained, price negotiations, selection of the suppliers, purchase orders, and payments to the suppliers are generated. Maintaining proper record of these activities and related documents is essential to establish to the satisfaction of auditors, statutory authorities, and others that the mandated procurement processes have been duly followed in a transparent manner in each and every procurement transaction. The requirement is that a review of the documents should reveal true story of each and every procurement transaction. It is necessary to keep record of all activities and communications for all the procurement transactions

The detailed data available to the organization about what was procured, who supplied what, when and at what price, suppliers’ contractual performance, and such others will help it in many ways. The data can be used to negotiate better terms with vendors, improve budgeting and long-term forecasting, streamline the entire procurement process, and gain insights about long-term spending patterns.

Benefits of automating the procurement process

The procurement software solutions automatically perform tasks, such as purchase requisition processing, invoice processing etc., according to the application programs, which are programs designed to carry out procurement specific tasks, other than the ones relating to the operation of the computer itself. They execute the tasks speedily in an error free & consistent manner and operate round the clock. As a consequence, the procurement software helps improve the effectiveness, efficiency, and productivity of the procurement process. 

Automating the procurement process with the help of software solutions could contribute to the following improvements: 

  • Efficiency enhancement
  • Productivity improvement
  • Elimination of manual errors
  • Ensuring compliance 
  • Acting as a data depository
  • Improving visibility & transparency and collaboration among the stakeholders
  • Lowering of costs and profitability improvement
  • Facilitating supplier management
  • The above benefits apart, the data from the procurement software solutions can also be shared with other back office systems, such as enterprise resource planning, warehouse management systems, accounting software, and others.

Several procurement software solutions that help automate the procurement process are available. Some of the standalone procurement software solutions typically focus on automating single procurement activity, such as the purchase requisition processing, purchase order processing, Organizations, depending on their requirements, deploy standalone procurement software solutions, such as  invoice processing, supplier management, etc., or procurement suites, such as procure-to-pay and source-to-pay, that are more comprehensive solutions and are capable of handling a bunch of procurement activities.

Author:

Rajabahadur V. Arcot  is a Senior Advisor, Quadrant Knowledge Solutions