Procurement is one of the most crucial activities for a business. Executing it efficiently contributes largely to the organization’s profitability. There is a discernable trend among organizations to do away with the labor-intensive time-consuming, and error-prone manual procurement processes requiring a lot of paperwork. Instead, they are choosing to manage it automatically by using procurement software solutions. The economic considerations justify this trend in every way. This blog explains how various functionalities and capabilities help automate and improve procurement processes. It also highlights some key procurement performance metrics that businesses can target.
Procurement is an important function that an organization performs for obtaining the goods and services that it requires for its business operations. Proper and efficient performance of the procurement functions contributes in a big way to the procuring organization’s profitability. Procurement activities include processing the requisition, identifying the potential suppliers, obtaining from potential suppliers the information, such as proposals & quotations, shortlisting & negotiating prices and other terms, selecting the supplier, obtaining the necessary procurement approval, generating the purchase order, recommending payment to suppliers at the appropriate stage, maintaining records relating to each procurement, etc. Effective and efficient performance of procurement activities will result in reducing the procurement costs and cycle times and contribute to increasing the organization’s efficient functioning and profitability. It is the key to extract maximum value from the supply chain.
Many organizations have realized that the procurement software solutions, such as the supply chain management, source-to-pay, etc., with their ability to collect, store, and share data from various sources, process them to obtain actionable insights, visualize information to appropriate stakeholders, and initiate the necessary actions, can streamline, automate, and enhance the efficiency and effectiveness of their procurement operations. Economic considerations also provide justifications to make investments in procurement solutions. Therefore, there is a discernable trend among organizations to do away with the manual procurement process, which is very labor-intensive, time-consuming, error-prone, and involves a lot of paperwork, and instead manage it automatically by using procurement software solutions.
Inherent functional capabilities of information technology systems
The procurement software solutions come with a set of functional capabilities that are inherent to any information technology system. Depending on the specific application needs of the procurement process, those capabilities are exploited. The basic capabilities of the information systems are as follows:
- Processing is done in an error free, consistent, rule-based, cost-effective, reliable, secure, and timely manner
- Access vast amount of data from various sources on real-time basis and process and store them
- Act as primary repository / single source of data, which can be shared with authorized stakeholders
- Facilitate communication, coordination, and cooperation among authorized stakeholders
- Generate actionable insights from the specified data and thereby support decision making
- Can be programed to automatically perform various tasks or manage processes
- Ensure compliance with the organizational practices and statutory requirements
- Present all the relevant information to the stakeholders through suitable means
Functional capabilities help automate procurement activities
The procurement software solutions, such as pay-to-procure, source-to-procure, and such others, leverage these functional capabilities and help organizations to achieve excellence in performing the procurement activities, such as those described below, automatically and in an efficient, consistent, reliable, and stipulated manner.
- Can receive, acknowledge, and process the procurement / purchase requisitions that identify the goods / services to be purchased
- Based on the information available in the requisitions, the procurement software can initiate the procurement approval process with the appropriate authorities to proceed with the order placement
- Before initiating the order placement activity etc., the procurement software can look at the organization’s list of approved suppliers for the goods and services to be purchased. If necessary, the software can trigger and proceed with the activities to select and shortlist approved suppliers or identify the preferred supplier for the ordering purposes
- The procurement software can handle activities relating to seeking information, obtaining proposals and quotations etc., from suppliers
- It can help in the evaluation of proposals and negotiation of price and other terms
- Upon completion of the evaluation and negotiation, the software can process the purchase order / contract
- It can help organize and maintain records relating to supplier management, transaction documentation, etc.
- It can manage the activities relating to invoice approval and payment to suppliers
- It can help track the supplier performance
Performance capabilities help improve the execution of procurement process
The performance capabilities of the procurement software solutions help organizations improve the execution of their procurement process in the following ways:
- Improve the procurement-process effectiveness, efficiency, and productivity
The software executes the procurement process speedily in an error free & consistent manner and operates round the clock. The processing is error free because its functioning is rule based. As a consequence, the procurement software helps improve the procurement process effectiveness, efficiency, and productivity. This ensures that requisitions are properly processed and purchase orders released in time and duly tracked for fulfilment.
- Contribute to enhancing the performance of the procurement function
In order to enhance the performance of the procurement function, it is necessary for the procurement decisions to be based on the analysis of large amount of relevant data and efficient communication among the stakeholders. By leveraging the power of the software to gather, use, save & share data, and ensure effective communication, the organizations can greatly enhance the performance of their procurement departments.
- Help the procurement process to meet the compliance requirements
Since the software performs all activities according to the organizational approved policies and in a transparent manner, its use ensures compliance to the organizational and statutory requirements.
- Decrease the time to order
The software can facilitate the use of order and other templates. The stored contracts can be used instead of working on a new one every time. Thus, new purchase orders can be generated and approved quickly resulting in the reduction of the cycle time.
- Facilitate the monitoring of suppliers’ performance and ensuring accountability
The software maintains all the order related data and documents in a transparent manner, which facilitates monitoring and reviews of the procurement process, activities, decisions, spending, supplier performance, and such others. This ensures accountability.
- Empower the organization
With the software helping the organizations to pursue the procurement activities effectively, efficiently, & cost efficiently and to achieve higher productivity, organizations investing in procurement software are empowered to reliably procure goods and services at the lowest total cost of investment and in time.
- Empower the employees
The procurement software, by automating the procurement process, relives the employees of having to do a list of tasks over and over again that are boring and opens up opportunities for them to learn new skills and acquire higher-order skills that will improve their career growth prospects, on one hand, and, on the other, help them do higher-value addition to the company.
Key procurement performance metrics
Increasing awareness among organizations about the functional and performance capabilities of procurement software solutions and their benefits, spurs them invest in procurement software solutions. Their investment objectives are to bring about improvements relating to cost savings, spend-under-management, supplier performance, employee performance, etc. Some of the important metrics that help organizations to measure and track the benefits of using procurement software solutions are the following:
- Purchase order cycle time improvement
Organizations can measure the reduction achieved in the purchase order cycle time, which is the time taken to place orders from the time a purchase requisition is submitted.
- Purchase order accuracy
Purchase order accuracy is essential to ensure that organizations receive from suppliers what was ordered and in time.
- Cost per invoice and purchase order
Cost reduction lead to decline in operational expenses that contributes to improving the bottom-line.
Spend-under-management is the share of procurement-spend that is controlled by the management. Improvement in an organization’s spend-under-management results in minimizing the maverick spending.
- Procurement Return on Investment (ROI)
The ratio between the annual procurement cost-savings to the annual procurement costs is a direct measure of the cost-effectiveness of the procurement investment
Organizations achieve procurement excellence by using procurement software solutions that automate the procurement process & activities, reduce the time taken to place orders, track all activities in the procurement process, eliminate potential errors and time delays, facilitate contract and supplier management, etc. These performance enhancements help organizations to achieve enhanced throughput, productivity, & reliability, 24X7 operation, and improved efficiency, compliance, & performance at reduced operating costs, and such others.