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Procurement processes are an important part of an effective business workflow. However, they aren’t simple to perform. B2B procurement is rather complicated and requires much time and attention. To complete big-scale purchases effectively, many businesses turn to software solutions such as procurement management systems.
E-procurement systems facilitate many B2B purchasing processes, including vendor research and evaluation, making offers for products and services, purchasing contract conclusion and management, and much more.
In this article, we’ll have a look at what e-procurement is, why procurement systems are an effective solution for B2B companies, and how to build a successful custom e-procurement system.
» What Is E-procurement?
For many B2B companies, procurement makes a significant part of their workflows. Businesses have to carefully choose their suppliers, ensure that they have enough budget to obtain the proposals, meet legal requirements, and much more. Those companies that manage to increase the effectiveness of their procurement practices don’t have to constantly care about compliance with their vendors; instead, they can focus on the improvement of their outcomes.
To organize a smooth and transparent B2B procurement, businesses should have various purchase-related tasks gathered all in one. Therefore, many of them prefer using e-procurement systems.
Procurement systems are the purchasing systems for organizations that help companies aggregate and automate their procurement practices into one solid application. This way, businesses can easily monitor and handle procurement-related processes from an integral and transparent system rather than having them spread across multiple applications.
» How Does an E-procurement System Work?
Today, businesses don’t have to use conventional forms of purchasing when procurement managers spend hours browsing through paper catalogs, comparing price lists, or sending faxes with order forms. Instead, they turn to e-procurement systems that are responsible for corporate purchasing activities which companies perform via the internet. This way, a company can research the market within minutes, quickly identify the best deal, conveniently purchase the needed services and goods, and effectively monitor the purchasing and expenditure processes.
E-procurement applications’ functionality varies depending on companies’ purchasing needs. Nevertheless, the most common solutions which can be found in any e-procurement system are:
- procurement requests management;
- pre-purchase approval workflow;
- purchase orders generation;
- selection of the preferred vendors;
- spending analytics;
- invoice reviewing,
- budget management tools,
- detailed analytics, and more.
A B2B purchasing process using e-procurement systems differs from buying on e-commerce platforms. On e-commerce platforms, buyers usually login into the system and search through multiple vendors. In the case of e-procurement solutions, vendors have to receive the request to join a buyer’s platform first before selling. This way, a seller has to put more effort into accommodating their customers’ needs. The practice of adding the selected vendors to their system allows businesses to effectively arrange direct deliveries from sellers as well as negotiate better pricing.
The e-procurement process involves the following stages:
- Identifying buyer’s needs – at this stage, a buyer determines the materials and services they need. For this, they use purchase requisitions or other electronic documents to create a purchase request for the needed goods and services.
- Supplier evaluation – if a company already has a list of regular suppliers in their e-procurement systems, procurement managers can assign them for supplier approval. In large organizations, approvals from several interested parties may be needed, such as department headsand stakeholders, for selecting a supplier.
- Supplier selection – if a company doesn’t have existing suppliers for their needs, or when they want to find a better price, they turn to supplier selection. At this stage, they can arrange requests for quotation (RFQ) when a company offers its price quotes to vendors or requests for proposals (RFP) when a company requests some data about the vendor, e.g., the products and services they provide. After receiving all the goods and price proposals and completing the negotiations, procurement managers choose the vendors and move to the contracting process.
- Contracting/Ordering – after selecting a supplier and receiving a requisition, buyers create a purchase order. The purchase order includes the most important data on the purchase – the price, shipment method and date, quality requirements, and others. As the seller approves the order and the buyer pays for it, the shipping process starts.
- Analytics – at this stage, the company assesses its spending, estimates the goods and services they need, and evaluates its suppliers.
» The Role of E-commerce Marketplaces in E-procurement
Both e-commerce marketplaces and e-procurement systems effectively support online B2B trading among diverse companies. However, each of the systems aims at different sides of the trading process.
E-procurement systems are designed with purchasing companies in mind. They help organizations manage their supplier networks, quickly find attractive offers, track order fulfillment, and handle the document workflow, e.g., create invitations to bids for sellers, requests for seller information, and much more.
The E-commerce marketplace, in turn, helps vendors organize and provide their offers online. These platforms arrange payments for B2B sellers through integrated payment gateways and allow them to offer their products and services to a wider range of buyers.
Meanwhile, the two systems share common objectives – strengthening customer/seller relationships as well as increasing transparency and visibility of vendors’ products/services for buyers. Therefore, when the two platforms simply integrate with each other, they ensure smooth and efficient trading processes as well as create a positive experience for the buyer and the seller.
» Main Benefits of E-procurement Systems
The main benefits e-procurement systems provide are the purchasing process automation and centralization of procurement activities. This helps significantly improve goods delivery time and reduce procurement steps.
Some other e-procurement system advantages include:
- A fewer number of errors – e-procurement systems automate a wide range of purchasing processes, minimizing the number of possible errors which can occur when documents are processed manually and transferred from the various company departments to the procurement management and then to the company’s suppliers; to minimize errors the systems can perform two-way matching when invoices are matched with purchase orders, or three-way matching, adding to the two-way matching transaction reports, and much more;
- Reduction in operational costs – the e-procurement platforms significantly accelerate the document flow and improve working efficiency, reducing the overhead for the procurement department;
- More control over the purchasing processes – e-procurement solutions allow companies to track each procurement step from spending, and document arrangement processes, to incoming deliveries across various departments; moreover, companies can delegate responsibilities over the procurement department more effectively by separating sourcing and approval, invoice management and payment, delivery tracking, making purchase requests and ordering, and much more;
- Increased purchasing compliance – with the procurement management systems, companies don’t have to search for appropriate vendors over e-commerce platforms; instead, they have their own sets of selected vendors on their purchasing platforms that offer the needed products and services via online catalogs; this way, they are able to quickly locate goods from the chosen sellers while controlling the size and costs of their supplies;
- Attractive goods and services pricing – the buyers can select the vendors with the best prices, terms, and product quality through bidding and negotiating processes; this allows companies to significantly save their budgets while contracting the goods delivery or services at a large-scale basis;
- Reduction in maverick purchases – the e-procurement software reduces maverick spending when a company’s employees bypass the procurement department and purchase the goods without comparing prices, negotiating, or contracting suppliers;
- Improved transaction speed – e-purchasing systems alleviate and support the negotiation and purchasing processes; when a buyer is arranging a purchase, they have to submit their digital certificates on the e-tendering portals and verify their payment methods for the tender; using online payment gateways on e-procurement portals, buyers can process transactions much faster than they’d do it using traditional payment methods;
- Enhanced internal and external communication – e-procurement software decreases silos among internal company’s departments and its suppliers; it can share purchase reports, supplier contacts, history of transactions, and much more among all the parties involved; buying companies can quickly identify their product and services needs and make several purchases from different vendors at the same time; moreover, buyers can go simply onboard new suppliers and swiftly share their contacts, history of purchase orders, payment statuses, and more among company’s departments;
- Advanced analytics – e-procurement software can effectively gather procurement data over a company and process it into detailed reports, including various metrics, purchasing trends, spending, and more; company heads can quickly access the data and make informed decisions about further procurements and development of the company.
» What Are the E-procurement Challenges?
The integration of e-procurement systems into the existing workflows can be a rather challenging task for businesses. There are several reasons for that:
- Staff education – companies will have to organize additional training to ensure a smooth transition to a new system for their employees;
- Compatibility with other software – B2B companies usually have expanded digital ecosystems that include several heavyweight software solutions; a newly acquired e-procurement system should simply and smoothly integrate with the existing digital infrastructure without any major challenges;
- E-procurement system limitations – when selecting their e-procurement software, companies should make sure that the chosen solution meets all their business needs and it can connect to all the vendor software and successfully onboard them into the system; moreover, company heads have to consider further business growth and supplier database expansion so that they won’t need to switch to another application in the near future and migrate the working data gathered for years.
» How to Build a Procurement Management System
When a company decides to integrate an e-procurement system into its workflow, the first decision they have to make is whether to build a custom e-procurement solution or opt for a ready-made one.
While there is a wide range of e-commerce software providers that offer diverse types of e-procurement systems, many companies still prefer creating their own software. The main reasons to opt for custom Procurement Management Systems are:
- Easy scalability with the expansion of customer base;
- 100% match to the company’s procurement demands;
- Ability to add/remove any features at any time, depending on the current business development needs.
So, how to build a procurement management system that would be effective and meet all your business requirements? Building a professional, secure, and robust Procurement management system implies a well-thought-out and consistent approach. Therefore, before starting the software development process, businesses have to outline what their digital solution should look like and which features it should include.
The core functionality features for procurement management systems that most companies need in their work are:
- Supplier management systems – these systems allow businesses to work with their existing and potential suppliers. Companies use this feature for supplier onboarding, gathering vendor data, supplier performance analytics, and much more.
- Procure-to-Pay cycle tools – are used for fulfilling transactions from the moment the company forms order to the date of making a purchase. Also, this feature alleviates invoice management by automating the invoice approval process.
- Contract management – is the solution aimed at the creation and management of procurement contracts. It can also include some monitoring tools to remind companies about the expiring contract dates so that they can avoid any legal issues.
- Budget management – is the feature that allows companies to better organize and allocate their budget for goods procurement. Above all, the system can perform compliance checks for the purchased products and services and create reports on the company’s spending.
- Reporting and advanced analytics – allows businesses to quickly gather data on their procurement processes and the latest events connected with them.
The following list isn’t limited only to the enumerated features, and businesses can expand it depending on their requirements. As they define the functionality of their procurement system, the next step is to find a team of professional software developers who could select the appropriate tech stack and develop the planned solution.
» Bottom Line
E-procurement systems are an effective instrument that facilitates B2B purchasing processes for many companies. They automate diverse procurement business activities, making them much faster and cheaper. Another reason why companies prefer using e-procurement software to other kinds of digital solutions is that it unites procurement processes in one system, ensuring transparency across various departments and company suppliers.
Those companies that consider building their own procurement systems have to consider two factors – the features they want to include in their digital solution and the professional team of software developers who will be able to implement this software in practice.
Author Bio : Victoria Puzhevich
Victoria Puzhevich Lead Business Development Specialist at SCAND. Victoria has over 15 years of experience in IT, keeping track of the current and future trends in the sphere and sharing expert advice and relevant industry experience. Victoria dived into the IT world as a Business Development Specialist in 2006. During more than 15 years of work in the IT industry, Victoria has acquired a broad background in the development of different business areas – from IT outsourcing to Blockchain, IoT, AI/ML, etc.