Procurement Tools for Operational Excellence
Enabling an organization to reach its full potential begins with spending management. Controlling and managing the purchase costs helps procure goods and services that are value for money and cut down any extraneous costs. Automating key procurement processes is the most effective way to optimize the procurement function. Adopting the right procurement tools and techniques enable businesses to gain real-time insights into the procurement cycle and make informed sourcing and buying decisions.
Pros and Cons of Manual Procurement Systems
Despite the disruption of modern technology into various business functions like Finance, Procurement, Marketing, and Human resource management, many businesses are still sticking to manual process management. Manual business processes are executed by human resources. As per research by Bain and Company on Digital Procurement, less than 10% of companies have deployed procurement solutions that are based on the Internet of Things, blockchain technology, and Big Data. The same research reveals that more than 60% of the companies still rely on Microsoft Office to manage their process workflows and supplier relationship management.
Apart from being simple to operate and deploy, manual procurement systems do not provide any other advantage. Here are the main reasons why manual procurement systems are inefficient for a business:
Repetitive and tedious tasks:
Manual procurement is marked by a set of repetitive tasks that employees need to execute on a daily basis. Approval of internal procurement documents, generating PRS and POs, and negotiating terms with the suppliers are some examples of repetitive procurement tasks. These tasks are tedious in addition to being repetitive. Employees spend way too much time and effort on these tasks when they’d rather be working on strategic tasks.
Process delays and bottlenecks:
Manual processes are driven by human effort, which means that they are prone to errors and biases. Inordinate process delays and bottlenecks are characteristic of manual processing.
Visibility and transparency:
The procurement process is made up of several tasks that are managed across procurement team employees, end-users, and suppliers. This results in compromised visibility of the process status and miscommunication between various stakeholders. There is also a compromise on the transparency of the overall process.
Documentation and reporting:
All the reports of the procurement process are created manually. Data entry for report generation is a cumbersome process that is prone to errors and overlooks. Manual validation of reports is time-consuming. Manual processes generate huge volumes of paperwork that are difficult to keep track of and safeguard. The auditability of manual procurement processing is compromised due to a lack of standardization in documentation and reporting.
Lack of standardization in manual procurement processing is the major drawback that is compelling progressive businesses to adopt various tools and techniques associated with procurement management. E-procurement tools are designed to overcome all the drawbacks of manual procurement and bring efficiency and optimization into the procurement function.
Need for Procurement Software Solutions
Irrespective of the number of vendors and suppliers your business relies on, it can be challenging to stay on top of every contract and ensure that you are deriving the best out of every deal and maintaining good vendor relationships. Using various procurement tools like sourcing management tools, procurement assessment tools, PO approval management tools, etc. streamlines the procurement function. Businesses opt for procurement automation for two main reasons: one is to overcome the drawbacks of manual procurement, and the other is to improve the efficiency of the procurement process.
Here are some of the compelling reasons for automating the procurement function:
Centralization of information:
The procurement process is made up of multiple tasks, which means that there will be multiple sources of information. Accessing data from disparate data sources increases the complexity of the function and increases the margin of error in data gathering and validation. Automating the procurement function provides centralized access to information. Centralization of procurement data increases the visibility across procurement processes so that all the stakeholders are aware of the status of all tasks.
The manual procurement process is ridden with repetitive steps and redundant tasks. These tasks bring down the efficiency of the procurement function. Employees need to spend productive work hours on low-value repetitive tasks rather than strategic work. Automating the repetitive tasks of the procurement function improves the efficiency of the procurement process and optimizes its performance.
Standardization of procurement policies:
Automation brings standardization to procurement processes. Procurement processes like vendor onboarding, purchase requisition, purchase order approval, sourcing, etc. can be effectively automated using project procurement tools. Compliance management in an automated procurement function is more efficient and transparent.
Continuous process improvement:
Continuous improvement of business processes is the basis for building a successful business. Procurement management tools enable businesses to manage and streamline their spending, which in turn increases overall cost savings for the business. Optimal utilization of human resources is made possible by streamlining the procurement process through workflow automation.
Improve accuracy and consistency:
In processes that are predominantly run by human resources, the scope for inaccuracies and inconsistencies is more. Automation of the procurement process reduces human intervention, thereby, improving accuracy and consistency. Processes that require data gathering and validation are also executed with the highest degree of accuracy. Automation improves the auditability of the procurement function.
The procurement function has evolved from the simple source-buy-pay process to a more strategic, business-oriented function. The sourcing process needs to factor in strategic vendor selection, quick and efficient vendor onboarding and payment, and vendor relationship management. Using strategic sourcing tools and techniques businesses can establish long-term vendor relationships and choose a vendor that delivers value for money.
Flexibility and Mobility:
Manual procurement systems are restricted by location and scale. Procurement software tools provide flexibility and mobility to the team, enabling them to view and approve procurement requests from anywhere. Strategic sourcing tools enable procurement managers to evaluate vendors and issue purchase orders at their convenient time and place. Procurement management tools enable procurement managers to streamline and optimize the performance of the procurement function.
By integrating the procurement solution with advanced analytics, Business Intelligence, AI and Machine learning technologies, predictive analysis, and forecasting functionalities can be brought into the procurement function. Procurement solutions can also be integrated with existing financial applications like ERP, Accounts payable, and Finance for improving overall business performance.
What is e-Procurement?
What are e-procurement tools? An e-Procurement software or solution is enterprise software that automates the entire procurement cycle in an organization and integrates it with other systems. The transparency and visibility of spend and approval are greatly enhanced by implementing an e-procurement solution. Each e-procurement solution provider provides a different feature set for his solution, business should choose the one that aligns with their overall business strategy and caters to their procurement requirements.
All the transactions in an e-procurement solution are done electronically via the Internet. In addition to Internet applications, e-procurement also makes use of Extranet and Intranet applications. There are a number of e-procurement tools available, each tool is classified based on the procurement process they cater to. E-sourcing, e-ordering, e-tendering, e-contract management, and e-informing are some of the commonly used e-procurement tools.
Must-have features of Procurement Software Tools
Procurement tools may be classified into Pure Procurement tools and Integrated tools. Pure procurement tools are designed to handle the procurement process alone, they do not have the capability to handle any other business function. These types of tools are useful in businesses with a dedicated procurement team or those that have an overly complex procurement process. The second category is procurement tools that deal with procurement as part of other business processes. In other words, they do not require a tool dedicated to procurement. These tools help businesses with a range of processes of which procurement is a part.
How does one choose from hundreds of procurement tools that dot the automation market landscape? Here are a few must-have features that can guide businesses in making their choice.
Smart automation: An automation solution is adopted to make things easy. Efficient procurement automation must show significant improvement in KPIs like procure-to-pay cycle time, purchase order cycle time, emergency purchase ratio, etc. The procurement solution must enable procurement leaders to make smart, informed business decisions. The procurement management tools must include a workflow that takes care of key functions like PR and PO generation, approvals, and documentation.
Reporting and Documentation: In addition to streamlining procurement workflows, the procurement solution must include accurate documentation and reporting features. The management depends on reports and relevant documents to evaluate the performance of the function, and plan and forecast the spending budget. Accurate data and reports are required to understand spending distribution and optimize the costs. A procurement management tool must provide real-time visibility into processes, budget projections, and spend comparisons.
Approval automation: In manually operated businesses, managerial approval happens over a series of email exchanges. It is difficult to keep track of the emails that are generated with every purchase. The procurement tool must include rules on the spending amount for each role (employee), who should approve what, what is the maximum cap on spending for the whole department, etc. Automated notifications and alerts must be issued to the manager when a PR is submitted or when approval of PRs or POs is pending so that the procurement process is not delayed due to pending approvals. Paperless approval is a must for procurement automation.
Seamless communication between stakeholders: Internal and external communications of the procurement function are extremely important for its smooth functioning. All the stakeholders involved in every purchase must be on the same page regarding the status of the purchase. Centralized access to procurement data provides visibility into every transaction. The procurement tool must also walk employees through the policies and terms so that compliance is maintained. Real-time collaboration with vendors across various locations to confirm receipt of goods, quality of deliverables, and payment statuses.
Integration with other business systems: The procurement tool must integrate and communicate with other business systems seamlessly. Procurement software must be able to connect and work with other systems in the financial ecosystem.
Easy and quick deployment: Automation aims to simplify the procurement process and improve operational efficiency. The deployment of the procurement tools must be a simple and quick process. Cloud-based procurement tools are easy to install and operate. The user interface must be easy to use so that employees spend minimum time and effort learning its operations. Cloud procurement tools also provide mobility and flexibility to procurement teams.
The automation market landscape is dotted with hundreds of procurement automation tools. Choosing the right procurement tool plays a vital role in streamlining the procurement function and managing organizational spending. Cflow is a leading workflow automation solution that can automate key business workflows within minutes. It is a cloud no-code BPM that can be deployed across various business functions. Cflow comes with a rich feature set that businesses can leverage to build a robust procurement automation platform.