Web-based procurement

Web-based procurement

Traditional procurement practices are predominantly paper-based, such a systems invites errors.

Traditional procurement practices are predominantly paper-based. When an employee requires information relating to a purchase, this information is most often provided over the phone or by fax. Information gathered in this way needs to be entered into various administrative databases at different stages of the procurement process. However, such a system invites errors, and time must be spent correcting these. Consequently, approval procedures need to be followed to confirm that all procurement data is correct. Considerable delay can ensue even for comparatively minor purchases, and employees may be tempted to bypass official procurement procedures in an attempt to speed up the process. The overall effect is to cause inefficiency and run the risk of increased processing fees and slow procurement cycle times.

Direct and indirect procurement

Procurement is commonly divided into two categories: direct procurement and indirect procurement. Direct procurement generally concerns the purchase of materials related to manufacturing, production, and distribution. Indirect procurement relates to the purchase of materials and services linked to Maintenance, Repair, and Operations (MRO) and to provide and replace assets. Of the two, direct procurement is usually the more efficient. Direct material procurement can be readily controlled and streamlined through traditional planning processes. Material requirements for production, manufacturing, and distribution are usually known well in advance, and purchasing arrangements with vendors are generally well established and quite efficient. The process is normally run by the company's Purchasing department, which has a well-defined set of procedures designed to meet the particular requirements of the company and its suppliers. However, it is more difficult to control indirect material and service procurement. These materials and services are most often requisitioned, purchased, and expensed by the employees that require them. It is in this area of indirect procurement that there is most scope for a company utilizing traditional procurement practices to reduce costs, particularly because in any given fiscal year total indirect purchases typically cost a company a third more than total direct purchases.

Demand for new solutions

Companies are increasingly seeking software applications that will enable them to automate the front end of their purchasing processes.

Companies are increasingly seeking software applications that will enable them to automate the front end of their purchasing processes. Such automation should allow end-users to begin the requisition-to-payment stage of the procurement cycle. In this way, much of the inefficiency inherent in the indirect procurement process can be eliminated. Overall, the reduced requirement in the process for user intervention can shorten the cycle time, and can, further along the business cycle, increase productivity. Further contributing to the efficiency of the procurement process, such a software application could, ideally, be customized to match the company's specific production, manufacturing, and distribution requirements. As a result, the direct purchasing process can be streamlined, increasing productivity and enabling purchasing personnel to devote more attention to negotiations with external suppliers and strategic sourcing.

Demand is also growing for applications that can enable an internal electronic purchasing environment to be melded with the external commercial world. In other words, modern companies are seeking to implement e-procurement solutions that can enable them to build up their own custom-built trading communities with external vendors through the use of online catalogs. In such an open environment, quotation requests can be made available to vendors. The vendors can then respond with bids.

Business-to-business procurement solutions

SAP, Baan, and PeopleSoft offer comprehensive e-procurement solutions that can increase the efficiency of a company's procurement cycle.

Several major business software houses offer comprehensive e-procurement solutions that can increase the efficiency of a company's procurement cycle. These include SAP, Baan, and PeopleSoft.

The SAP? Business-to-Business Procurement solution is specifically designed to address the concerns outlined above. Its simple, user-friendly interface enables end-users to carry out indirect procurement activities with little or no training. It also supports real-time supplier integration, enabling purchasing personnel to move their attention away from routine and laborious administration of procurement activities, and to concentrate on improving the company's business practices by researching vendors and finalizing agreements with suppliers. By increasing the company's control over the supply chain, it helps to reduce static purchase processing costs.

Companies can deploy SAP's Business-to-Business Procurement solution as a standalone component that integrates with the core SAP R/3? system. Alternatively, it can be deployed as an integral part of R/3's open architecture. By deploying the Business-to-Business Procurement solution in this way, a company can be flexible, updating the software as necessary to remain at the cutting edge of e-procurement technology and methodology without being restricted by the current version of R/3.

A further advantage of the SAP Business-to-Business Procurement solution is its openly published catalog interface. This enables any company using the SAP Business-to-Business Procurement solution to access online catalogs published by almost any vendor. The SAP Business-to-Business Procurement solution can make use of third-party catalog solutions, but it also comes with its own SAP Catalog package.

The Baan? E-Procurement solution and the PeopleSoft? eProcurement solution are both designed to optimize the indirect procurement process.

In common with SAP's Business-to-Business Procurement solution, the Baan? E-Procurement solution and the PeopleSoft? eProcurement solution are both designed to optimize the indirect procurement process. Both solutions provide electronic catalogs containing lists of approved suppliers and items for which prices have been agreed with the supplier. Each solution enables end-users to create requisitions and orders. Baan stresses the ability of its system to facilitate the tracking of orders after they have been made. It claims that its E-Procurement solution can reduce purchase order costs in indirect procurement by as much as 80 percent. PeopleSoft points to the ability of its eProcurement solution to use categories of corporate spending to apply specific buying processes to particular items in a catalog.