Efficient procurement processes are one of the key necessities for the business to ensure timely and affordable acquisition of the organization’s resources. To function smartly, the businesses utilize procurement software to streamline various procurement activities, follow up, fulfillment, and payments. Check out this blog to read more about procurement software and the benefits they provide.
Procurement involves a range of activities an organization undertakes for obtaining goods or services to meet its requirements. It refers not only to the final act of purchasing, but also includes the overall procurement process, which, when it is well managed, will result in obtaining the goods / services at the right quantity, right price, and at the right time. When an organization obtains goods / services that are required to make an end-product or sale to its customers it is called direct procurement. Indirect procurement relates to acquiring items that are required for the operations of the organization, such as office supplies and furniture, and services, such as consulting and outsourcing.
Procurement management begins with determining the goods / services required by the organization, transmission of that requirement to the purchase department by raising a requisition, placement of order by the purchase department after due processing and approval, order fulfillment and receipt of invoice, and reconciliation of invoice with the purchase order & payment made etc. Procurement is an important function that plays a vital role in an organization’s profitability. Procurement activities encompass processing the requisition, identifying potential suppliers, obtaining goods’ / servcies’ information, soliciting proposal & quotations from potential suppliers, 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. Efficient performance of procurement activities will reduce the procurement cost and cycle time and contribute to increasing the organization’s profitability. Therefore, the management of procurement activities is crucially important for organizations.
Procurement Management and its objectives
Procurement management helps to manage in an efficient way the organizational procurement spending while ensuring that the procured goods and services are acquired from the qualified suppliers at the best possible prices & in time and that they conform to the required specifications. The procurement management encompasses sourcing, inviting and evaluating bids, ordering, expediting, inspection, reconciliation, record updating, and such others.
Some of the important objectives of the procurement management are as follows:
- Streamline the procurement process and ensure effective control over the organizational spending
- Reduce procurement processing cost and time and minimize the manual efforts
- Efficiently manage the approval process
- Improve the spend visibility
- Ensure the organizational compliance while procuring
In order to be efficient in procurement management, organizations use procurement software. A comprehensive procurement software package consists of various software modules to manage most of the procurement activities. It allows an organization to automate the various procurement processes for getting goods and services in an error free manner. With the help of procurement software, organizations can perform various activities, such as the generation of the purchase orders based on the prescribed procedure digitally, initiation of the approval process, releasing of orders, maintenance of records of all transactions relating to procurement, taking follow up actions necessary to ensure successful order fulfillment, payment to suppliers, etc.
The important activities that can be automatically performed with the help of procurement software include the following:
- Process the purchase requisition
It can process the procurement requisition that identifies the specific goods / services to be procured for the efficient functioning of the organization and provides the relevant information about the goods / services to be purchased
- Secure approval
It can initiate the procurement approval process with the appropriate authorities to proceed with the order processing and placement
- Identify potential suppliers
Procuring department may have approved list of suppliers for goods and services that are routinely obtained. In other instances it may be necessary for it to identify potential suppliers and initiate the dialogue.
- Seek information, proposal, quotation etc.
The procurement software can send requests seeking information, proposal, quotation, and bids to the shortlisted potential suppliers
- Evaluate, negotiate prices and other terms
It can help during the negotiation phase
- Order placement
It can generate, upon approval to proceed with the procurement, the purchase order based on the requisition raised by the appropriate personnel, and transmit the same to the supplier
- Supplier management
It can keep effective communication and collaboration with the supplier and track the progress of the order fulfillment to ensure successful contract completion
- Invoice approval and payment to suppliers
It can scrutinize the Invoices raised by supplier to ensure accuracy and compliance with the purchase order terms and authorize the payment to be made to the supplier
- Order related financial and inventory actions
It can perform the order associated financial and inventory actions, such as payment to the suppliers, updating the stock position upon the arrival of the items, etc.
- Maintain records
It can create and maintain order related data
- Track the supplier performance history
It can keep track of the performance of the supplier
Main types of procurement software
The main types of procurement software are procure-to-pay or purchase-to-pay, source-to-pay and e-procurement.
- Procure-to-pay software
The procure-to-pay (P2P) or purchase-to-pay software is an integrated solution that supports the procurement activities starting from the processing of purchase requisition to the completion of the order related financial and inventory action.
Source-to-pay (S2P), in addition to supporting the end-to-end procurement activities, includes finding the appropriate supplier, negotiating & contracting for the supply of goods and services, ensuring the successful order fulfillment, and making the final payment. It combines the features of procure-to-pay software with discovering new supplier / suppliers and acts more as an end-to-end solution. Organizations that want to identify new potential suppliers to meet the demand for different range goods and services or expand beyond their existing supply chain partners for various reasons would benefit from using the S2P software.
E-procurement (electronic procurement) facilitates procurement to be made using Internet / online platform. It facilitates an organization to order things using a closed online system that is available to the registered users only. Business-to-business or business-to-government procurement transactions are often conducted using the e-procurement software. The elements of e-procurement include search / request for information, request for proposal, request for quotation, and such others.
Benefits of procurement software
Some of the benefits of using the procurement software are that it
- Facilitates effective interactions among all the stakeholders, such as the requisition initiator, approver, supplier, payment authority, etc.
- Cuts down procurement efforts and procurement cycle time
- Minimizes the procurement cost
- Ensures compliance to the organization’s prescribed procurement procedure
- Acts as a single source of information about the organization’s procurement spending
- Facilitates monitoring of the organization’s procurement spending
- Ensures effective communication with suppliers
Organizations seeking an efficient way to manage their organizational spending and procure goods and services that conform to the required specifications at the best possible prices & in time are investing in procurement solutions.
Rajabahadur V. Arcot is a Senior Advisor, Quadrant Knowledge Solutions