What Is E-Procurement? (Definition, Benefits and Steps)
As companies seek to maximize their profits and improve their operations, using the e-procurement process can be a convenient and lucrative option. Buying and selling goods online allows companies to reach a more diverse audience and enhance the speed of transactions. Learning more about this process can help you implement it within your own business operations. In this article, we discuss what e-procurement is, explore its benefits, review steps on how the process works, and examine the difference between procurement and purchasing.
What is e-procurement?
E-procurement, or electronic procurement, is a digital transaction process that involves using the internet to buy and sell goods and services. This process employs a supplier's closed system, meaning that only their registered customers can use and gain benefits from it. Implementing e-procurement creates a direct connection between the supplier and buyer, helping to streamline business-to-business (B2B) or business-to-consumer (B2C) processes like emails, invoices, purchase orders and bids. Since e-procurement is an online business measure, it uses networked systems and web interfaces for supply chain operations.
The e-procurement process is a development of the 1980s, having spawned from the introduction of Electronic Data Interchange (EDIT), a method that describes the transference of data and information from one system to another. With EDI principles, e-procurement enables companies to generate online catalogs for their suppliers. This process involves elements like contract management and supplier evaluation. There's also specialized e-procurement software that you can leverage to automate B2B engagements between the supplier and company.
Benefits of e-procurement
There are many benefits you can gain from using e-procurement, such as:
Creates information transparency: E-procurement makes the transference of information and data more transparent to the company and its supplier. You can use this information to view purchasing behaviors, leverage buying power, control non-compliant spending, and identify opportunities to consolidate suppliers.
Helps companies save money: E-procurement can help a company save substantial amounts of money because it eliminates costly errors that may occur when handling manual orders and paperwork. The company can then use the money they save for other initiatives, like marketing and advertising.
Automates procurement processes: By automating your procurement processes, you're able to sustain more consistent and cost-effective operations. There's a diverse range of procurement software that you can use to help you achieve this goal, helping lower the need to perform monotonous activities, like data entry and analytics.
Shortens procurement and purchasing cycles: The benefit of shorter process cycles is that you're able to obtain the goods and services that you need at a much faster rate. This helps to limit operation downtime, which ultimately helps to increase productivity, save costs and increase profits.
Improves inventory management and control: It's important for a company to better manage their inventory because it enables them to gather accurate information about their current supply of goods. They can then use this information to make more informed business decisions.
Streamlines operations: This is an essential benefit of using e-procurement because it helps you save time and increases productivity. Having all of your online purchasing and selling processes functioning seamlessly creates a more uniform system and makes it easier to identify and resolve problems before they escalate.
Larger product and service selection: Because all the transaction and procurement processes occur online, you have access to a broader range of products and services to choose from. This variety enables you to make comparisons between what's available and select the goods that are best for your company and most cost-effective.
Limits maverick spending: Maverick spending describes when an individual procures products that aren't within the parameters of the designated contract and negotiations. Limiting these types of actions helps to ensure that all procurement processes meet compliance regulations set between the company and supplier.
5 steps of e-procurement
Here are the five primary steps to using the e-procurement process:
1. Online information transferring
Online information transferring, or e-informing, is the stage that aligns with a traditional procurement cycle. It describes the exchange of information between two parties. This exchange often happens between internal units within the company and relevant external suppliers. This first step enables a company to optimize and streamline its e-procurement process.
2. Online sourcing
Online sourcing, or e-sourcing, is the phase of procurement where the company pre-qualifies all of its potential suppliers. They make this determination based on the designated procurement requirements, allowing them to shortlist those suppliers for the evaluation step. This second stage coincides with defining business requirements by the company's executive and procurement figures.
3. Online tendering
Online tendering, or e-tendering, describes when the company requests information, quotes and proposals from its shortlisted suppliers. This stage coincides with the evaluation and solicitation process and helps the company analyze and better assess the potential suppliers. During this third stage, the company may implement strategies to ensure their assessment is transparent.
4. Online auctioning
Online auctioning, or e-auctioning, is the stage when all involved parties set the contract terms and negotiate prices. After both parties come to an agreement, the buying company purchases the goods or services from the supplier. Sometimes there are multiple companies trying to secure a contract with the supplier, often by paying more. An alternative to this condition is e-reverse auction, which is when multiple suppliers compete to secure a contract with one buyer by offering them a lower price.
5. Online product ordering
Online product ordering, or e-ordering, is the final step in the e-procurement process that involves the development and approval of requisitions. This is when the company places its orders and then receives them by the estimated date. To finalize the process, the company indexes the contracts in a digital catalog so employees can access them at a later date and place a new order.
Procurement vs. purchasing
Companies use procurement for a production environment, such as buying textiles and materials, to build an item. Comparatively, purchasing is for buying goods and products at wholesale that you can immediately resell for a profit. Therefore, procurement focuses more on the value of goods, while the priority for purchasing is the cost of buying those goods.
The purchasing process is usually much simpler, often only involving the need to order, expedite and fulfill the payment of the items. Procurement is a more complex process that includes those steps, but also need-recognition, contract source and sourcing. Purchasing is usually reactive and dependent on customer reception, so it usually focuses more on the transaction than the supplier. Procurement is a more proactive process to fulfill the needs of the company, so you usually look to cultivate long-term relationships with the supplier.
Explore more articles
- How To Leverage Your Strengths in the Workplace
- Epic Certifications: Definition and How To Get an Epic Certification
- 14 Mentoring Goals (And How To Set Them)
- How To Become a Travel Agent in 4 Steps (With Helpful Tips)
- How To Make a Good PowerPoint Presentation (With Tips)
- 16 Ways To Set Boundaries at Work and Why It Matters
- Why It's Important To Fit In at Work and What To Do If You Don't
- The 4 Levels of Competence: Definition and Examples
- 6 Differences Between Occupation and Job Title
- 6 Attributes to Include on Your Resume
- How To Create a Balance Sheet in Excel (With Tips and FAQs)
- How To Insert an Arrow in Excel (With 6 Methods)