Insights by Nitor

The Hidden Side of eProcurement

Posted by Molly Wilson on Oct 13, 2016 2:52:10 PM
Molly Wilson
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That huge tree in your backyard has caught a disease and is infecting the surrounding trees.  It needs to come down. eProcurement Wood Chopping Ax Hidden Side of eProcurementWhile it seems like a straightforward task, (all you have to do is grab an axe and a plaid shirt) in reality, there are so many details you have to consider - dust, falling branches, whether or not the tree is already leaning in one direction, how far the tree will fall - and this is all before you even pick up your axe to start chopping.

EProcurement can appear to be a relatively direct process.  Determine which item(s) you would like to purchase, decide on a supplier, and send out the PO - simple right?  Anyone in Procurement can tell you, it is never that simple. Not taking into account all the different issues that can arise when cutting down a large tree is similar to not considering all the moving pieces in an eProcurement process and can result in significant issues. Therefore, with all these different parts to take into account it can be quite easy to make a misstep along the way, fortunately for us, that misstep will never include trying to outrun a falling tree.

While the "e" in eProcurement often makes people assume this element is solely focused on technology; that is not at all the case.  Like all Nitor Partners' projects, if the process and people are overlooked then the technology will not be successful. The biggest challenge of any eProcurement initiative is allowing the technology to support the business processes, especially given the various systems and structure of the organization.

Here are a few questions companies fail to ask when evaluating their eProcurement.  Consider how well your organization would answer these questions:

  1. Buying Channels - How well do you understand your company's use of buying channels?  How many buying channels are you using and is there an understanding of which type should be used for certain activities?
  2. Approvals - Is your policy the right size for each category? Are any of the policies forcing buyers to behave inefficiently?
  3. Supplier Selection - Do the buyers know which suppliers are approved and which are preferred?
  4. Compliance Method - How well does your organization verify if the transaction was valid?  How often are you finding that buyers are spending money that has not been approved in the budget?  How do you know that the item that you've purchased is compliant to the contract, not only the rate, but also regulation?
  5. PO Transmission - How many ways are your suppliers receiving their POs today?  How does this lead into the way you receive invoices?  Are the suppliers receiving their POs in the most effective way possible, especially when it comes to invoicing?
  6. PO Actives - Once the POs are sent out, how are they managed?  How can changes and cancellations be remedied?

After understanding your organization's current state in terms of people, process and technology, there are several objectives organizations can set to transform their eProcurement to be best in class.  Below are some solutions to the issues listed above:

Buying Channels:

  • EProcurement should allow for the ability to capture demand and purchasing through a single channel. Take a look at the different channels buyers have to utilize in order to determine what the company needs and what has been purchased.  Can the processes be consolidated or made more efficient?  Providing a "one-stop shop" environment for employees should be the ultimate goal.

Approvals:

  • A complete understanding of the approvals process is vital to the efficiency of any Procurement organization. Some organizations choose to run this process through a strict rules-based framework, which can often be archaic and tedious.  Rather, organizations should be encouraged to conduct a framework-based policy, which allows more empowerment to individual employees to make approval choices.
  • Approvals should differ depending on the category.  Certain categories require significant reviews before purchase and should have stricter approvals.  Other categories, for example, office supplies, are not as complex or impactful to the business and should have a higher dollar amount threshold before an approval is required.

Supplier Selection:

  • Ensure that your organization's buyers feel more comfortable with the differences between approved and preferred suppliers. Many times buyers are unaware of the difference.
  • Many organizations do not have a regulated process for new supplier set-up.  This should be relatively consistent throughout the organization so that all supplier information can be located.

Compliance Method:

  • Once a technology has been selected and implemented, organize contracts within the eProcurement system in such a way that creates a process allowing for price verification and matching on the non-PO items.
  • Each step within eProcurement should include ensuring the correct people and departments are involved when needed.  For example, certain legal requirements many need to be included in a sourcing event.  Legal should know they are needed early in the event, not at the last minute.

PO Transmission:

  • Take a look at how your organization determines whether or not an item needs to be purchased.  What process do buyers go through to understand the needs of a particular category?  (If your company does not already have this process well defined per category, please see previous blog "Is Your Procurement Organization Really Conducting Category Management?" for more information on Category Management).  Buyers should easily be able to find out if items are available within inventory.
  • POs should be sent out through one form, ideally electronically through a Procurement system.  Companies should no longer send POs through mail, fax or email.

PO Activities:

  • Often, vendors are paid differently for the same product within one organization as different buyers may have different relationships with the vendor or not be aware of the rates other buyers are using.  Effective internal communication is essential in handling this issue.  All the rates, payment methods, and other details should be classified for each specific vendor and all buyers should know exactly where to locate this information.

Now that we have discussed how to create an efficient eProcurement environment within your organization and the POs have been sent out, it is time to close the loop and pay your vendors.  Our next blog will cover how the buying channel should logically lend itself to the pay channel and make for a smooth invoicing process.  Stay tuned for more information on common mistakes companies make during Invoice and Payment, and how to remedy those issues.

Learn more about Nitor Partners at nitorpartners.com

Molly Wilson
Analyst

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Topics: eprocurement

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