What is Procurement Software?
Procurement software refers to a computer program or collection of programs that enable organizations to use automation to execute purchasing processes, order management, inventory management, supplier management, contract lifecycle management, and invoice management. The software applications integrate with your enterprise resource planning (ERP) platform, whether Oracle, SAP, or another option. Many systems also allow for better supplier relationship management, since everything is kept in a central location that anyone can access based on their user permissions.
The more robust procurement management software on the market will address these functions:
- Creating purchase orders based on need, added to the system by the appropriate staff.
- Verifying purchase orders with line items to be completed by a supplier.
- Submitting pending purchase orders to the appropriate staff for approval or rejection.
- Automate electronic purchase order submission to suppliers.
- Generate reminders to confirm recent purchase orders or cancellations.
- Maintain an inventory of goods that prevent shortages.
- Execute financial and inventory-related transactions as goods, materials, and services arrive
- Collect data and conduct trend analysis to improve and maximize profits
- Streamline standardization and administration across multiple platforms.
How Procurement Software Compares to a Traditional System
With a traditional procurement system, the purchasing process is more time consuming and has a greater potential for error. It works like this:
Someone determines a need. If a vendor has been used before, the process moves a bit smoother, as the purchaser completes a purchase requisition form and sends it to the necessary department head for approval. It may also be sent to accounting for approval, and to the IT department to ensure the items are compatible with current systems and technology in place.
After the requisition is approved, the purchaser completes a purchase order form and sends it to the supplier – usually via email or fax, but sometimes through the postal service.
If the product or service hasn’t been purchased before, or if a supplier is being used for the first time, company policy regarding quotes must be followed – especially if it is a high dollar item. In this case, the purchaser has to send requests for quotes (RFQs) to multiple vendors, wait for quotes to be returned, make their choice, then send a purchase request for approval, with quotes stapled to it. Then, after approval, the item is ordered. In some cases, vendors may enter into a contract with the company, meaning terms must be negotiated and contract management must be implemented to ensure compliance.
Once the order arrives, it’s checked for accuracy. Invoices may arrive with the order or may be sent separately. The accounting department must receive both the invoice and confirmation of delivery before it can be processed for payment.
Under a traditional system, this process is completed manually. Using procurement software, on the other hand, allows a great deal of the process to be automated, and all of the process is electronic. This saves time and reduces error potential, thereby saving the organization money.
Every organization has unique needs its e-procurement system, and not all procurement software solutions are created equally. That’s why it’s important to look for the basics all companies need, with the flexibility to adapt to what your business needs throughout the supply chain.
What Look for When Choosing E-Procurement Software
When shopping for the right e-procurement solution for your company, ensure it at a minimum has the following features:
The software needs to be user-friendly and intuitive enough to make training your team easy. If you find they struggle with any elements in the process, it will be frustrating for everyone. Not only will they have to continue asking for help, but the company will lose time working through making sure everyone is properly trained. Forms need to be easy to file, and it shouldn’t take more than a click to send them to any or all involved parties.
All departments in the organization need to have budgets and spending limits in place, to assist with the approval workflow. Everyone should have real-time access to their current budget. As long as the staff stays within those parameters, workflow automation (see below) is possible. If there is ever an instance where departments must over reach those parameters, there needs to be a system in place to re-route the request to the necessary approvers, along with justification for the request. Including budget data in the system also allows for easier and more accurate spend analysis to take place, so you’re always sure about what money is going where.
Automated Approval Workflow
One of the biggest problems with a traditional procurement system is the reliance on humans for approval – meaning they look at the paperwork as their schedule allows. Choose an e-procurement solution that will make it easy to set parameters for approval based on spending and budget limitation by individual and/or department, to automate the approval process without human intervention. For instance, all purchases under $100 that are not electronics are automatically approved and converted to a purchase order that’s sent to the vendor with a click.
All system integrations should be seamless and in real-time. The process for sending a purchase order to the accounting system is programmed within the software to be automatic and happen immediately as the button is clicked. When the automation is set up correctly, no one has to worry about where a purchase requisition, purchase order, or invoice needs to go. This real-time conversation between various parts of the program should also keep departments aware of their budgets at all times, and purchases should be charged automatically to the corresponding department. This prevents rogue spending because no one will be able to exceed their budget.
In today’s flexible work environment where people can work from a central office location or remotely, with any number of hours, your organization must be prepared for the remote work that occurs outside the office. Even if you’re not currently setup for employees to work remotely, it’s best to prepare for the option in the future. Any e-procurement software you choose needs to have remote access abilities for mobile devices, for anyone in the organization with permission-based access.
Speed and Flexibility
Since every organization is unique in terms of what they need from their procurement software, there will be kinks to work out during the set-up process. However, your set up should be able to be done quickly; it should not take months to complete. Once your organization decides to make the switch to an e-procurement platform, the software should ideally be fully deployed within a month – with all the flexibility your organization requires.
Benefits of Procurement Software
Using procurement software comes with a number of benefits, such as:
- Cost savings – both in time spend and manpower
- Error reductions
- Reductions in maverick spending
- Real-time full transparency throughout the process
- Streamlined procurement processes
In the end, making the switch to procurement software and eliminating paper-based and manual processes is all about saving the organization time and money. The initial investment and adoption may make it hard to calculate the savings right away, but the speed of procurement processes, along with the reduced need for human activity and intervention are things to consider in your case for adoption.
When it comes to the software system you plan to use, it’s a good idea to talk to business users outside your procurement team, as well, so you can get their input. You’ll definitely want to include your team in the selection process so you end up with a purchasing software that people will actually use.