PURCHASING DEPARTMENTS PRIORITIES AND FOCUS FOR THEIR EPROCUREMENT STRATEGY "e-procurement tools are designed to support corporate procurement strategy. Fully automating the Procure-to-Pay process enables Procurement Department to create value by improving the control, transparency, tracking and visibility of company spend. Gérard Dahan, General Manager EMEA for Ivalua
e-procurement designates a set of integrated tools used to automate the procurement function as well as to support and optimize corporate transactional purchasing processes. Designed to help companies deploying their procurement strategy, e-procurement tools generate major savings and enable implementing better control, more transparency and improved visibility of company spend while ensuring a strict application of contractual conditions negotiated by buyers. These numerous benefits spanning from PO creation to invoice processing explain why Procurement Departments have been so keen on deploying Procure-to-Pay (P2P) automation systems over the recent years. Ivalua surveyed the Procurement & Finance Community to review eprocurement trends and practices within big international companies: What is the percentage of big companies using an e-procurement tool? What are Procurement favorite type of tool to manage procurement? ERP vs. specialized e-procurement solutions. What type(s) of spend is managed using e-procurement solutions? Direct vs. Indirect spend. What are the benefits of implementing an e-procurement tool? How can e-procurement tools be improved?
Survey panel The Trending in Procurement questionnaire entitled " eprocurement & Purchasing departments: where do you stand today? " was sent by email to a database of European and North American procurement and finance professionals and distributed in a paper format during the latest Ivalua events.. Eighty-four percent of participants belong to companies with a spend volume over 100 million euros. Geographical distribution of participants A total of 191 responses were collected and analyzed: 41% of respondents are located in North America (78 responses) and 59% in Europe (113 responses). Job title distribution of participants What is your annual spend budget?
ERP vs. e-procurement and the winner is! Has your company deployed an e-procurement tool? If so, what type of tool? The first e-procurement applications appeared on the software market over twenty years ago. Today, the adoption rate is high, particularly in big companies, where a majority of those who responded to the Trending in Procurement survey are located. Thus, 86% of respondents say their company has deployed an e-procurement tool. Of these, 60% indicate that the type of tool deployed is an e-procurement module developed by a specialized e-procurement provider, 20% list an e-procurement module that is part of an ERP system and the remaining 20% use another type of tool (primarily internal developments). This preference of Procurement Departments for specialized e-procurement solutions as compared to ERP functionalities is based on several factors:
Faster deployment and return on investment: the implementation of an e- Procurement tool takes weeks or sometimes months for complex projects, whereas an ERP system generally requires more time to be completely deployed and operational. Providers of e-procurement solutions thus enable the implementation of a purchasing IT system at a lower cost and within a shorter time. Procurement expertise and innovation: ERP vendors offer a generalist approach for all business management activities (finance, accounting, IT, etc.), but specialized e- Procurement solutions are built on specific procurement expertise. As compared to an ERP system, the knowledge of procurement best practices, the mastery of issues tied to the integration of a Procurement system within the company IT infrastructure and innovation are the three strong points of e-procurement solution providers. These advantages enable them to design, create and deploy applications that respond perfectly to the expectations of Procurement Departments. Complete functional coverage: since Procurement is a business operation overlooked by most of ERP vendors, it is often necessary to fill in the gaps in these systems by integrating and deploying functionalities that are outside the ERP system, such as the management of supplier catalogs and the supplier portal. e-procurement tools fill in these gaps by offering the Procurement Departments a complete tool that covers all their needs in a unique and integrated system, while still interfacing with the company ERP system.
Is e-procurement for indirect spend only? What type(s) of procurement do you manage in the eprocurement tool? For a majority of Procurement professionals, e-procurement is a tool designed to manage indirect procurement. Thus, 82% of the panel uses e-procurement tools for managing indirect procurement only. Among the respondents who say they use an e-procurement tool for managing their direct procurement, a tiny minority say they manage over 50% of their direct procurement with this tool. The proportions are reversed with indirect procurement. What % of DIRECT procurement is managed through your eprocurement solution?
What % of INDIRECT procurement is managed through your eprocurement solution? This difference is primarily due to the fact that direct procurement are most often recurrent, controlled and planned purchases. In industry, they are often generated automatically using MRP-type software (Material Requirements Planning). For this type of purchase, the buyer s work is oriented more toward strategic sourcing: finding good suppliers, minimizing the risk of supply disruption, promoting innovation and creating a notion of long-term partnership with the supplier, and negotiating several-year agreements. Nevertheless, some companies operating in the industry sector use the functionalities of e- Procurement tools for some direct purchases, in particular for intermittent purchase of products that can be "cataloged". In the service sector like insurance, where services procurement represent a large part of so-called "direct" spend, e-procurement tools are more widely used for this type of purchase. Specificities, in particular legal ones that are inherent in the purchase of services thus require certain adaptations that are not offered as a standard feature by most vendors today.
Benefits supporting corporate procurement strategy What do you think are the key business benefits associated with the implementation of an eprocurement solution? The business benefit tied to the implementation of an e-procurement solution most frequently cited by the panel (87%) is an improvement in the visibility of the overall purchasing process, from the purchase requisition to the invoice processing (Procure-to-Pay process). This increased visibility of company spend enables developing better knowledge of company purchases, optimizing the supplier panel, grouping and sharing orders, detecting savings opportunities by spend categories or by supplier and, in the end, obtaining the best commercial conditions during negotiations with suppliers. The second benefit cited by over 70% of the panel is time saved by employees when looking for or buying an item. The implementation of an e-procurement tool means that Procurement Department enable employees to create a purchase requisition in just a few clicks, quickly find the desired product while following the company procurement policy, and shop within the framework of the supplier contracts. Saving time and ensuring better application of framework agreements are not possible unless the e-procurement tool is user-friendly and intuitive. A fluid purchasing experience similar to that found in the B-to-C world (Amazon, ebay, etc.) and fully controlled by employees has a strong impact on the rapidity with which the e-procurement platform is adopted, on the reduction of maverick spend and, consequently, on the control of company spend. Time saved is also important for buyers, who can transfer order creation tasks to the employees who place the orders, allowing them to refocus on their strategic activities.
Which feature(s) have prompted you to implement an eprocurement tool? The two e-procurement functionalities most often cited by the panel as having prompted them to deploy an e-procurement tool are the provision of negotiated of products / services catalogues (90%) and the configurable validation workflows (PO, Catalogues 70%) The availability of a supplier or product catalog enables controlling costs by channeling the purchasing requests of employees toward existing contracts negotiated by the Procurement Department, thus leading to the savings expected from negotiations. Traditionally rather reticent, suppliers have well understood the advantages of providing e-catalogs. More and more of them are making their products available in the form of a punch-out catalog that enables the Procurement Department to increase the amount of spend related to framework contracts. The implementation of automatic workflows is also an important factor (70% of the panel) in choosing the implementation of an e-procurement solution. The workflow functionality is a source of efficiency and productivity and facilitates collaboration between employees and the various company services in charge of procurement processes. Automatically triggered by predefined administrative rules from the Procurement Department (specified cost limits, type of products or services, suppliers, etc.), workflows enable supervising the role and responsibilities of each participant, as well as defining a hierarchical validation circuit in agreement with the procurement strategy.
Ways to improve What are the areas of improvement of your eprocurement solution? The two main means of action available to the Procurement Department for improving their e-procurement tool are the integration of the entire Procure-to-Pay chain (71%) and an increase in the rate of coverage for indirect spend (55%). Integrating the Procure-to-Pay process Procure-to-Pay process covers budget management, catalogs, purchase requisitions, orders / deliveries and the process of reconciling supplier invoices. All these functionalities must be deployed in a technologically homogeneous environment to maximize performance gains and the return on investment of an e-procurement platform. When the various functional blocks (or modules) come from different providers (niche or specialized providers), special attention must be paid to their integration with each other. In this case, Procurement Department would do well to carry out gradual deployment, which is longer but enables stepping up adoption as each module is integrated.
Covering 100% of indirect spend categories Since the management of indirect spend came under the scope of action of Procurement Department later than direct spend, their coverage rate is often lower (from 60% to 80%, depending on the sector). Although over 80% of respondents to the Trending in Procurement questionnaire say they use an e-procurement tool for managing indirect spend, on average, only 54% of total indirect spend are covered by their tool (see: What part of your indirect spend is managed through your e-procurement solution?). The deployment of an e- Procurement tool can provide invaluable support for Procurement Department looking for better coverage of indirect spend categories; in particular, they enable concretizing the purchasing process used for certain types of purchases (purchase requisition, workflow, catalogs, etc.) and channeling purchase orders made by employees to products "in the catalog".
CONCLUSION e-procurement has become an essential part of the Procurement function toolbox, as demonstrated by the high rate of adoption by purchasing department from big companies. Integrating the entire Procure-to-Pay process is a priority for Purchasing Departments, as well as enlarging the categories of purchases managed by their tools. However, the choice of an appropriate e-procurement tool is complex, and success in deploying a solution rests on several criteria: A user-friendly interface with a short learning curve that offers a user experience similar to that of B-to-C shopping websites. End users must be able to order simply, using just a few clicks, in order to discourage them from making purchases outside catalogs. A purchasing strategy oriented toward covering a maximum of indirect spend categories to maximize financial gains tied to the deployment of an e-procurement tool and thus to increase ROI. The possibility offered by the software providers of managing the entire Procure-to- Pay process on just one platform, including budgets, catalogs, purchase requests, orders, delivery and invoices.
About Ivalua Established in January 2000, Ivalua is one of the leading global vendors in Spend Management Software today. The company s software suite Ivalua Buyer covers the whole Spend Management spectrum, from supplier relationship management to spend analysis, with e-sourcing, e-procurement and invoice management in between. Based in the US and Europe, Ivalua has successfully implemented more than 150 projects within large international companies in all sectors, enabling Ivalua to demonstrate strong growth while remaining profitable since its creation. Ivalua solutions have been widely tested and adopted by several tens of thousands of users worldwide. Thanks to its ecosystem of partners, Ivalua supports its clients with a wide range of services and content integrated within its solutions. For more information, visit www.ivalua.com or contact us by email on info@ivalua.com