A Hitchhiker's Guide to e-Procurement: An Introduction
Mostly Harmless, Part I
e-Procurement, while commonly used, is often misunderstood and confused with e-Purchasing, EIPP (Electronic Invoice Presentation and Payment), P2P (Procure-to-Pay), and even e-Sourcing. Thus, this brief guide will define what e-Procurement is, isn't, and how it relates, or fails to relate, to e-Purchasing, EIPP, P2P, and e-Sourcing.
This guide will start with a definition of e-Procurement and then go on to cover the basic cycle. Along the way, it will discuss some benefits, challenges, and best practices while differentiating between the procurement of goods and services in the public and private sector when required. Finally, it will end with some advice on how to accurately cost a solution and determine the potential value such a solution offers.
Simply put, as per the e-Procurement Primer, eProcurement is the counterpart to eSourcing, starting where eSourcing ends and ending where eSourcing begins. It is the "e" implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods and services as opposed to the analysis, auction, and award that takes place in the (e-)sourcing cycle. It is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer's time (that should be spent on more strategic value-generating activities), but one that comes with increased enterprise level visibility of all purchases.
The e-Procurement cycle, which can consist of up to nine steps (as defined in the doctor wants to remind you it's sourcing and procurement), starts where there sourcing cycle ends and ends where the sourcing cycle begins. At a bare minimum, it will generally consist of an order, an invoice, and a payment. However, the process can also include authorization, goods receipt generation, reconciliation, tax reclamation, and analysis. Depending on the purchase in question, the (e-)Procurement cycle will generally contain three or more of the following nine steps:
- Requisition (& SOW)
- Approval
- Purchase Order
- Goods Receipt
- Invoice
- Reconciliation
- Payment
- Tax Reclamation
- Analysis
In addition, the e-Procurement process may also involve some regular catalog or contract management to keep catalogs and pricing schedules up to date between sourcing cycles.
The next set of posts in this series will explore each stage of the procurement cycle and the requirements that are placed upon any solution that claims to be e-Procurement.
Next Post: Requisitions, Part I
Categories: Procurement Innovation, Sourcing Innovation
Tags: eProcurement P2P EIPP Mostly Harmless
Your introduction to this series contains a common misconception about e-procurement: namely, the notion that procurement clerks are somehow going to transform from form-filling and button-pushing robots into brilliant analysts performing "strategic value-generating activities." That ain't gonna happen, not now, not ever. And, as has been proved over and over again in implementation after implementation, you're not going to fire the (supposedly) now-idle clerks, either.
Even the e-procurement vendors have stopped claiming that there are any savings or other advantages accruing from the man-hours supposedly reclaimed from procurement clerks, although this was a major claim of theirs back in the day.
No. You're reading between the lines. When I say that "it is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer's time" I'm not implying that your form-filling and button-pushing robots are going to transform into brilliant analysts.
Some, with training and guidance, will transform into good category managers, good negotiators, good supplier relations managers, and good analysts. Some won't. If more than 2/3rds of your tactical buyers cannot be elevated to a more strategic, productive, and profitable role in the organization, they will have to be reassigned to another back-office function or laid off. And if you don't have the balls to do what needs to be done for the benefit of the organization, that's not my problem.
My goal with this series is to explain what e-Procurement is, what you should be looking for in a solution, what challenges you'll encounter along the way, what best practices you should be adopting, and what benefits you'll see. Even without "analysis", you can still see significant savings that not only result from efficiency improvements (of 66% or more) and the reduced manpower costs, but from reductions in human error (every time a clerk fat fingers a PO, Invoice, etc. hours and hours are lost trying to track down and correct the error), [unapproved] maverick spending (which not only result in spend above contract rates, but often cause volume thresholds, with associated rebates, to be missed), and quick opportunity identification (when all the spend goes through a central system, it doesn't take long to see when a new category or supplier should be put under contract, even without advanced "analysis" skills).
The reason the e-Procurement Vendors have stopped claiming man hour savings is two-fold. One, only the leaders make it happen (who are generally the top 10% of the market willing to do what it takes to achieve those savings). Two, the real savings come from better processes, better practices, reduced maverick spend, and more data for analysis.
And since I assume you're reading this blog because you are, or want to be, a leader ...