E-procurement is a process where companies order and buy supplies and services on the internet. Different from e-commerce, it uses a closed system, only accessible to registered customers and users. So, the major advantage of e-procurement is establishing a direct connection from buyers and suppliers, making it easier to interact and execute transactions such as bids, orders, and e-mails.
History of E-procurement
Firstly, the early stages of e-procurement were in the 1980’s, with the creation of the Eletronic Data Interchange (EDI). It provides a technical base for automating commercial transactions. That means that the EDI can envelop the whole interchange process, such as transmission, message flow, document format and software used, as It contains the same information passed trough paper.
EDI provide an alternative of replacement of information flows that happened on paper. It saves money as it can reduce costs of sorting, distributing, organizing, and searching paper documents.
With the EDI, companies began developing online catalog for vendors and involving suppliers and customers trough bids, purchases and orders. Now, it can handle from evaluation to contract management.
How does it work?
The main goal of e-procurement is to increase efficiency on acquiring products. To do that, companies need to establish connections with suppliers. E-procurement provides an easier environment for that. In other words, the process follows the connection of buyers and supplier’s trough a centralized online platform. So, on that platform, companies can:
- Evaluate potential partners trough requirements definition.
- Request information of suppliers, make proposals and quotations.
- Negotiate contract and implement it.
- Create requisitions, purchases, orders, and delivery schedules.
- Analyze spends and look for improvements.
The benefits of e-procurement
There are a lot of good aspects in e-procurement. For instance, it helps automating process and reducing manual labor from professionals, freeing time to concentrate in strategic functions.
In addition, as it centralizes transactions, making tracking and reporting easier while reducing rocurement cycles, as you can manage the whole operation in one place. So, automated systems optimize performance, help teams be less overhead and increase process efficiency and therefore, reduce costs.
Finally, it provides customers a larger selection of possibilities, from suppliers to items and services, because with a broader range of providers, its easier to meet the needs of the company.
And the challenges?
The greatest challenge of a e-procurement system is the implementation. Most important, it needs to be integrated to the company’s whole operation while maintaining contact with other enterprise databases and back-end systems.
After that, it’s important to train employees to use the system, on the contrary, even with a great system, efficiency and profitability will decrease. Employees must understand how the system operates and how to deal with it to ensure functionality.
Finally, the system only works when buyers and suppliers can work together to sustain the transition to a new system. Because, without co-participation on the process, the system won’t be as effective as it could.
Types of E-procurement
There are different types of e-procurement, depending on the specificity of the software used. They can be divided in three main categories:
- Enterprise Resource Planning (ERP): mostly responsible for resource planning and integrated data.
- E-sourcing: online system that can identify potential suppliers and evaluate them. More suppliers are connected, allowing buyers to find more attractive offers.
- E-informing: information exchange between buyers and suppliers. It mostly creates a database that can be consulted by the company.
E-procurement is a system and strategy that seeks to integrate buyers and suppliers on an online environment to optimize exchanges and automate the procurement area, that is, it leads to a reduction of costs, increase of efficiency, and therefore raise of profits.
There are different types of software that can integrate the e-procurement process, each with its own particularities and designated to a specific necessity. At the end, the major advantage of e-procurement is facilitating finding suppliers and connecting with them.