Everyone wants to find a way to reduce costs, as companies have wrung out every dollar they can. Lately, we've found pockets of well-run firms but with a potentially huge opportunity. Automating the procurement process, also known as electronic or eProcurement, in a company that buys $20 million per year in goods and services can save anywhere from $500,000 to $1 million-or, in some cases, more.
Gartner Inc., the leading survey and research organization for business, has posted several studies on automating purchasing and found tremendous opportunity from as low as 5 percent to a high of 15 percent or more.
Here's a typical scenario: A company has only paper processes, and all employees can order what they want, when they want. This creates several problems. Staff may be purchasing above their spending limits, there's no volume purchasing discounts in place, and the accounting department isn't aware of the accrued liabilities the company is incurring for the next month.
Compounding the problem are companies with multiple locations that perform similar functions or with similar products. We've found clients that purchase the same product from multiple suppliers with different terms and certainly at different prices. The end users are unlikely to negotiate or ask for special discounts along the way. The Gartner study points to two specific areas of improvement in business value. First, automating the process and reducing the paperwork will reduce the cost of processing and reduce the number off checks, POs, and fax costs. The second area is in taking advantage of volume discounts, preferred vendors, and price-term concessions.
What types of solutions can be put into place? An eProcurement Solution usually includes:
o An eCatalog, where your preferred vendors can put their pricing and items.
o Workflow component to route approvals through the system.
o Integration component to connect to the back end accounting packages.
o Electronic forms for purchase orders, accounts payable vouchers, and receivers to accept the inventory.
o Business rules component, which sets spending limits by level and shows the hierarchy of approvals.
o Off-site image solution (optional) to store the images so you won't have paper on site, but immediate online Web access to the documents.
Additional benefits of the automated solution include:
o Management control of the purchasing process.
o Enforcing business rules and approval levels.
o Reducing the time required to process purchase orders and AP vouchers.
o Reducing the number of checks issued, as the vendor checks are consolidated prior to check cutting process.
o Reducing the accounting department requirements to process the vouchers and checks.
o Cash management-by knowing ahead of time the accrued liability, accounting can better predict of actual cash requirements to plan better with the banks to manage liquidity. IBI