purchasing departments priorities and focus for their

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 eProcurement 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 eProcurement 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 eProcurement 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 eProcurement 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-toPay 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
[email protected]