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Home : Articles : eProcurement : Procurement

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PROCUREMENT

In many business circles, the word procurement gets tossed around a great deal. However, many people simply don't fully understand what the term means or how it can be carried out efficiently and effectively in the Internet age. With costs skyrocketing and competition heating up in all industries, success depends on developing effective procurement strategies.

To begin with, an understanding of the term procurement is necessary. Procurement, in general, is simply the act of obtaining something. An individual can procure credit or a new car, for example. In business, procurement usually refers to purchasing the direct and indirect supplies needed to keep the company running and for most companies is tightly linked to the supply chain.

At one time, procurement was done either by physically visiting a store and placing an order or by weeding through several catalogs and phoning in an order. Both of these ways were inefficient. Today, more businesses have turned their procurement activities toward the Internet because it provides so many benefits when done correctly.

Online procurement generally involves three main steps. First, a select group of suppliers is chosen by the buyer to do business with. By using only a few suppliers, the buyer is able to leverage their purchasing power more effectively and, therefore, can get better deals on their goods. Also, by limiting the number of suppliers, the buyer is able to focus on building a relationship with those vendors and to work on developing mutually beneficial arrangements that save both sides money in the long run. Second, businesses focus on consolidating their purchases. Again, this step allows businesses to further leverage their purchasing power, particularly if they have a number of separate departments or locations that used to do their own purchasing. Once this step is put in place, all of the business's purchases are directed towards the select suppliers. Finally, most of the procurement processes are automated. With an online procurement system, an employee who needs an office chair can go to the Internet, browse through the chairs available from the select vendors, place their order in real-time, have it sent automatically for approval, then delivered to the supplier for fulfillment. The entire process can be completed in a matter of minutes instead of hours or days.

Online procurement systems are effective simply because they involve a number of features that make purchasing simpler for businesses. These systems usually support the creation of online catalogs containing goods from multiple suppliers, so employees only need to consult one place to find the items they need, instead of dozens. Many of the programs also offer several ways of communicating with select suppliers so that the buyer can choose the method most appropriate to their needs. Generally, email, electronic data interchange (EDI), and automated fax are the preferred options. As mentioned above, online procurement does automate most of the purchasing process, including approval. Systems can literally send purchase orders directly and automatically to all individuals who need to approve them, then once approved, they can be automatically sent to the vendor for fulfillment.

Once a business switches to an online-based procurement system, they can begin seeing benefits immediately. The administrative costs for each purchase are significantly reduced because most of the paperwork is handled by the programs running the system and not by employees themselves. Plus, the time between the placing of the order and its delivery are also reduced because the automation streamlines the sharing of the necessary information. Also, since purchases are consolidated, it makes it easier for businesses to keep track of their purchasing budgets and to track incoming deliveries since there are fewer transactions and suppliers to follow. Furthermore, when employees realize firsthand how convenient and cost-effective the new procurement strategy is, they will be less likely to make purchases through non-contracted suppliers, thus saving businesses even more money.

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