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5 Ways to Cut Costs with E-Procurement

Using the Internet to purchase goods and services isn’t new, but the concept of “e-procurement” has matured to the point where automated procurement is seen as a cost- and time-saver for many organizations. In Save Time, Money, And Improve Supply Chain Management With E-Procurement, author Karl Schmieder defines e-procurement as a process that allows buyers and sellers to connect electronically via the Internet and through information networking systems such as electronic data interchange (EDI).

E-procurement systems are available on-demand or as Software-as-a-Service (SaaS) and can be used in every stage of the buying process, allowing agents to direct spending via purchase orders to preferred suppliers, manage catalogs from multiple vendors, and contract prices quickly and accurately with a seamless user experience. According to Schmieder, features of e-procurement systems can include purchase orders, purchase order template management for easy reordering, purchase order confirmations with tracking links, advanced ship notices, and comprehensive order management, along with user access across the organization.

Lower costs, please

Reduced costs are one of e-procurement’s biggest draws. According to a recent Computer Weekly article Polish up your purchasing with e-procurement, such savings generally go straight to the company’s bottom line and are therefore in a different category from the benefits gained through increased turnover, for example. The article points out that e-procurement related cost savings are not guaranteed, and notes that badly thought-out or badly implemented systems “can prove both a huge cash drain and a serious disruption to trading.”

Bill Michels, president of ADR North America and senior vice president of the Institute for Supply Management
Bill Michels, a senior vice president for the Institute for Supply Management (ISM) and president of Tempe, Ariz.-based procurement, learning and sourcing consultancy ADR North America, says there are many ways for electronics buyers to leverage e-procurement to cut costs. Here are five of them:

  1. Hold suppliers accountable with structured templates. Use e-procurement templates and your suppliers will have to answer specific questions and input information into your firm’s preferred format. “They’ll have to dot their i’s and put the numbers in the right place or their bids won’t go through the right way,” says Michels. This, in turn, saves time for buyers and allows them to conduct quick, accurate bid analyses.
  2. Remove the “wiggle room” of more traditional bidding. With e-procurement, your RFPs can be structured in a way that removes any wiggle room or doubt on the suppliers’ end. “When using e-procurement systems, vendors have to be more disciplined about the data and information that they provide,” says Michels. By including prompts that ask suppliers to select terms (30-, 60-, 90-days) before moving onto the next form field, for example, buyers can assess their options and select the vendor that not only offers the right price, but also the most agreeable terms.
  3. Consolidate the supply base. Michels recently worked with a chemical company that purchased more than 4,500 SKUs from 900 different suppliers. “Judging the quality and performance of that many suppliers was very difficult,” says Michels. Using an e-procurement system, the company was able to quickly cull through its options (using various purchase scenarios, for example) and come up with a “top 10” vendor list for specific parts and equipment.
  4. Tap into the e-auction trend. E-auctions aren’t exactly at their peak of popularity, but “they still have a time and a place,” says Michels, who recently helped a company use an e-auction—where suppliers go online and bid against one another in real-time—and save $1.1 million on office supplies. Especially useful for commodity items, e-auctions tend to work best in situations where supply has outpaced demand. “Used for the right items,” says Michels, “e-auctions can save companies a lot of money.”
  5. Leverage global scenario planning. Using data generated by their e-procurement systems, electronics buyers can develop effective “what if?” scenarios that, in turn, can be used to make more efficient purchasing decisions. Many e-procurement programs also have multilingual and multiple currency capabilities that enable and support global purchasing. “These programs translate the information, present it in the desirable, useable format,” says Michels, “and wind up saving buyers both time and energy.”