The procurement process is an essential part of every business. Automating the procurement process can help businesses achieve their goals and objectives while freeing up employees to focus on more important tasks.
Procurement is all about obtaining the goods and services needed by the business to achieve its goals. It’s a crucial part of any business, starting with how it can help save costs. It also helps with risk and compliance management, improved supplier performance, and shorter sourcing cycle times.
But this process can be significantly enhanced with automation. Not only will procurement automation help with all the previously mentioned goals, but it can also improve the understanding of the requirements of all the business units. It can better identify the best suppliers, monitor vendor performance, and negotiate contracts with vendors more effectively.
How Procurement Automation Works
Procurement automation software is designed to streamline and automate the entire procurement process from start to finish. It can be used for a variety of tasks, including requisition management, contract management, supplier management, and more.
This software can automate all the steps in the procure-to-pay process, such as requisition approval, supplier selection, purchase order creation, and invoicing. It can also automate the entire sourcing process, from RFP creation to supplier selection to contract negotiation.
Typically, the procurement process of a company goes something like this:
- Identifying the business requirements (goods and services) of the various business units
- Identifying and evaluating the vendors of those business requirements
- Negotiating the contract with the vendors
- Making and submitting the purchase requisition (PR), and after the PR is approved, releasing the purchase order
- Receiving and then inspecting the goods and services upon delivery
- Processing the payment of the vendor against the invoice
- Documenting the purchase process
Problems with Old-School Manual Procurement Processes
All these steps seem simple enough, but when done manually, they can lead to several issues.
- Greater risk of data inaccuracy and inconsistency
- Greater risk of fraud
- Greater risk of uncontrolled or unaccounted spending
- Extended process cycles with more delays and bottlenecks, leading to lower employee satisfaction and lower productivity levels
- Excessive paperwork
- Inadequate vendor management
What is Procurement Automation?
Procurement automation is the use of technology to automate the procurement process. It replaces the tedious, paper-based processes with end-to-end electronic workflows.
Procurement automation can be especially helpful in the following areas:
- Contract approval
- Vendor management
- Purchase order management
- Invoice management
- Purchase requisition management
How Does Procurement Automation Help Businesses?
Procurement automation can help businesses in many ways. Here are some of the most commonly cited benefits:
The Approval Process is Faster
In manual procurement processes, a lot of the delays can be attributed to problems during the PR and PO approvals. But these PR and PO approval processes can be automated. This allows for fast placement of orders and shortens the ordering cycle time.
Spend Management Becomes More Efficient
To start, automated procurement processes provide more accurate records and updates on past purchases, contract statuses, order history, and supplier quotes. A well-functioning procurement automation system can keep tabs of these elements to then give a clear view of expenses. This data will be useful for various management decisions.
It Results in Greater Trust and Reliability in Supplier Relationships
It can be incredibly disruptive if a company keeps on changing its vendors every few months. The changes will necessitate a new contract, and then monitoring the suppliers has to start from scratch. Obviously, it’s much more efficient to maintain a long-term relationship with reliable suppliers.
But for that to happen, there has to be transparency and trustworthy disclosure. Automated procurement helps with that, as it can allow for clear real-time communication between the company and its suppliers. This clear, real-time communication allows for easier tracking of the order status, significant savings in costs and time, and quick resolutions for grievances.
An automated purchasing system also offers greater responsiveness. This means buyers can quickly assign the order for the best quote, while suppliers are also fast in responding to the bids.
It Offers a Centralized Data Repository
By using automated procurement software, the company maintains centralized access to all relevant data, consisting of every contract. This also means that terms and conditions can stay consistent with multiple suppliers and that all guidelines are uniform throughout every contract.
It Enhances Overall Productivity
First off, the automation deals with all the repetitive and redundant steps in the procurement process, which frees employees from these mundane tasks so they can apply their skills more productively elsewhere.
Employees can also access needed information more easily, without having to deal with several different systems to gather the necessary data.
Basically, procurement automation boosts efficiency but also offers complete control over the entire procurement cycle.
Best Examples of Helpful Procurement Technologies
Here are the technologies your company should adapt to boost your procurement processes:
AI and Machine Learning Technologies
These technologies allow procurement software to act more like humans in evaluating data. At the same time, these systems can adapt and learn, becoming more effective and more efficient over time, with faster and more accurate results.
Micro-Services and Low-Code Automation Platforms
In layman’s terms, when you use a procurement automation system that doesn’t need any coding skills, you’re making your procurement department less reliant on the IT department. Also, it would be advantageous to use automation software that is flexible enough so users can interchange various applications depending on business needs.
Cloud-Based Procurement Software
This procurement software can reduce upfront investments and overhead while boosting real-time information sharing. The applications can be accessed more easily if they’re built on the cloud.
The Bottom Line
Procurement automation has become a necessity for every business that wants to stay competitive. By automating the various tasks and processes in procurement, businesses can enjoy better efficiency, greater transparency and trust, more productive employees, and enhanced control over the entire procurement cycle.
To reap the full benefits of procurement automation, businesses should adopt AI and machine learning technologies, use micro-services and low-code automation platforms, and go for cloud-based procurement software.