Part 1 of Electronic Procurement we discussed a ‘Quick Return on Investment’, and ‘Noticeable reductions in costs’.
In Part 2 of this 3-part series, you will continue to learn why digitizing your procurement process is no longer a luxury, but essential in the Procure-to-Pay (P2P) process for reducing costs and optimizing spend management.
The following are reasons three & four, of six, that will make for a convincing business case to push digitization of your procurement processes.
3. Less maverick buying
We’ve discussed this at length in several previous posts (Click here to view posts on our Website). Lower purchase prices already make a difference, but alone they are not enough to support your argument for electronic procurement. However, you may attract managements’ attention with a term which originally describes a lone wolf but unfortunately also a common form of employee purchase behavior: ‘Maverick’. Maverick buying is a term that describes when an individual makes purchases independently without following standard purchasing processes.
This maverick buying results in significantly higher costs because the purchase is done outside of existing contracts, agreed upon prices and payment terms. Reasons for maverick buying typically relate to a difficult or slow purchasing process. Regardless of the explanation, experts find that it increases purchase costs by up to 15%. This figure varies between companies of course, but it becomes evident that we are not talking about a small increase let alone any potential legal implications.
Finding ways and processes to limit maverick buying will save your organization significant and unnecessary costs. Where companies succeed in increasing the number of controlled purchases, the effect is quickly noticeable in the form of lower costs and increased added value.
4. More streamlined processes
Faster ROI, lower purchase prices, less maverick buying – you already have a few key points that support your case for digitizing your procurement process. One more is missing though, and that’s the effect of electronic Procurement on the overall procurement processes. Take a step back and look at what eProcurement means. eProcurement is the electronic creation and validation of orders, while exchanging purchase documents with suppliers. And that process happens after approval workflow/routing-controlled procedures. In other words, eProcurement is the end of cost consuming manual processes. Electronic Procurement provides a faster, more transparent system for purchasing and makes sure you’re guided systematically through the purchasing process.
eProcurement allows you to decrease your process time, stay compliant, make fewer mistakes and take advantage of rebates and discounts which will, in turn, improve your relationship with your suppliers. It allows you to avoid redundancies, which will reduce your vendors and make your process much more straightforward, efficient and better. In fact, every single electronically controlled procurement process increases the added value and with it the ROI. Additionally, eProcurement releases the workload from the purchasing department and enables them to spend their time tackling tasks with higher added value such as negotiating lower purchase prices.
How can you support this with figures? Again, the Association for Supply Chain Management, Procurement and Logistics (Bundesverband Materialwirtschaft, Einkauf und Logistik e.V.) provides us with insightful data. It has conducted a study showing that the introduction of an eProcurement solution will lower the process costs in purchasing by an average of 30%. However, this requires the willingness to leave traditional paths and embrace ‘innovation’, with new technologies, methods and procedures.
Mark your calendars for the QAD MWUG’s Spring 2017 Conference, scheduled for March 19-21 at the Henry Hotel in Dearborn, MI., and be sure to stop by our sponsored booth to learn more about what we can offer on eProcurement and AP Automation; key components in the Procure-to-Pay process…!
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