9 Procurement Process Inefficiencies (And How to Fix Them)
E-procurement provides a simple solution that builds bottom lines and reduces the many efficiencies that slow down organizational growth.
The Procure-to-Pay (P2P) process plays an increasingly vital role in business. We live in an era of tightening budgets and increasing demands. To survive, companies need to remain competitive while continuously innovating — no matter their size.
This means they need any added edge they can get. Fortunately, e-procurement provides a simple solution that builds bottom lines and reduces the many efficiencies that slow down organizational growth.
The pressing concerns of the procurement process are common in all businesses, big or small. Most of these issues are the result of companies overlooking the P2P process altogether.
At best, they only implement minor, disconnected improvements. Either way, replacing dated P2P systems with e-procurement software can reduce most of their inefficiencies.
The larger a company, the easier it is for manual processes to create major discrepancies in the procurement process. Some departments will have unique relationships with vendors or follow their own policies. This can lead them to miss out on leveraging company-wide orders for discounts and a better vendor relationship.
E-procurement keeps processes consistent. Because it paints a full picture of the P2P process in the organization, companies can leverage the size and frequency of their orders for discounts and faster deliveries.
In short, they can build better, lasting relationships over time that can benefit each party involved.
Failing to match invoices to purchase orders can lead to a host of problems, including double payments, penalty fees, and missed discount opportunities. Over time, these discrepancies can slow down your business and damage your reputation with vendors. Vendors can also manipulate prices, and with no clear system in place, you may pay more than you had originally agreed upon.
E-procurement allows you to quickly match invoices to POs, making it easy to check if the order is within your price tolerance. If the goods or services received don’t match the invoice, payment can be denied. While time-consuming when done manually, e-procurement automates this process for optimal results.
Dated P2P systems often have frustrating, overly complex requisition and approval processes. These processes require several steps that need to be completed accurately — with approval from the right, often very busy, authority first — before the requisition moves forward. As a result, it can take days, weeks, over even longer to go from a requisition to approval.
With e-procurement, you can automate much of the requisition and approval process. Instead of manually filling out, reviewing, and submitting forms only to wait for approval, you can establish automatic parameters. As long as the requisition fits those parameters, it will be automatically approved. And when it doesn’t, it gets flagged for detailed inspection.
Onboarding new vendors can be complicated. Without a streamlined procurement process in place, companies have no way of comparing vendor performance or cost. More so, there’s no way to assess risk or how they fit into your supply chain.
By establishing a clear onboarding process through e-procurement software, you can compile vendor details, assess risk, and compare them to their competitors. You can then use this information to leverage discounts and mitigate risk. You can also build lasting vendor relationships by establishing requirements and expectations.
Current procurement processes often function in siloed systems. As a result, C-level executives struggle to see any congruence in data points. Sure, they can see the overall spending, but it’s challenging to evaluate how strategic or necessary purchases are.
E-procurement pieces together a fragmented system, allowing a better picture of the procurement process. With more transparency, executives can gain a greater understanding of cost vs. waste. By reducing both, businesses can increase their bottom lines. More so, they can remain competitive because they’ll free up resources that can be used in other areas.
Any time you have multiple moving parts with people manually completing tasks, you’ll have a greater chance of error. Paper invoices present plenty of both. Additionally, they make it difficult to automatically check for errors.
E-procurement stores information electronically, removing the risk of data entry errors and speeding up the processing time for invoices. It’s also easy to check for errors without running reports or manually sorting through data.
Departments get general budgets they need to use, and employees can spend accordingly. However, maverick spending happens when these employees, intentionally or unintentionally, ignore company policy when making purchases. As a result, the company misses out on discounts and other benefits they could get when purchasing from vetted and preferred vendors.
Maverick spending happens due to a lack of oversight. E-procurement increases transparency. This means that there is more liability in the procurement process. With a digital record, you can easily track spending and see where missed opportunities caused by maverick spending exist.
If employees willingly violate company policies, they can be held accountable. More so, the use of e-catalogs and a streamlined digital process makes it easier for requests within established policies to be thoroughly evaluated before approval.
Paper invoices are a major pain point due to cost. The figures for paper invoices aren’t consistent except for being far more expensive than electronic invoices. The cost to process a paper invoice can vary from $12 to $40 per invoice, depending on the AP system’s complexity.
E-procurement automates invoice processing, reducing time, and the overall cost. On average, businesses can expect to pay around $3.50 to process a single invoice automatically. That is a drastic difference in cost.
The procurement process has multiple moving systems, from invoicing to payment processing. Larger businesses have more steps, processes, and typically more siloes that only serve to create more complex systems.
This can make processing invoices time-consuming and painstakingly inefficient. Often, businesses believe they have no other option and leverage potentially ruinous spreadsheets to fill the gaps. This only creates more problems in the long-run.
Using e-procurement allows you to connect these processes, optimizing more business workflows. Integration also speeds up processing and reduces error reduction. Employees no longer have to manually move data across multiple platforms, freeing them up for other tasks.
This allows you to collapse your back office while increasing efficiency. The result is a streamlined business that performs better than the competition and with lower overhead.
As your business continues to grow, your procurement process becomes more of a strategic — and valuable — business workflow. If you’re not careful, however, it can become a costly expense that gets in the way of your business growth. The key to success is to unify how procurement is done across your organization by connecting these systems and developing a standard. By avoiding common procurement pitfalls, you’ll set your business on a path to scaling your invoicing as you grow.
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