The purchasing process is sourcing and procurement
Sourcing and procurement are English terms used on a daily-basis by purchasing departments. While sourcing is indentified correctly as the selection of best sources of supply – covering such activities as collecting requisitions, standardization and receiving offers leading to negotiations and and supplier selection – procurement is a term that is often defined inaccurately.
In the purchasing process, procurement begins when a requisition is created, and continues through purchase of goods and services to payment and settlement activities. In general, sourcing relates to the business activities aimed at selecting the supplier, while procurement is associated with purchase order completion under concluded agreements.
Procurement automation is more than just creating a purchase order and recording an agreement
As far as sourcing is concerned, electronic tools that support and automate the process (such as electronic requests for information, requests for proposal, electronic auctions) have already been widely used. In the case of procurement, however, it seems that the IT tools potential has not been fully exploited yet. Of course, we are not referring to purchase orders or agreements being entered into ERP systems, but to an active purchase orders, agreements management or automation of invoices and payments settlement. This conclusion has been drawn from the results of the survey conducted by Marketplanet among purchasing managers during the 2015 Procon/POLZAK Conference.
Computerization of the purchasing area goes far beyond the creating of purchase orders and recording agreements.
It is possible to effectively manage the process, from purchase to payment, using an electronic E-Procurement system, which helps to organize and systemize the processing of requisites and to control compliance with the corporate purchasing policy. Additionally, it saves time related to recurring purchases. The system’s important management value also includes verification of procedures effectiveness against the plans, budget control or the possibility to monitor the purchase order on each stage of its completion.
One of the tools of E-Procurement is an electronic catalogue, i.e. a standardized base of products and services offered by a supplier, which reflects the negotiated commercial terms. E-catalogues, created based on purchasing indexes, explicitly identify an object of the purchase without the need to develop any specifications. Therefore, the time needed to cover the demand is reduced, while the risk of errors related to, for example, the terms of delivery is limited.
Another useful E-Procurement tools is a 3-way matching. It is an incredibly functional procedure aimed at verification of invoices received by a company. The entire process allows for an automatic control over the compliance and integrity of information contained in three documents: a purchase order, a receiving document and an invoice. What is subject to automatic verification is the compliance of data relating to the object of the purchase order/invoice, its quantity, unit price and payment as well as receipt terms. The aim of 3-way-matching is to ensure that data on a received invoice complies with an actual purchase order and delivery. Upon such a procedure, an invoice may be further processed for accounting and payment.
What are the benefits of automated procurement for your company?
The benefits in favour of the implementation of en E-Procurement system include:
- Automation of the purchase order process allows for accelerated completion of business needs while reducing operational costs
- Cost and processing savings resulting from the elimination of paper documents
- Increased control over the entire process
- The ability to monitor a purchase order on each stage of its completion