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When and why it's time to consider an automated procurement system
Procurement is a fast-moving process, essential to effective business operations, large or small. After all, the key purchasing factors that make up “the 5 rights of procurement” (the right quality, quantity, place, time, and price) require many tedious tasks, market research, negotiations, approval processes, and an overall high level of coordination–especially if your organization processes hundreds of transactions. These factors measure the performance of your purchasing process and help make the case for transitioning to automated procurement systems, as technology has the power to standardize and simplify complex business purchasing while speeding up processes.
What is procurement automation?
Purchasing and procurement professionals spend most of their time:
- Maintaining documentation and ensuring best practices for data storage and management
- Managing suppliers and contracts
- Implementing processes that enable successful purchasing operations no matter the size of the business
- Ensuring cost containment and compliance with company policies and procedures
If these tasks are carried out manually or on paper, there is certainly a high volume of repetitive, time-intensive tasks, and a level of risk involved with the potential data loss and human error associated with these procedures. Policy compliance is difficult to enforce, and the time spent deciphering where processes have gone awry, and to what end can quickly ramp up hours of administration. As organizations grow, and employee needs expand, so too does an organization’s indirect spend. When processes, budgets, and expenditure start becoming unmanageable, and more and more unauthorized purchases occur, and overspending becomes more apparent, this is a clear indicator that a solution is required to streamline processes, implement approvals and controls, and drive accountability.
Procurement automation enables purchasing managers to improve process efficiency, and gain visibility and control of these key areas of procurement while cutting their processing times in half. They can leverage improved, automated processes and centralize data management to promote better informed decision making and a more agile procurement strategy.
Procurement automation completely transforms the procure-to-pay process while reducing costs and processing times. It keeps your business operations efficient, enables scalability, and promotes a cost-conscious and responsible spending culture.
5 Benefits of automated procurement systems
Before we talk about the top five areas to automate in the procure-to-pay cycle, here are five reasons why an automated procurement system is so important in today’s procurement landscape.
1. Increased productivity
Automated workflows keep your procurement function moving. Numerous email threads and manual spreadsheet checks can be replaced with automated workflows that route requests to approvers in order of authority, and track expenditure against budgets. Collaboration between remote and distributed teams is easy and automated, moving requests along effortlessly with reminders and notifications that prevent bottlenecks and expensive delays, reducing your organization’s purchasing cycle time by as much as 30%.
2. Greater spend visibility
Automated procurement systems enable greater spend visibility in multiple ways. They provide digital audit trails of the dates, times, actions, users, and supporting documentation associated with each transaction. Historical spending data can be reported on and analyzed, giving you the tools to identify problematic areas that need more spend control, and to uncover saving opportunities. You’re equipped to better understand spend predictability, and to forecast, and budget more effectively.
3. Eliminates human error
Leveraging an automated procurement system—one that simplifies data entry and centralizes documentation significantly reduces human error and offers more accurate reporting.
By integrating your automated procurement system with an ERP or accounting system, you gain end-to-end efficiency and accuracy, ensuring that all purchasing workflows are tracked, approved, compliant, in budget, and accurate prior to being released for payment from the financial system.
4. Lower costs and more savings
An automated procurement system is a necessary resource for any company looking to maximize efficiency and profitability. Every business will achieve significant cost and time savings from day one thanks to automated features that eliminate:
- Time-consuming paper-based or manual processes
- Repetitive tasks
- Process bottlenecks
- The margin for human error
- Lost documentation
By reducing the number of admin-intensive tasks your team has to carry out, you do two things. You eliminate the need to hire seasonal or temporary staff—especially if you have a smaller team with limited resources. Secondly, you give your purchasing staff the ability to prioritize strategic initiatives like:
- Procurement process improvements
- Data analysis to identify saving opportunities
- Negotiating better contract terms and pricing
You can easily reduce the time and costs associated with processing, qualify for bulk and early settlement discounts, and gain access to better pricing by leveraging your purchasing data via easy, on demand system-generated reports.
Automated approval workflows that escalate based on policies, thresholds, and delegation of authority ensure that compliance is maintained for all purchasing processes. This establishes purchasing parameters, and the system enforces compliance via configured internal controls.
Risk management is streamlined and you’re able to protect working capital, improve spend management, and ensure adequate cash flow by eliminating:
- Rogue or unauthorized spending
- Fraudulent purchasing activities
- Wasteful spending behavior
Optimize these 5 business-critical processes with an automated procurement system
1. Purchase requisitions
A fundamental process in any business, but one that can cause the most delays and issues if the process is not defined or enforced. By automating the purchase requisition process, you can rest assured that all goods and services are requested, tracked, and justified. By routing requests via an automated procurement system, each request is subject to defined budget and policy compliance checks. Low-value, unauthorized purchases can no longer slip through the cracks and silently eat into your budgets. Visibility and proactive controls are in place to guide and monitor all spending processes, while making it easy for staff to comply by equipping them with mobile, user-friendly software.
2. Approval workflows
By automating approval workflows, you remove the unreliable paper forms or email threads that cause frustrations and process bottlenecks. Requests no longer wait in unattended inboxes, or get delayed by approvers that are out-of-office. With automated procurement systems, all requests are routed according to defined approval structures, from simple to multi-level hierarchies that manage risk and ensure authorization. Managers are empowered to review budgets and approve with confidence, on any device, wherever they are.
3. The purchase order cycle
Getting purchase requests approved, generating, and sending POs, while ensuring they don’t get lost along the way is a tedious process. Despite having a formal purchase order process in place, many businesses state that it is often undermined by inefficiencies in the purchase order management cycle, such as inconsistent or unauthorized purchase requisitioning. Automated procurement systems solve this by automating and centralizing the entire purchase-requisition-to-PO cycle and enabling collaboration between relevant departments to deliver greater process efficiency, productivity, and savings.
4. Invoice workflow management
Relying on manual invoice management is a risky business practice today. With all the documentation that needs to be linked and verified—from purchase orders, to receipts, and complex spreadsheets, coordinating these efforts across distributed operations with no visibility or centralized documentation can add weeks to the AP process.
By leveraging an automated procurement system for invoice workflow management, you can centralize documentation, avoid data loss, streamline invoice approvals and matching, and eliminate the risk of duplicate invoices, overpayment, and late payment penalties.
5. Supplier approval and management
Taking on a new supplier can introduce significant savings but it can be a lengthy process to get these vendors onboarded and approved. Even once approved, it’s important to keep tabs on supplier contracts to measure their performance and ensure that you’re getting the full value of your agreed upon terms before you renew or terminate.
Within an automated procurement system, you can ensure that all purchasing only occurs with approved suppliers. In order to purchase items, employees must select from a system list of approved suppliers or submit a new supplier for onboarding and approval by a purchasing manager or administrator. By enforcing this process within an automated procurement system, you can eliminate the risk of rogue spending.
You can further streamline and enforce this process by setting up quoting policies, maintaining internal catalogs, or integrating PunchOut catalogs with approved suppliers. This not only stops rogue spending in its tracks, it directs all spend to contracted or authorized suppliers that offer the best value, and ensures that all purchases are subject to a requisition-to PO and approval process.
Gain a competitive advantage with an automated procurement system
Automation is key to effective procurement operations. Fraxion’s procurement solution scales as your business grows, streamlining processes, and guiding and empowering all users to purchase responsibly and spend wisely. The automated procurement system makes it easy to transition from manual or paper-based processes by simplifying and accelerating purchasing workflows with an easy-to-use interface and automated workflows. Request a demo of Fraxion today to see how you can get more done in less time, and ensure transparency, compliance and spend control in your purchasing process.