What Is Procurement Software?
Procurement software (labeled as RFQ software or purchasing management software by some vendors) manages the purchasing processes within a supply chain. After using sourcing software to analyze current spending and potential vendor performance, these applications take over to finalize deals and initiate monetary transactions. As an important element of supply chain management systems, these systems help organizations efficiently manage their purchasing cycle times and maximize profit on every purchase order (PO).
Procurement System Features & Functionality
Procurement management software solutions can convert a well-researched sourcing process into successful purchase orders through user-friendly processes. This helps control non-payroll expenditures and thus support positive asset management over the long run. After reverse auctions, which can take place through public bids or multi-round private offers, the requisitioning phase begins. At this point, the supplies are bought via the system’s electronic purchasing capabilities. Once the order has been completed, the application analyzes receipts for invoice approval and reconciliation.
One of the obvious benefits of these applications and supplier relationship management systems in general is its ability to effectively manage the mass amounts of data that accumulate after an organization’s many purchases. Once purchasing terms have been agreed, e procurement software submits the information to all necessary parties for immediate approval, ensuring that the procured products can be delivered as soon as possible. For future reference, the program also stores these approval documents as well as the expense figures for each purchase, which will be used in the next sourcing cycle when the organization once again looks to cut costs.
Specific features of an electronic procurement system include:
|Selection & ordering||
Purchasing solutions organize product information in a format that makes it easy to compare products to make the best selection. Although this makes all purchasing decisions easier, where it really adds value is in the selection of commodities, where there are no variations in product features or quality.
|Purchase order approval & delivery||Organizing the data in one place makes it easy to identify product and purchase order approvals, ensuring that nothing is ordered without the right people knowing about it. They then deliver the POs to the vendors through their preferred delivery method.|
|Billing||As part of the billing functionality in these systems, it should match invoices to orders, and handle electronic bill paying as desired.|
|Spend data analysis||The business intelligence side of these applications analyzes purchasing trends and evaluates vendors to identify potential area to improve on economies of scale and otherwise improve negotiating position.|
Evaluating Procurement Systems
When evaluating purchasing software, it’s a good idea not to get caught up in the individual features of each product. Rather, look for something that matches your current and past use, that will simply expedite decisions you’ve already made.
One of the main decisions you’ll make in purchasing this program is to go with a traditional installation-based system or a software-as-a-service “e-Procurement” system. Procurement applications must handle compliance issues, including the Sarbanes-Oxley Act of 2002 which placed harsher regulations on accounting practices. That means you also need to ensure your application is SOX compliant - maintaining full and reliable disclosure in financial reporting.
Ask the following questions when evaluating solutions for purchasing:
- Does your department primarily manage direct procurement or indirect procurement? Does this system match those use cases?
- Is the application SOX compliant?
- How will this program support you in your commodity purchasing?
- What’s the PO approval and delivery process?
Recent Events and Trends
If anything, the recession has brought to light the importance of spend management solutions and how procurement automation can help bring down costs. It’s also presented a great opportunity for vendors to improve the functionality in their systems. Here are three news items that buyers should be aware of:
- The recession and MRO sourcing. Jason Busch, founder of Spend Matters, recently reported a key to success for departments looking to improve mro purchasing was staying a “good customer” with mro procurement partners. However, he added this is difficult for many, due to a 3 percent year-over-year decrease in spend on office materials.
- Vendor updates. Coupa’s Winter ‘12 Release consolidated its purchasing and expense management functionality into a single platform, updated its API, and added expense reports with split-line accounting. In April, Ariba announced that it would open access to the Ariba Network to Dynamics AX users. Verian updated its solution to version 10.6, with a majority of the update focused on improving data importing.
- New Pros to Know. Supply & Demand Chain Executive’s 2012 Pros to Know featured a number of individuals that provide procurement applications and spend analysis software systems: Drew Hofler and James Tucker (Ariba); Steve Brooke, Alex Kozak, and Rich Wilson (CombineNet); David Bush, Sean Delaney, Scott McBride, and Matt McCarrick (IASTA); and Erin Moore (ProcureStaff Technologies).