The Value of E-Procurement

Every business owner understands the importance of saving money wherever and whenever they can, but business owners also understand just how hard saving money can be.   When you are running a business, the demand for money can seem never-ending, and simply meeting the payroll every month can become quite a challenge.

Fortunately there are some proven methods business owners and others can use to save money while making the most of their supply chain.  One of the most effective of these money saving strategies is known as e-procurement.

E-procurement is simply the process of sourcing supplies online, and this simple strategy can result in significant savings for virtually every business.

In order to illustrate this important concept, consider the following example:

         If your business is lucky enough to enjoy a 10% profit margin, saving $1000 through e-procurement methods would equate to making a $10,000 sale.

         A business with a profit margin of 5% would have to make a $20,000 to achieve the same results, while a 2% profit margin would make that $1000 equal to a whopping $50,000 worth of product sales.

The bottom line is easy to understand – using online e-procurement methods is a great way to cut costs while at the same time improving productivity and customer service.

There are many words that get bandied about in the world of business, and at first blush e-procurement can seem like just another useless buzz word.  In fact, however, e-procurement is far more than just another term, and this proven method can result in significant cost savings for your business.

E-procurement is sometimes also referred to as e-sourcing, or as online procurement, and it simply refers to the process of placing orders with suppliers over the internet, rather than the more traditional methods of telephone and mail ordering. 

The actual methods used in e-procurement can vary quite a bit depending on the nature of the business, the type of industry and the individual needs of the business owner.  For instance, a large company may institute a complicated supply chain management system that addresses every aspect of the manufacturing process, from raw material to finished products.  These supply chain processes can become quite complicated, and they may integrate with other processes, such as automated inventory tracking, business monitoring and enterprise resource planning (ERP), used in the day to day operation of the business.

While these complicated supply chain management systems can be great for large businesses, smaller companies may not be able to afford the type of proprietary software and systems required to run such a system.  It is still possible, however, for those smaller enterprises to take advantage of the money saving power of e-procurement.  The beauty of the e-procurement system is that it can be tailored to meet the needs of virtually any business.

E-procurement can be broken down into two distinct types – direct procurement and indirect procurement.  Direct procurement is used to secure the raw materials that are used to produce goods.  This type of procurement would include a furniture manufacturer using e-procurement to purchase lumber.  Direct procurement generally uses a limited number of suppliers, and rather large orders which are made on a regular and ongoing basis.

Indirect procurement is the other side of the e-procurement coin, and these types of relationships can be quite different.  With indirect procurement, the suppliers are generally chosen on a case by case basis, depending on the goods being ordered at the time.  Examples of indirect procurement can include computer equipment, training services, office furniture, office supplies and the like.  The materials gathered through indirect procurement are typically not used in the manufacture of finished products.

Indirect procurement purchases are typically small orders, spread out over the course of the year.  These orders may be initiated by many different people within the organization, and may be spread out over many different departments and operational units.

While indirect and direct procurement are quite different, the centralized management and control provided by an e-procurement system can benefit the company just the same.  The cost savings provided by e-procurement strategies accrue to the organization regardless of the types of goods, who orders them or there purpose within the company.