E-procurement: definition, benefits and how-to guide

By Indeed Editorial Team

Published 2 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies regularly seek to maximise their profits via any means possible, such as the optimising of operations. The process of e-procurement, or electronic procurement, is another viable option pursued by companies of varying industries. Understanding electronic procurement is critical as, when done correctly, it can lead to lucrative profits, better operations and enhanced convenience within the company. In this article, we explain what electronic procurement is, what its benefits are and provide a step-by-step guide on how to accomplish it successfully.

What is e-procurement

E-procurement is a digital transaction that takes place over the Internet. It refers to any instance in which an individual or company utilises the Internet to buy and sell deliverables, whether that's products or services. It occurs by using web interfaces or networked systems to allow operations.

The electronic procurement process uses the closed system of a supplier. This means that only those with permission to access the system, such as registered customers, can gain the benefits. This creates a direct connection between supplier and buyer. It can create either a business-to-business (B2B) or business-to-consumer (B2C) relationship.

Related: How to define your target market: examples and types

Benefits of e-procurement

Electronic procurement is a useful process to implement within a business' selling strategy. This is because it offers a vast range of benefits that both seller and buyer reap. Here are its primary benefits:

Streamlines current operations

One of the most common benefits of electronic procurement is how it streamlines the current operations of a company. This is because it saves time and increases the overall levels of productivity internally. As a company has all of its online buying and selling processes in one uniform system, it's easier to resolve problems before they escalate.

Automates procurement processes

Another electronic procurement benefit is how it automates a company's procurement processes. This means that it's easier to sustain cost-effective operations on a more consistent basis. Companies can utilise a broad variety of automatic procurement software that reduces the necessity for monotonous activity.

Shortens purchasing cycles

Electronic procurement also offers the advantage of shortening the overall purchasing cycle. This is good for businesses as it allows them to get the necessary goods and materials on a much faster level. This reduces operation downtime, leading to increased rates of productivity and higher profit rates.

Creates information transparency

Another benefit of electronic procurement is how it creates information transparency for the company and its suppliers. This newly transparent information is useful in many ways, such as identifying consumer behaviours. Companies can also identify supplier consolidation opportunities and leverage buying power.

Saves company funds

Electronic procurement also provides companies with a reliable way to save money. This is largely because it eliminates many of the costly errors that occur when selling and buying manually. The company's other departments can reinvest these saved funds into other essential areas, such as marketing and advertising.

Enhances inventory control

One of the more attractive benefits of electronic procurement is how it enhances the inventory control of a company. Optimal inventory management is essential for a company because they can track the status of various goods and use this information to make better business decisions. This tool also enables them to reorder goods automatically when stock is low.

Diversifies deliverable selection

Another benefit of electronic procurement is how it diversifies a company's selection of deliverables. These can be products, services or both. Diversification of deliverables is useful because it increases the number of goods and services that a company can offer to its consumers, improving its attractiveness as a seller.

Limits maverick spending

The final benefit of electronic procurement is how it helps to limit maverick spending. Maverick spending is any purchase that doesn't correlate with the parameters of the contract or business strategy. It's critical to limit these purchases, as it not only minimises wasteful spending but also ensures you're meeting contractual compliance.

Related: How to become a procurement manager, with tips and examples

How-to accomplish electronic procurement

Electronic procurement is a simple process if you understand how to do it. The process itself comprises five steps. Here are the five steps of the process:

1. Online information transferring

Online information transferring is the first step of electronic procurement, sometimes called e-informing. Online information transferring occurs in any traditional procurement cycle. It's the stage of the cycle wherein an exchange between internal company units and external suppliers occurs. This step allows the company to streamline the rest of the process.

2. Online sourcing

Online sourcing is the second step of electronic procurement and is also referred to as e-sourcing. Online sourcing occurs when the company identifies all of its potential suppliers based on a predetermined list of requirements. From there, the buying company creates a shortlist of suppliers, with those making the list proceeding to evaluation. The company's procurement figures or executives are the ones that typically execute this stage of the process.

3. Online tendering

Online tendering is the third step of electronic procurement and is also referred to as e-tendering. Online tendering is part of the procurement cycle, wherein the company requests further information from its shortlisted suppliers. This includes proposals and quotes. Like the previous stage, online tendering is also a part of the evaluative process.

4. Online auctioning

Online auctioning is the fourth step of electronic procurement and is also referred to as e-auctioning. Online auctioning is an important stage of the process as it's the stage wherein a contract is agreed upon between all involved parties. They also negotiate prices at this point. It's known as the auctioning stage because multiple companies compete against one another to secure a contract with the same supplier.

5. Online product ordering

Online product ordering is the fifth and final stage of the electronic procurement process and is also referred to as e-ordering. This step relates to the development and subsequent approval of requisitions. The purchasing company places its order with its chosen suppliers. Once the goods have arrived, the company completes the procurement by indexing the contract for easier access at a later date.

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Tips for electronic procurement

If you're considering becoming involved in the electronic procurement process, there are some practices you can do to maximise and simplify the process. This makes procurement easier and more effective. Here are some tips to remember when undergoing procurement:

  • Invest in planning: Investing adequate time, energy and resources into planning the procurement process is well worth it. This is because it allows for better coordination across the five electronic procurement steps and a stronger procurement strategy.

  • Perform market research: Performing market research is integral to the success of any company's procurement. This is because you can make better business decisions because of understanding more about the current state of the market.

  • Prepare a bid: Preparing a strong bid solicitation prior to the procurement process is useful for any company seeking suppliers. This is because a robust bidding plan provides the company with clarity on what type of supplier they're seeking.

  • Master the selection: Mastering the selection process is another essential element of procurement. This is because it streamlines the rest of the process and makes choosing the most suitable supplier stress-free and efficient.

  • Monitor ongoing performance: Monitoring ongoing performance is another useful practice to invest time and energy in. This is because it allows companies to reflect on their procurement strengths and weaknesses for improvement next time.

  • Close with confidence: Closing with confidence is critical for successful procurement. This is because it helps to strengthen relationships with suppliers and increases the chance of fruitful procurement by gaining the trust and respect of these suppliers.

Related: How to get customer feedback with methods and tips

Uses of electronic procurement

Electronic procurement is a process relied upon by most companies regardless of their industry. The industries that most commonly utilise electronic procurement processes are those that rely on a regular income of quality goods, such as the manufacturing industry. It's a versatile process that's adapted by the company to suit their specific selling or buying needs.

There are many ways that you can use this form of procurement and it ultimately comes down to what the company's primary goal is while they either seek a supplier or seek to supply another company. Here are three of the most common uses of the procurement process:

  • buying goods and services through another supplier

  • selling supplies to a company seeking them

  • controlling the procurement process via automated means

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