Virtually every company hoping to become an industry leader either plans to or already has utilized software solutions. According to PwC’s 2022 Digital Procurement Survey, 77% of companies are using source-to-pay digital solutions. Read how digitalization can benefit your organization, no matter the industry.
Defining Procurement Software
Procurement software is a set of tools that helps automate and centrally manage a company’s purchasing process and related agendas, such as sourcing, vendor and supplier relationships, invoicing, and inventory tracking. It also provides immediate access to procurement analytics.
Procurement systems focus on creating and approving purchase requisitions and orders, communicating orders to the suppliers, and confirming that they follow through with delivery according to the contracted terms.
Modern solutions also support out-of-the-box integrations or API connectivity that allows for communicating with other platforms for even more comprehensive management of procurement functions.
Ultimately, dedicated purchasing software helps avoid miscommunications, inefficiencies, and delays in the P2P cycle and therefore optimizes spending and increases revenue.
There are two main groups of procurement management software: all-in-one independent solutions or add-ons for ERPs and accounting platforms. Different solutions vary in terms of what features they have to offer, but every comprehensive procurement system should generally cover the following areas:
- Supplier and vendor management;
- Contract management;
- Document management, processing, and storing;
- Request and approval workflow;
- Invoicing automation;
- Inventory management;
- Reporting and analytics; and
- API integrations.
Procurement software is typically used by dedicated procurement professionals or financial specialists in companies with complex purchasing agendas.
Consider Using Procurement Software When…
Software solutions are designed to meet the various needs of responsible procurement and financial specialists, CPOs, CFOs, and other stakeholders. For many companies, especially the rapidly growing ones, there comes a moment in their life-cycle when it’s time to consider approaching procurement strategically.
The key reason for implementing procurement software is being overwhelmed with tasks in a manually managed purchasing cycle.
Sourcing goods via phone calls, registering requests and orders in spreadsheets, and approving via emails are examples of manual procurement management. It can be exhausting and costly, and result in numerous mishaps due to the human factor.
The general procurement process is relatively straightforward and includes the following steps, which may be done consecutively or spread out over time:
- Employees submitting purchase requisitions
- Researching vendors and suppliers
- Sending out requests for proposals to suppliers and selecting the best offer
- Contracting with vendors and suppliers
- Issuing a purchase order and paying for the purchase
- Receiving goods or services and conducting three-way matching
- Archiving documents for analytics and auditing
With everything done manually via emails, calls, or in spreadsheets, these straightforward processes can turn into hours of tedious work that drains human resources. In addition to this, it’s hard to hold people accountable for mistakes or fraud due to lack of traceability or transparency.
Managing procurement manually can also lead to an unclear division of duties and responsibilities when, even within one department, several people might end up processing the same purchase order simultaneously.
The procurement department stagnates when it has to deal with repetitive tactical activities or put out fires instead of purchasing strategically with innovation opportunities in mind. With inconsistent purchasing activities, it’s nearly impossible to get insights into the general process efficiency and find room for improvement.
This is where having a procurement system comes in handy.
Numerous Benefits of Procurement Software
Technology can make a significant impact on a company’s procurement agenda.
Procurement software allows companies to streamline their purchasing process without making compromises. Not only does it help to improve the efficiency of particular operations, it also makes strategic procurement possible.
There are many benefits of incorporating a procurement management solution into your existing business management toolset. Let’s see what they are.
Eliminate Inefficiencies of Manual Processes
Procurement software solutions let organizations automate their workflows and standardize supply chain processes that are already in place. Automation transforms supply chain tasks that are quite frustrating when done manually, like selecting the items for purchase, processing the order, filing the invoices for further audit etc .
Customized templates within procurement software allow for fast and error-proof issuance of documents. Information on the documents is mostly prefilled, so there’s no need to prepare new documents from scratch or engage in repetitive data entry.
Plus, software saves time by generating and pre-filling documents using data that it captures from relevant documents or settings within the system. Procurement specialists can save themselves hours of work that they can instead reinvest into other urgent or strategically important tasks.
With an automated solution, it’s also possible to build approval workflows so that checking and approving these documents becomes even easier. The tool will ideally take documents through the necessary levels of approval based on spending thresholds and managerial roles.
Last but not least, using procurement software reduces human errors, which are unavoidable with manual data input but not a danger with digital automation.
See and Analyze Spending Habits
Procurement software serves as an all-in-one storage for documents and transaction records, enabling users to generate accurate and up-to-date reports quickly and conduct accurate spend analysis.
Modern solutions typically offer standard sets of reports on invoices, purchase orders and requisitions, suppliers, budgets, and inventories. Some software also enables users to create their own custom reports.
With that, procurement specialists have instant access to whatever KPIs they need to see at any given moment. Analytics are crucial for building procurement strategies and evaluating their success, as well as for discovering gaps in the source-to-pay workflows.
Increase Productivity
Procurement software enhances a team’s productivity in two ways.
To start with, it offers comprehensive information on the current state of operations: How long does the complete procure-to-pay cycle take? Are documents sent for approval to the relevant user? Are there any bottlenecks? How dependable are the suppliers?
Procurement software highlights weak spots in the current procurement workflow and, accordingly, can be customized to adjust for them. If a task – let’s say, approving a purchase order – can be completed in 30 seconds via two clicks, procurement software helps to ensure that it is. Everyone involved will then be notified of the PO status change.
Being able to track document statuses in real time is another advantage. Filtering out tasks that require attention immediately allows users to deal with them in the most efficient way.
Secondly, productivity stems from completing the maximum number of tasks in the shortest time without compromising quality. Procurement officers can enhance productivity even more by combining several orders into one: based on the types of goods, suppliers, delivery logistics and so on.
This might also make it possible to negotiate a discounted offer for the wholesale order.
Improve the Bottom Line
Cost control is among the top priorities for many companies. Procurement software helps organizations be as profitable as possible without sacrificing the final product quality.
With the supplier management system in place, procurement officers can request quotas and receive several offers simultaneously, scrutinize them, and choose the best ones. Having analytics conveniently on hand also lets companies weed out untrustworthy suppliers and prioritize the ones who meet procurement needs.
Automating procurement functions and introducing regular stock control allows organizations to reduce costs by avoiding maverick spending.
Using procurement software, managers get prompt alerts on requests that exceed budgets and on any suspicious transactions. Early interception of problematic spending minimizes financial losses.
Saved finances can be reinvested into strategic business development, new product research and manufacturing, employee benefits, and many other areas.
Streamline Communication – External and Internal
Procurement software enables better internal communication between procurement teams and different departments.
Updates on order status or document approvals are available instantly to every user. Automated notifications are typically also sent through outside communication channels like email or Slack. This way, users can avoid unnecessary inquiries, prevent duplicates, and respond or react more promptly.
These solutions also help with communication between a company and its external partners, such as vendors and suppliers.
Advanced procurement solutions offer suppliers secure portals to access their information and items. By utilizing a supplier management tool, organizations minimize informational noise and avoid misunderstandings or mistakes. Contract lifecycle management also becomes more transparent when both negotiation parties are on the same page.
Ensure Compliance with Organization Policies
Procurement software allows managers to standardize purchasing processes and implement and sustain working guidelines compliant with company policies. Purchasing guidelines designed in the procurement software make workload distribution more transparent and help clarify responsibilities to the procurement specialists.
Customized approval workflows serve as checkpoints for the procure-to-pay cycle and ensure that nothing can be ordered or purchased without relevant approvals.
All stages of purchasing are safer with a tool that controls data, deadlines, and the approval process. Procurement software becomes a single point of accountability. It helps to ensure that purchasing is done transparently to meet the company’s business objectives.
Increase Operational Transparency and Reduce Fraud Risk
When procurement is managed in a software solution, every transaction is easily tracked at any given moment. Users with granted permissions have complete visibility into contracts, requests, orders, and invoices anytime to ensure they meet company policies.
Setting user permissions guarantees that no information is altered without the required approval, and any interference is easy to track back to the initiator.
These precautions may seem complicated at first, but they do enhance the financial security of the company, help prevent fraud, and save time that might be otherwise spent on investigations.
Procurement software is an efficient, transparency-enhancing tool that helps resolve many transactional disputes or, even better, prevent them from arising in the first place.
Manage Risks
Procurement software helps mitigate risks. It’s easy to notice actions being completed out of order when every procure-to-pay step is planned and tracked.
Using tools, easily monitor purchasing processes to identify the risk events, understand their origins, and evaluate possible impact.
With analytics at hand, managers can communicate risks to everyone involved in procurement and introduce risk-mitigating practices stemming from real-life numbers and events.
Analyze, Predict, and Strategize
Analytics are invaluable when it comes to evaluating the success of procurement functions. Business intelligence data helps companies understand if implemented processes are efficient and what can be improved.
Spend data analysis and supplier performance analytics help decipher whether the organization gets the best available deals for goods and services. Analytics are also helpful for planning, as any forecast starts with evaluating the current state of affairs and the industry trends.
Data helps procurement professionals source and purchase strategically, manage supplier relationships well, and move steadily toward the company’s business goals.
Integrate to Build a System
Modern procurement software typically includes integration options that let users build a comprehensive tool stack for automating data exchange between departments and with external partners.
An example would be integration of procurement software with an external accounting system for better document registration, simplified bill payment, and thorough budget control.
Procurement Software Saves Resources
Let’s look at the standard procure-to-pay process to see how procurement software helps organizations save money and time.
1. Selecting goods and services
Procurement officers typically have to go through the catalogs of each supplier separately to see if they have the required goods, contact them to confirm availability, and then compare available options manually.
With this kind of selection process, purchasing specialists face the risk of delays in research and communication, misunderstandings, and ultimately could miss out on a good deal.
Instead, procurement managers can introduce software that maintains centralized information on companies, contracts, and up-to-date item databases. When updated regularly, the databases are beneficial for the initial goods selection process.
With centralized and up-to-date information in the procurement software, they can instantly filter and evaluate available items, select the best offer, and quickly move on to requesting and ordering.
2. Creating a purchase requisition
With procurement software, creating a purchase requisition takes only a few minutes. Whenever a document has to be created, users just add new information about the specific purchase to the prefilled template, and it’s good to go.
Within the tool, the purchase requisition is instantly available to anyone authorized to view it; there’s no need to send the document via email, let alone print and sign it physically.
3. Authorizing the purchase
When approvals are done manually, it’s not uncommon to have all documents – whether of $10 or $10,000 value – sent for review and confirmation.
But procurement automation tools speed up and simplify purchase order approval. With customized approval workflows, the procurement team can be sure to receive the confirmation from the responsible team member in the fastest way.
Approvers won’t get overwhelmed with low-priority purchasing requisitions and orders. They can even set automatic approvals (within certain limits). Sophisticated systems also allow the responsible users to assign primary and backup approvers. This way, only the necessary documents will be submitted and routed through the system to the designated user or their backup.
4. Placing an order
It’s critical that each purchase order has the correct information, because after the supplier confirms, it becomes a legally binding document. Procurement software with prefilled templates improves the level of accuracy, minimizes human error, and reduces the overall time spent on purchase order creation.
Such software also typically allows users to send purchase orders to the suppliers automatically via email or access them through the supplier portal. Suppliers can review and respond by confirming the order or raising an issue with it.
Any status change or comment is automatically reflected in the software, which also incorporates a notification feature. This allows procurement officers to react promptly, collaborate centrally in the system, and easily notice any change or question.
5. Receiving goods, invoice, and reconciliation
After receiving goods or services, the purchaser compares them against the initial order and makes sure that price, quality, delivery time, and other details specified in the purchase order comply with the contracted terms.
Or in case of a spot buy, which is often unplanned and done without a contract, buyers only check received goods against the relevant purchase order.
When doing all of this manually, the procurement team must also send emails or make calls to request receipts and invoices, and, in some cases, must print and file them physically.
By contrast, procurement software ensures related documents are interlinked and available for review simultaneously. Digital solutions also include three-way matching in a centralized system so that can be done smoothly.
An added bonus is that centralized reconciliation is safer, as it’s less prone to mistakes, misplacement or loss of documents, or even intentional fraud.
Check These Out
There are numerous procurement software options available on the market. Any business – from the small family-run company to the large international enterprise – can find one that suits their needs the best.
The main goal of procurement solutions is to make basic procurement processes, such as requesting, ordering, paying, and receiving goods, easier for employees. But there are no two identical solutions: each stands out in its own particular way. Let’s look at a few.
SAP Ariba
SAP Ariba makes procurement and cooperation with suppliers easy and smooth, allowing them to share and synchronize plans and capacities. SAP Ariba’s supplier platform is quite well-developed in terms of tracking the stock for buyers to see and so on.
This tool can be enhanced by integrating various solutions for supplier management, sourcing, financial supply chain management, etc. It also supports direct integration with SAP ERP, widely adapted across industries and other non-SAP ERPs.
With a strong international presence, SAP Ariba claims to have regional requirements built into its procurement solution and to offer users access to the global business network, where buyers can access numerous suppliers.
It has many clear advantages, but keep in mind that SAP Ariba is a complex system that requires: a) significant investment to set up and b) customization to make the most out of it.
Spendesk
The spend management platform offers centralized control and, at the same time, decentralizes employee spending. With individual spending limits and approval roles, department heads can control every transaction within the set budget.
The software incorporates secure, trackable payment options, including virtual and physical cards, that help teams exercise better control over spending. Plus, the finance team has access to real-time, consolidated payment data, which allows them to control cash flow and anticipate supplier payments.
Spendesk‘s customers report that they save, on average, 4 full days of the finance team’s work per month by automating purchase requests and approvals.
Precoro
The procurement software for all companies, from SMBs up to Enterprises, and suitable for every industry, Precoro helps structure and simplify the daily procurement routine, centralize and streamline the entire procurement process.
Companies using Precoro report 98% spend under management. According to the reviews, users are also able to approve documents 2.5 times faster by creating an unlimited number of custom approval workflows and utilizing automated emails and Slack notifications.
Precoro provides invaluable insight into your organization’s procurement operations by offering a custom report builder with over 150 fields and 20 filters.
Putting It All Together
Procurement software helps automate and centrally manage the purchase-to-pay process and related agenda, significantly streamlining and speeding up procurement operations. Organizations typically consider implementing dedicated software when they’ve grown enough that procurement becomes too complex for manual management.
Purchasing officers can be overwhelmed with repetitive manual tasks, reducing productivity significantly and increasing the probability of mistakes. It’s also unsustainable to manage complex procurement processes manually in the long-term, as planning and predicting are hardly possible, and data is difficult to extract, systemize, and analyze.
Automation eliminates manual processes inefficiencies, enhances procurement analytics quality, improves the organization’s bottom line, helps manage risks, and makes managing suppliers easier. And there are plenty more benefits to procurement software depending on your company’s needs and which tool you choose!
By integrating procurement software with other platforms, you can create a comprehensive environment for centralized management of procurement process stages – from sourcing to payment reconciliation.
Numerous procurement software options are available on the market for companies of all sizes across various industries. Whatever specific needs you are looking to cover, there are suitable procurement tools to be found.
