Procurement can be a cumbersome, complex business process for anyone. In Texas, like so many other things, it’s just bigger.
Several years ago, the Texas Comptroller wanted to centralize the purchasing activities of the 3,700 state and local agencies. The organization first tried to tackle the problem by creating a procurement portal with on-premise software. Unfortunately, it required years of integration work and the resulting system was sluggish and difficult to maintain.
It’s an all too common scenario. Growth breeds complexity. As businesses grow, so do their supplier networks and with it their internal procurement processes. Selecting and managing a growing volume of suppliers, as well as the employees authorized to purchase goods and services, can be a major challenge. Without a plan to guide employees through the process, procurement can become a chaotic, inefficient and costly problem.
Doing procurement well means finding the right suppliers, with the right goods, delivered at the right time and price. But it can also be time-consuming and inefficient. That is particularly true when procurement is done manually, and requests for goods and services are handledthrough phone calls, emails, paper catalogs and faxes. Mistakes in setting requirements or selecting vendors can cause delays in production, unhappy customers and loss of business.
How can you ensure your procurement managers make smart purchasing decisions that meet corporate requirements?
The first step is to document the key requirements all suppliers should meet. Without guidelines, procurement managers will use their own criteria, which may not align with the company’s goals. The guidelines don’t have to be lengthy. Even five requirements will serve as a framework that managers and other buyers can use to evaluate vendors and products.
The next step is to automate some or all of the procurement process. Procurement software and ecommerce portals both have features to automate most manual tasks – from invoicing and approvals to best practices. They also help procurement managers make better decisions by giving them access to a lot of information on the vendors, their products, and their track records.
The Texas Controller ultimately replaced its on-premise procurement system with SuiteCommerce Advanced and created a more user-friendly purchasing portal that was more efficient, and faster, than the in-house version. The payback has been significant. The Comptroller’s office expects a 33% growth and $22 million in net benefits over five years.
Indeed, procurement and ecommerce applications make it easier to keep track of buyer/vendor communications and to enforce compliance by requiring that purchases be made only through contracted vendors, and set different spending limits and types of purchases based on the user’s job role. The automated workflow can be set to require approvals at different stages of the purchase and customized to meet the firm’s own policies and requirements.
Cloud-based procurement and ecommerce applications are good options for companies that don’t want to invest in a large in-house procurement system. They don’t require a large upfront investment or any extra IT staff, because the software and hardware are owned and maintained by the cloud provider.
Cloud-based procurement portals also facilitate collaboration between buyers and sellers thanks to the fact they don’t require any special client software or integration work and are easily accessible to all parties. Some cloud-based procurement software is agnostic in terms of the ERP systems they can connect to, so are affordable and easy solutions to the problem of supplier communication.
Finally, realize that a successful procurement solution is a balance of people, processes and technology. Software alone won’t solve all the problems, especially if the underlying processes are conflicting or poorly defined, or the procurement managers lack an understanding of the company’s best practices or how to use the software. Start slow, get good processes in place, and begin automating a step at a time. The important thing is to get started.
Author: Ranga Bodla, Wholesale Distribution Lead, NetSuite
For more of Ranga’s thoughts on procurement, listen to the webcast, Procurement Challenges for the Small Company.