Enterprise Resource Planning (ERP) systems bring disparate parts of a business into one secure, centralized place. Procurement professionals and managers with the right access can tap into a plethora of data and resources that help improve procurement process efficiency, lower costs and find any contract or order status in just a few clicks.
What Is the ERP Procurement Process?
An ERP system is a software system that brings together many business functions, including accounting, order management, inventory management and human resources management. The functionality also includes procurement.
As anyone who works in procurement knows, this part of the company doesn’t work in a silo. Successful procurement processes involve operations, finance, logistics, supply chain and vendor relationships. With ERP procurement processes in place, you can easily view information relating to those and other parts of the business in one centralized location.
What is an example of procurement? Procurement can involve simple purchases or more complex purchase contracts. Examples include making a one-time purchase from a major hardware vendor, ordering supplies for manufacturing, or buying a software tool your business needs.
To keep everything organized, trained procurement professionals can use the ERP system to enter quote and order details and track a purchase order (PO) as it’s generated and fulfilled. Many of these steps are automated by the ERP. You can keep lists of approved vendors and suppliers, automate quote requests, track quotes as they come in and analyze them to help you make the best procurement and relationship decisions.
Once you accept a quote, the ERP will track any related POs, sales orders, invoices, shipments and payments. You can even view existing inventory to plan out future orders, set automated order thresholds and keep products or materials coming in without a person spending additional time on the process.
Once your procurement ERP module is up and running, you won’t have to walk down and talk to someone in accounting about a late payment a vendor is bugging you about. It could cut down on the time you spend creating reports and spreadsheets, as the information you need is conveniently available in useful dashboards. The CFO will be your biggest fan when you find ways to cut down on how much inventory needs to sit on the shelf.
The list of benefits goes on and on. To better understand how it all fits together, we’ll look at different ERP modules that can connect to improve procurement.
What Are the 7 Stages of Procurement?
Procurement involves techniques and structured methods that are designed to help organizations follow a standard process. These seven steps help procurement teams save on costs and time:
The procurement process begins when a businesses delineates a plan for procuring goods or services at a reasonable cost and pace.
Purchase requisitions are documents that contain important information on project requirements to help the procurement team fill an existing need. They’re created by either customers or internal users.
After the purchase requisition is approved and checked for budget availability, the review stage allows managers and leaders to confirm that there’s a need for the goods or services.
Once the requisition is approved, you can generate a purchase order (PO). After the PO is generated, the procurement team develops a procurement plan and confirms the budget before sending out requests for quotations (RFQs) to vendors.
Evaluation and Contract Process
Once the solicitation process is closed, the procurement team reviews supplier bids to decide which will best fit the existing need. After the vendor is selected and the contract completed, the purchaser forwards a PO to the vendor, the vendor accepts it and the contract is activated.
The vendor delivers the goods or services, and the purchaser reviews the order and alerts the vendor of any issues they may find.
Purchasers reviews their invoices and either approve or dispute them before sending them to payment processing, keeping records for accounting and auditing.
What ERP Modules and Features Improve Procurement?
While procurement managers and team members may need to tap into other ERP modules, like human resources, from time to time, the main work in procurement comes from a dedicated procurement module and several others that closely relate to procurement processes.
When choosing an ERP or looking for ways to improve how you use the one you already have, look to these additional modules to enhance your procurement operations:
- Finance: Finance and accounting modules help you track the costs related to procurement and the accounts payable (AP) process for paying invoices. An ERP can automatically match purchase orders to invoices and fulfillment tracking to automate payments based on your company’s rules and policies.
- Manufacturing: If your company manufactures any physical products, you can get insights into materials requirements planning (MRP) and track the status of goods-in-progress to ensure the manufacturing team has what it needs at the right time.
- Inventory Management: Inventory management helps you track what’s sitting on the shelves, both incoming and outgoing, and how much cash is tied up in that inventory. Small companies handle POs and shipping in this module, while larger organizations may want to use the more robust procurement module for this purpose.
- Order Management: This module tracks orders from order generation or receipt through delivery. This can lead to significant time savings for procurement teams, as anyone with access can check order status independently with just a few clicks.
- Supply Chain Management: Supply chain relationships are essential in procurement. With this module, you can track goods and supplies through the entire supply chain. It may also contain order details and other information you need, such as typical shipping costs and times, to track this critical process effectively.
- Service Resource Management: This project management module may give you important information regarding one-time projects that fall outside your recurring procurement processes.
When these modules and their features are used to their fullest extent, they can help you integrate and automate many parts of the business while giving leaders key data and reports to improve efficiency and profitability. That’s a big win for any business.
What Are the Benefits of Using an ERP for Procurement?
The biggest benefits of using an ERP for procurement come from better process automation paired with advanced data, reporting and analysis tools. For example, an ERP can help you send out better requests for quotes (RFQs) and make the best choice from the responses in less time.
Once you’re up and running, much of the procurement process can be fully automated. You can set up systems to track inventory and send out orders when needed. Whether you’re keeping retail shelves full or need parts for just-in-time manufacturing, this can help you while cutting down on working capital requirements.
Precise cost tracking that considers ordering, shipping, taxes and any other necessary expenses can keep your financial projections on-target while giving you insights to whittle away at your cost per unit over time. A small improvement in cost per unit can add up to thousands or millions of dollars in savings over time.
As your business grows in complexity, you may find it hard to keep all of your vendors and suppliers straight. An ERP keeps data on every vendor relationship, including contracts, pricing, POs, orders and payments, in one place, so all team members are synced up on relationship status. Just as many businesses use a CRM (customer relationship management) platform to track customers, it’s important to use a system to track your vendors. That’s already built into most quality ERPs.
Centralized Data Source
When every department uses its own system to track business information, it’s possible to have two sets of numbers that don’t agree, miscommunication and ultimately mistakes and poor business decisions. With an ERP, everyone involved in ordering has one data set that is the business’s undisputed information source.
Reporting and Analysis
Business data is only useful when it influences business planning and decisions. An ERP can automatically generate reports and dashboards that include cost, delivery and other analysis when used effectively. For example, a report could compare costs, defective rates and delivery times among vendors to help you make informed relationship and ordering decisions.
7 Ways to Optimize Procurement With ERP
So far, we’ve discussed some high-level benefits of using ERPs for efficiency and cost management. Here’s a more detailed look at seven ways to optimize procurement with ERP systems.
- Supplier Relationship Management: Tracking all supplier relationships, including communication, contracts and pricing details, can help with future negotiations and order decisions. When a new team member takes over a relationship or joins your department, the ERP gives them the information to get up and running quickly.
- Sourcing: When supplies are needed, a procurement team member can log into the ERP to look at past purchases and compare sourcing options. The ERP could do the math and compare quotes as well.
- Contract Management: The ERP can send out notifications when contracts are expiring. You can also input contract details to better compare available options or enter into negotiations better prepared.
- Order Management: Match orders with POs, shipping data and payments for end-to-end tracking and order management. Large companies with many incoming orders have a much easier time using automated matching than manual processes.
- Requisitioning: When going through an RFP process for an internal requisition, the ERP can automatically process quotes and store communications to help you best choose a winner.
- Payment Processing: The connection between order and payment systems can completely automate payments using digital payment tools. This eliminates the need for signatures and mailing paper checks for payment approvals. If something doesn’t match, the system can be set to send out a notice to accounting or AP teams for further review.
- Purchase Planning: Insights into cost and inventory help with future purchase planning for seasonal needs, one-time projects and recurring purchases.
Choosing the Right ERP for Your Business
There are multiple ERP software vendors to choose. Rather than basing your decision on convenience or price alone, it’s wise to investigate features and how the ERP can fit into your current business.
If you’ve decided that the existing tools and systems at your business are not enough, consider both direct and indirect cost savings, opportunities to increase revenue and how you and your team can become more efficient and effective by using a centralized ERP.
You’ll also have to choose between cloud ERPs and ERPs you host yourself. Cloud-based ERPs give everyone at your team secure access to company information from the office, home office or anywhere else without any need to maintain expensive servers.
#1 Cloud ERP
How NetSuite ERP Can Improve Your Procurement Processes
A truly comprehensive ERP platform brings together the most commonly needed modules with advanced features and customizations to help your business reach its goals anywhere in the world. Whether it’s saving time on managing orders, offering your growing team self-service options to find information or the ongoing quest for efficiency and improved profitability, there are endless reasons to add an ERP no matter what your business size.