But with conflicting hype from different eProcurement vendors, and little clarity about where to begin, the market is increasingly confused. In this article, we aim to cut through the hype and explore the issues that matter and the key requirements for successful eProcurement:
- Establishing internal controls
- eProcurement is about more than just paperclips
- Driving efficiencies through the purchasing process
- Collaborating with other authorities in procurement
- eProcurement as a means of energising the local economy
- Complying with supplier payment targets
- Visibility and accountability in procurement
1. Establishing internal controls
What matters – Whilst every procurement professional seems attracted to the prospect of harnessing Internet technology to improve eSourcing or supplier collaboration, many feel it is more pressing to establish control over the buying process and wish to implement a rigid purchase-to-pay process first. As one local government CPO told us recently, “We need to set our house in order and establish some control, and only then can we think about putting the icing on the cake”.
For local authorities wishing to make an impact on their organisation, rather than simply being able to tick the eProcurement box, this is an obvious place to start.
Key requirements – Most local government organisations lack the basic controls around procurement. We believe that an effective eProcurement solution should offer:
2. eProcurement is about more than just paperclips
What matters –
- The ability to encourage the use of preferred and approved suppliers, so that it is the authority and not the individual who decides which suppliers are used.
- An efficient way to ensure that all purchases are fully approved before being submitted to suppliers (approving invoices after the event is too late as spend is already committed).
- The ability to track spend against budgets, prevent (or warn about) potential overspends and the ability to examine the organisation’s financial commitments in real time at any given moment.
A common criticism of eProcurement is that it is only good for streamlining the purchasing of stationery and other simple or "catalogue" items. But the opportunity is there to control, monitor and reduce a much greater proportion of non-staff expenditure.
Key requirements – In addition to administrative procurement it is important to consider the ability to seize control of other types of non-staff spend, including:
3. Driving efficiencies through the purchase process
- Capital expenditure, with integration to an assets management system.
- Utilities, telecoms or other contracted spend which requires pre-payment approval and analysis, but very different procurement procedures.
- Services purchasing, where the “receipting” process is unnecessary and which is difficult to catalogue.
- Internal cross-charging or service provision.
- Employee expense claims
What matters – Many local authorities have not implemented an efficient purchase-to-pay process and, as a result, suffer from process inefficiencies. Paper-based systems typically result in an enormous workload for Accounts Payable staff, who need to reconcile what was ordered, what was actually delivered and what is stated on the invoices. Most semi-automated purchasing systems, such as software provided with a finance system, tend to be designed for centralised procurement, and therefore do not lend themselves to a decentralised process.
Key requirements – Balancing the need for an efficient process with the desire for financial controls is often the most difficult part of any eProcurement implementation. Key requirements include:
- A solution that is so easy to use that staff can quickly request or order goods/services without training and without needing to understand the procurement process.
- Electronic workflow that routes requests around the organisation without the need for paper, and which can be used to automate the process of resolving invoice discrepancies.
4. Collaborating with other authorities in procurement
What matters – Collaborative procurement initiatives have been outlined as a key method of driving public sector savings by many of the Government’s efficiency reviews. Local authorities are being encouraged to work together and share some procurement services and exploit economies of scale when negotiating new deals with suppliers.
Key requirements – eProcurement solutions can support your collaboration with other local authorities. Major considerations when evaluating possible solutions should include the following:
- Supplier networks and eMarketplaces should complement an authority’s existing procurement strategy. Be careful of electronic trading models which effectively handover control of your supplier strategy to a third party. In particular, be careful that supplier networks and eMarketplaces which require suppliers to pay a joining fee and in reality offer little more than an online supplier directory. Wise authorities are using more discerning models which allows control over the supplier community, whilst still offering the benefits of electronic trading.
- An eProcurement solution that is designed to promote cross-organisation collaboration should be capable of integrating with a range of internal systems. It is important not to implement a "cul-de-sac" solution, that only allows collaboration with authorities using the same platform.
- An eProcurement strategy should offer a means of embracing the local SME community as well as larger national suppliers. Many eProcurement systems are fine when dealing with suppliers who have invested in an eCommerce infrastructure, but as a local authority there is also a responsibility to smaller local businesses who might not be as advanced when it comes to IT.
5. eProcurement as a means of energising the local economy
What matters – eProcurement provides local government with a unique opportunity to give something back to the local SME community. The right eProcurement solution not only enables SMEs to compete for local government contracts on a level playing field, but also offers them new opportunities to trade with each other and with other authorities across the region.
Key requirements – Most eProcurement systems emphasise the availability of global suppliers through subscription-based directories or “punch-out” to sophisticated websites. However, we believe that an eProcurement solution should promote economic development with features that enable:
- Local SME suppliers to manage catalogues online.
- Suppliers to trade with each other and with other registered buying organisations (regardless of the buyer’s purchasing system).
- Automated supplier adoption procedures, which walk the supplier through the process of doing business with the authority and undertakes any relevant supplier certification.
- Suppliers to monitor the status of their invoices to the buying authority online.
- Suppliers to send electronic invoices without the need to invest in back-office systems.
6. Complying with supplier payment targets
What matters – Local government is under pressure to increase the proportion of undisputed supplier invoices paid within 30 days. For most authorities, however, the inefficient purchasing and accounts payable processes makes 30 days an unrealistic target. Worse still, for most organisations it is impossible to even check their compliance, as they have no means of monitoring the payment cycle.
Key requirements – eProcurement offers an opportunity to radically improve the efficiency of the supplier invoice and payment process, making the prospect of paying suppliers on-time realistic. To assess the value that an eProcurement system can offer in this area, it is important to consider:
- An invoice that matches an approved order and is properly receipted should be automatically passed for payment (i.e. does the system require only invoices with discrepancies to be dealt with by staff?)
- Does the system automate the process of handling invoices that do not match the order to contain price or delivery discrepancies?
- Can the eProcurement solution integrate Document Scanning or OCR to remove the need for Accounts Payable staff to laboriously process each supplier invoice?
- Does the eProcurement solution include eInvoicing technology, which is increasingly important when dealing with SME suppliers in local government?
- Does it offer the ability to report on the invoice payment cycle, both to query a specific invoice status or overall payment trends and KPI status?
- Can selected suppliers log in to the system to monitor their own invoice status, eradicating the need for calls to the Accounts department to chase payment?
7. Visibility and accountability in procurement
What matters – Today most local authorities lack basic information on supplier performance, spending patterns, committed expenditure, etc. Developing reports to access this data tends to be a major undertaking for the IT team. In many cases the use of paper-based buying process prevents any kind of meaningful reporting whatsoever.
Key requirements – eProcurement offers the opportunity to unlock procurement and financial data, and make it available throughout the organisation wherever it is needed to support decisions. A comprehensive eProcurement solution should offer:
- Detailed supplier performance reports based on actual purchasing data.
- Budget and commitment tracking dashboards, allowing executives to monitor spending and commitments against budgets.
- Real-time analysis of spend with drill-down capabilities.
- The ability for any users to produce their own reports on available data, without the need for IT involvement.
- The ability to report across multiple systems, combining data from several critical systems to establish a single view of data.
PROACTIS is an established author of Spend Control and eProcurement software, with an unrivalled track record of delivering successful cloud eProcurement projects across the public, not-for-profit and private sectors.