eProcurement Definitions to Muse On

Charlotte Sutton
Charlotte Sutton,
I was recently asked for my definitions for Spend Control and eProcurement. This didn’t surprise me as every day I hear conflicting definitions from analysts, vendors and clients alike. For example, eProcurement is still confused with P2P (Purchase-to-Pay), EIPP (Electronic invoice presentation and payment), and ePayment (electronic payment). It is also sometimes confused with eRFx, contract management or other discrete components of the eSourcing cycle. 
After careful consideration, my response was somewhat more straightforward. I thought a back-to-basics approach is needed so that everyone can understand, and perhaps even buy-into, the fundamentals:
  • "Spend Control" is the business processes associated with how an organisation buys and pays for goods and services it needs
  • "eProcurement" is the supporting systems (information, workflow, automation) that is required to make Spend Control processes feasible on a large scale. This includes a wide range of supporting tools that enable procurement to “create value” and ensure the business “captures the actual value” (see below)
  • "Spend Under Management" is that portion of spend that is actually made through those business processes 
"Value creation" is what procurement professionals and category teams do. It’s about finding and qualifying good suppliers, negotiating agreements that deliver better value (i.e. lower price, more reliable supply, less risk), managing performance of contracts and suppliers, and managing supplier content for the organisation. I call that "Source-to-Contract" (and I’m not making the distinction between PROACTIS technology – I’m just talking about the process).

"Value capture" is what hopefully goes on all day across the organisation - people requesting and buying the things they need to do their day jobs, including: the request and authorisation process, PO placement, invoice receiving, matching, processing and payment authorisation. We call that "Purchase-to-Pay".

We often think of the "Control" in Spend Control as being prevention of un-authorised, un-needed or fraudulent purchases, but in a world-class environment it is more - it is also very much focused on leading employees to buy from the sources where value has been created in the Source-to-Contract process.

To achieve world-class Spend Control, both value creation and value capture must be performed and must be highly integrated. If just half of the process is working well, results will be diluted if the other half is not tied into it. Only the portion of spend that goes through the full cycle can be considered "under management".

In other words, the procurement-centric view of spend under management is only half the story. Traditionally, spend under management is a term commonly used by procurement departments to measure and communicate their functions impact on the organisation and is generally defined as the percentage of an organisations spend that falls under some form of management by Procurement.

For most organisations, a high level of true spend under management is only practical with the use of IT support systems. IT systems are required in order to go beyond the limitations of paper-based procedures, manual information capture and spread sheet data analysis.

I realise this is highly, highly simplified. You all know this actually represents scores of detail activities and all kinds of detail information. The point I'm making though is the synergism of the two sets of processes and the importance of clear terminology to support the understanding of the principles of Spend Control and eProcurement..