Electronic procurement is the process of purchasing materials over the Internet. The actual definition of electronic procurement is the use of electronic computer systems to manage the entire procurement process, from purchase to payment. The opposite of electronic procurement is electronic commerce. In electronic commerce or e-commerce, the company hosts a website and infrastructure to allow clients to purchase materials online. An electronic procurement process is the use of another company’s electronic commerce website.
In order to set up electronic procurement, there are three items that need to be resolved: business process, integration with accounting system, and support. The primary reason for implementing this kind of procurement is the cost savings to the purchasing organization. The increased efficiencies reduce the staff time and level of effort required to update the purchasing system manually, as well as manage the accounts payable process.
There are two business processes used: centralized and decentralized. In a centralized model, users select their commodities from an online shopping tool or enter the details of their purchasing request by completing an online form. These requests are directed to central procurement staff, which review them, add internal accounts, select the vendor, and then submit the purchase order. The primary role of procurement staff is to ensure the appropriate vendor is selected and bundle similar orders together.
In a decentralized model, each individual or department can use the online tool to create purchase orders for goods or services they require. These orders are sent directly to the supplier. There is no interaction with the internal procurement department.
The vast majority of companies with the resources to support electronic procurement are large enough to have an enterprise resources planning (ERP) system or integrated accounting system. These types of systems incorporate all the administrative functions of the business together, allowing for greater flexibility and delegation of responsibility. The procurement module is typically integrated into the accounting system, allowing purchase orders and invoice payments to be processed through either module.
Electronic procurement requires support staff both internally and at the supplier level. Some firms create a client services department dedicated to training, documentation, and support for the electronic system. Others integrate all the administrative functions into a single support group.
Electronic procurement is forecast to experience steady growth over the next five to 10 years, as firms look to reduce inefficiencies, increase the use of technology, and enhance business processes. There is a range of software companies that specialize in this field. In addition, many accounting software firms are adding this function to their standard offering to meet client demand.