E-pro­cure­ment – a quick in­tro­duc­tion

Elec­tron­ic pro­cure­ment, usually simply referred to as “e-pro­cure­ment”, is a term used in pro­fes­sion­al pur­chas­ing and e-commerce for B2B trans­ac­tions – that is to say business to business. It isn’t about ordering goods from in­di­vidu­al customers, but rather com­mu­nic­a­tion between busi­nesses. E-pro­cure­ment isn’t targeted at private customers shopping in a web shop, but instead at companies using a digital solution to regulate purchases between one another. There are several ad­vant­ages to using this modern pur­chas­ing solution, with the auto­ma­tion of several parts of the process saving a con­sid­er­able amount of time for the companies involved.

In the course of di­git­isa­tion, many areas within companies have changed. Back office processes in par­tic­u­lar can be carried out more ef­fi­ciently with digital solutions. This also includes pur­chas­ing. The fact that e-pro­cure­ment plays an in­creas­ingly important role is also because some goods and services, such as software or web services, can only be purchased digitally anyway.

In most cases, elec­tron­ic pro­cure­ment is based on so-called ERP systems. En­ter­prise resource planning systems are software solutions specially designed for companies, which support business processes and simplify mer­chand­ise man­age­ment.

In principle, e-pro­cure­ment is the digital process of pro­cure­ment. This means that paper order forms, cata­logues, and paper price lists aren’t needed, and com­mu­nic­a­tion with the supplier is pre­dom­in­antly digital. When it comes to e-pro­cure­ment, companies rely on software designed to make their pur­chas­ing processes more efficient.

It is crucial for e-pro­cure­ment that the pur­chas­ing process is perfectly in­teg­rated. Ideally, the systems of both busi­nesses would work together seam­lessly – the company can then im­me­di­ately see whether the supplier has the required item in stock, and whether the order has been received.

Both parties now mostly rely on the internet for com­mu­nic­a­tion purposes. Due to the need to keep data secure, some companies also prefer net­work­ing via their own extranet. Business partners can then access each other’s intranet via a VPN con­nec­tion, for example. The data is trans­mit­ted via a secure IP tunnel.

E-pro­cure­ment systems should offer a digital equi­val­ent for every steps of the pur­chas­ing process. Pur­chas­ing processes often also require access to other areas of a company, and so elec­tron­ic pro­cure­ment can also be linked to processes and programs from other de­part­ments as well.

A large part of pur­chas­ing work consists of obtaining and comparing supplies. E-pro­cure­ment solutions can cent­ral­ise this work, so you can maintain a clear overview. However, this depends on how the system used is set up. Sometimes all supplies get entered auto­mat­ic­ally into the software. On the most basic level, however, online cata­logues can be used to research supply levels and types, whether this is internal or external.

In most companies, specific approval pro­ced­ures are required before a trans­ac­tion can be executed. Because not every employee is allowed to make certain orders, “parent au­thor­it­ies” must give their approval. This kind of process can be sim­pli­fied and sped up by elec­tron­ic pro­cure­ment systems. The software can auto­mat­ic­ally forward the approval process to the next person. In addition, pur­chas­ing rights can be assigned and revoked centrally via the software, which can also save time.

Finally, the e-pro­cure­ment system can also carry out the actual order. Data can be trans­ferred in various ways. In some systems, data can be forwarded directly via the internet or via VPN to the supplier’s server. It is slightly more com­plic­ated if in­form­a­tion first has to be sent by e-mail to the supplier, but even this process can be sped up if both sides use stand­ard­ised formats through which the data can be trans­ferred easily.

There is a dif­fer­ence between automatic and manual pro­cure­ment orders:

• Automated pro­cure­ment: depending on the product required, e-pro­cure­ment systems can order goods auto­mat­ic­ally. This procedure is suitable for articles that are necessary for pro­duc­tion, for example. The key factor here is that there are fixed supply contracts.
   
• Manual pro­cure­ment: e-pro­cure­ment can also support in­di­vidu­al pro­cure­ments that are required at irregular intervals, and are not tied to a par­tic­u­lar supplier and sometimes require more complex approval processes.

Even after suc­cess­ful order placement, elec­tron­ic pro­cure­ment software can still be of use. If the pro­cure­ment system is given real-time data from the supplier, it is possible to monitor the delivery. This allows the order to be tracked from the man­u­fac­turer or dis­trib­ut­or to the ordering company.

Financial pro­cessing can be handled via the elec­tron­ic pro­cure­ment system, provided that there is a link to the ac­count­ing software. Both par­ti­cipants can benefit from online pro­cessing. On the supplier’s side, it is possible to make invoices via the system. The invoice can also be trans­mit­ted directly via the system, and is sent to the person re­spons­ible.

However, elec­tron­ic invoices must be signed with an approved elec­tron­ic signature. This feature must be in­teg­rated in the cor­res­pond­ing e-pro­cure­ment system for payments to be valid.

Since the e-pro­cure­ment system documents all processes, creating reports is much easier than with tra­di­tion­al pro­cure­ment, which relies primarily on paper documents. Analyses can often fall back on the numerous data stored in the elec­tron­ic system. Reports on in­di­vidu­al employees, different de­part­ments, or the suppliers used are all possible. This makes it easy to report on the ef­fect­ive­ness of a company’s own employees, as well as the per­form­ance of its suppliers.

For e-pro­cure­ment to function at its best, certain standards should be adhered to – at best, in­ter­na­tion­ally. These go beyond the obvious technical re­quire­ments.

• Product iden­ti­fic­a­tion: retailers have in­tro­duced stand­ard­ised iden­ti­fic­a­tion numbers. Just the number tells you what the product is without having to look at and compare the other product spe­cific­a­tions. Stand­ard­ised product iden­ti­fic­a­tions can also be re­gistered more easily by most databases, such as EAN, UPC.
   
• Clas­si­fic­a­tion: clas­si­fic­a­tion of products and services is not always easy, as it is sometimes possible to assign them to several cat­egor­ies. However, uniform standards are useful so that products can be organised into cata­logues and correctly cat­egor­ised. In this way, the customer can also find the product faster.
   
• Formats: to ensure that both busi­nesses receive the in­form­a­tion they need, it is necessary to use data formats that ideally can be handled by all parties without the need for con­ver­sions, such as with CSV, PRICAT, PRODAT, cXML.
   
• Trans­ac­tions: to complete trans­ac­tions, purchase orders, and send out de­liv­er­ies as quickly as possible, it is a good idea to use a uniform format for any trans­ac­tion documents, which can then be easily processed by machines or software.
   
• Business processes: in addition to in­di­vidu­al trans­ac­tions, it is possible to stand­ard­ise business process mapping. This allows multiple actions within a process to be triggered at once, such as with ebXML, Biztalk.

There are different types of systems that can be dis­tin­guished according to technical aspects, or according to which one of the com­mer­cial business partners involved de­term­ines the system defaults.

Technical im­ple­ment­a­tion refers to the com­mu­nic­a­tion between the companies, i.e. between buyers and suppliers, using uniform standard forms. This allows different software solutions to exchange in­form­a­tion.

The systems are dis­tin­guished primarily by how “open” they are:

• Closed systems: in a closed system, suppliers and pur­chasers are connected. To do this, both sides must either use the same software or adapt their in­ter­faces. The latter can sometimes be very complex, which is why the in­stall­a­tion is only worth­while if it can be assumed that both sides com­mu­nic­ate with each other per­man­ently and fre­quently.
   
• Semi-open systems: these systems usually originate from the supplier. They have a self-contained network and offer their customers access via an interface. Companies can either access the system via a browser and place orders, or adapt their own software to the supplier’s interface.
   
• Open systems: with an open system, there is no direct con­nec­tion between the systems of both parties. Instead, a kind of online catalogue is regularly posted on the internet by the supplier, through which customers can place orders. This system is asyn­chron­ous because the software does not compare orders and stocks in real time.

Com­mer­cial im­ple­ment­a­tion is dif­fer­en­ti­ated according to which side of the trans­ac­tion (supplier or purchaser) makes the spe­cific­a­tions for the system used. This is usually related to which of the two partners is fin­an­cially stronger and more in­flu­en­tial.

Although the three models presented below are in principle in­de­pend­ent of each other, it is now often possible to combine the different systems due to in­creas­ing stand­ard­isa­tion of formats and tech­niques.

In this model, the vendor specifies how the re­cip­i­ents are to place orders. However, since it is in the interest of the provider to generate as much turnover as possible, naturally it is in the interest of the vendor to guarantee buyers the easiest possible access. For this purpose, the supplier can provide an easy-to-use web ap­plic­a­tion, offer cor­res­pond­ing software, or supply the customer with a hardware solution.

Sell-side systems are often com­par­able to a web shop, because the customer can see the product range of the supplier and place orders directly. The dis­ad­vant­age for the buyer is that there is no pos­sib­il­ity to compare offers. Suppliers’ offers can be in­teg­rated in different ways. For example, it is possible for suppliers to send their in­form­a­tion by e-mail, and these are then entered manually into the company’s system.

If companies have enough influence or demand, they can choose for their system to be used by the suppliers. Suppliers must then adapt their solutions to the system of the re­spect­ive company. This gives the company many options and makes it easier to customise processes (e.g. rights dis­tri­bu­tion and ac­count­ing sim­pli­fic­a­tion), which would be more difficult with a sell-side solution.

Companies often implement these struc­tures in the form of desktop pur­chas­ing systems (DPS). This means that every employee with cor­res­pond­ing rights can process all orders from their work­sta­tion. Such solutions do not have to be developed or main­tained by the company itself. Instead, pro­cure­ment service providers often offer complete packages where main­ten­ance is carried out by external spe­cial­ists.

A mar­ket­place is provided by a third party. In this system, the starting position for suppliers and pur­chasers is the same: both sides have to adapt their processes to the spe­cific­a­tions of the e-pro­cure­ment operator, who charges both for use of the system. It is also possible that a group of customers and suppliers could offer to manage this kind of mar­ket­place. The advantage for pur­chas­ing companies is that, unlike the sell-side model, several providers are available in this kind of mar­ket­place. However, this kind of solution cannot be easily in­teg­rated into the purchaser’s ERP system. To overcome this, some mar­ket­places offer ad­di­tion­al services that make working with the system easier.

Elec­tron­ic pro­cure­ment can have con­sid­er­able ad­vant­ages for both pur­chas­ing companies and the suppliers involved. However, first an e-pro­cure­ment system must first be put into use – and this does not only apply to the technical im­ple­ment­a­tion, but includes the work routine within the company, which must be adapted to the new system. Tasks may have to be re­dis­trib­uted and all employees have to be trained in elec­tron­ic pro­cure­ment.

Once these initial chal­lenges have been made, e-pro­cure­ment offers the following ad­vant­ages:

• Auto­ma­tion: in tra­di­tion­al non-digital pro­cure­ment, pur­chas­ing and related de­part­ments spend a lot of time per­form­ing routine tasks over and over again. Re­quest­ing supplier cata­logues takes time – this process that can be automated through elec­tron­ic pro­cure­ment.
   
• Pro­cure­ment time: even without auto­ma­tion effects, e-pro­cure­ment saves the working time of the employees involved and reduces the pro­cure­ment time. This can already be at­trib­uted to the fact that the trans­mis­sion speed of digital data is higher than that of printed in­form­a­tion. If a supplier has a good e-pro­cure­ment interface, order data is im­me­di­ately in­teg­rated into the supplier’s system. This saves time in pro­cessing orders.
   
• Dis­tri­bu­tion of rights: an elec­tron­ic pro­cure­ment system also helps users to optimise the al­loc­a­tion and com­pli­ance with release rights. This tech­no­logy can be used to ensure that no one carries out orders without the ap­pro­pri­ate rights – they have to have been approved first. Cor­res­pond­ing rights can be assigned quickly via an IT solution and can also be withdrawn easily.
   
• Costs: pro­cure­ment processes are often costly. Printing and paper costs alone cost a lot of money, and are not good for the en­vir­on­ment. The in­stall­a­tion of e-pro­cure­ment systems is also expensive, but in the long run it pays off to purchase and integrate digital solutions.
   
• Flex­ib­il­ity: with e-pro­cure­ment offer com­par­is­on and research is much easier to carry out.
   
• Quality: in­creas­ing levels in elec­tron­ic pro­cure­ment are primarily related to the quality of product in­form­a­tion. Since all in­form­a­tion (such as product data) is trans­mit­ted elec­tron­ic­ally, e-pro­cure­ment reduces the number of data entry errors. In addition, the digital pub­lic­a­tion provides suppliers with much more in­form­a­tion on goods, which in turn can be filtered as required. This means that every buyer can display exactly the data that is important. In addition, product or service in­form­a­tion can be enhanced by high-quality mul­ti­me­dia content (images, sound, video).

In the pro­fes­sion­al pro­cure­ment of services and goods, important in­form­a­tion passes between busi­nesses, and it is essential that the exchange is secure and reliable.

• Data security: when using e-pro­cure­ment systems, it must be ensured that the trans­mit­ted data cannot be read or accessed by third parties. It is best if data trans­mis­sion is not carried out via the public internet. It is better to use a secure, encrypted VPN con­nec­tion.
   
• Reliable trans­mis­sion: it is also important that all in­form­a­tion reaches business partners without missing any details. This is generally easier to achieve with e-pro­cure­ment than with tra­di­tion­al pur­chas­ing methods.
   
• Binding data: in e-pro­cure­ment, the programs transfer contracts and other legally-binding documents. Ap­pro­pri­ate measures are needed to ensure that both sides can be sure that com­mit­ments are being kept. In some cases, for example, a password may suffice to provide a binding con­firm­a­tion, in other cases a legally binding digital signature will be required.