With online purchasing taking over consumer purchases, it’s time for businesses to prepare for those consumers to take online buying habits to work. Sean Bliss of Corcentric outlines the benefits of e-procurement.
Today’s consumers think nothing of ordering and purchasing over the internet. More recently businesses, too, have been taking advantage of the internet as an additional buying channel for everyday purchases. But unlike their consumer counterparts, businesses that are entering the online purchasing realm are doing so with formal structures and processes that are reaping many benefits.
Known as e-procurement, the movement of procurement processes and activities online is allowing businesses to gain better control and visibility to spend across their organizations.
In order to be effective, an e-procurement value chain must start with setting detailed policies that govern the procurement process. To get a handle on the total cost of ownership, for example, executives need to have an understanding of where spend is occurring, from direct to indirect. All too often with traditional procurement processes, purchasing responsibility can lack a consolidated approach. Purchases are made outside set parameters, making it difficult to track total spend. This “dark purchasing” negatively affects a business’ bottom line.
E-procurement systems not only allow businesses to more efficiently manage relationships with suppliers, but also to set guidelines for unique purchasing relationships. Negotiated contracts with the suppliers govern things like pricing, delivery, payment terms, warranties, etc.
Getting the best price from a supplier is one of the values of moving to e-procurement, but just as important is the visibility e-procurement gives the business into what is being spent, by whom and when. Having this information in one place and available during the planning process gives financial officers more control over how cash flows through their organization.
The total benefits of e-procurement are worth considering:
Technology will continue to enhance the purchasing process and the benefits of e-procurement — increased visibility, streamlined processes, lower transaction costs, centralized tracking of spend — and the best practices from e-procurement may see more widespread use in the purchasing and financing of capital equipment.
Typically, companies will utilize e-procurement solutions to purchase everyday, or commodity, items. The key benefit is speed to purchase items that are not core to the development of core products, or “indirect spend.” Most organizations’ large capital purchases, like heavy equipment, have not typically been made online.
But this is changing quickly as users in their private lives become more comfortable with online purchasing. Consumers are beginning to buy and finance large purchases, such as cars, via the Internet. This is a buying behavior that would have been considered inconceivable five to 10 years ago. As they make these large purchases on the items they personally buy, they are also beginning to bring that buying behavior to the workplace.
Since e-procurement tools are very good at formalizing and managing the procurement process, it makes sense that they can be used by businesses in procuring capital equipment as well. E-procurement allows companies to easily compare products from a wide variety of manufacturers and more efficiently source capital equipment using the same processes and controls they have in place with their indirect spend.
Using e-procurement technologies, capital purchases can be sourced across a global market versus a local one. Additionally, the ability to shop the financing of that asset across a large marketplace will provide additional benefits due to better access and visibility to possible lenders.
But there are some risks associated with using e-procurement to purchase capital equipment. The primary one being whether you can trust the organization you are purchasing from. Let’s use a car purchase as an example. Traditionally, when you purchase a car you go to the local dealer to look at the car and “kick the tires.” You can sit inside the car and determine for yourself if the vehicle has all the features you are looking for.
But if you are purchasing a car online from a seller in another state, you have to trust that the person on the other end of the transaction is being transparent and giving you the straight scoop. You are taking a risk by not having the asset there for you to see and experience first-hand.
You are also taking a risk that whomever you purchased the car from will be around in the future in case there is a problem. A lower price on the front end does not necessarily mean a lower price over the life of the vehicle if there is no recourse in the event of a problem.
However, the risks are not insurmountable. Research and a systematized supplier vetting process (as part of the e-procurement process) will help eliminate the risks related to a distributed procurement environment.
There are inherent cost savings in gaining global insight and knowledge around your company’s spend habits. The goal of streamlining how you purchase, whether it’s MRO supplies, professional services, tires or capital equipment, should be to free up your teams to focus on strategic purchasing.
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