Pros and Cons of Online Procurement Software
In recent history, the digital business revolution revolved around using in-house software for process improvement. Typically, you’d buy a software package designed to handle a specific business process, such as procurement or payroll, and then install it on the department’s computers. As a rule, the software license only covered use on a handful of computers and there was an additional fee to add more users.
The next phase of the digital revolution is expanding your platform into the cloud. Instead of purchasing software that you install on and run from in-house computers, using a cloud-based SaaS (Software as a Service) company means you’re paying another company to host your software. Typically, you can access this software from any approved computer or mobile device without paying extra licensing fees. It’s a much more flexible solution that’s very easy to use.
One of the departments that can benefit the most from cloud-based software is the Procurement Department. Online procurement software, also known as eProcurement, offers instant access and heightened flexibility that makes it a popular choice for businesses.
But is migrating to an online procurement system the right move for your company? There are many pros to eProcurement, but there are also a few cons as well. The decision about whether or not to switch to an online system depends on your individual company’s needs, but we can offer some general guidelines to help you decide whether or not eProcurement is the right solution for you.
Online procurement software offers a low-cost solution to streamline the entire purchasing system and lower costs. Here are some of the positive effects eProcurement software can have on your company.
If your company struggles to manage purchases and place orders in a timely fashion, then disorganization is probably your most critical issue. After an established process becomes disorganized, it’s often difficult to fix the problem. Once the system is broken, exceptions start to proliferate and things become even harder to manage.
Migrating to a standardized, online tool not only streamlines purchasing but also reduces the possibility of the system allowing an exception purchasing process. Switching to an eProcurement system also makes it easier to centralize purchasing if you want to go that direction.
One of the biggest complaints people have about purchasing software is that it’s hard to use. If your purchasing system is too much of a hassle, employees are more likely to go around the system when making purchases.
Switching to an online procurement system gives you the opportunity to make purchasing more user-friendly. Features like punch out catalogs and item catalogs make shopping within the purchasing system just as easy (and in some cases easier) than going around the system. That helps keep employees happy and automatically enforces company policy.
ERP systems are workhorses, but they don’t always get down into the details as well as you need them to. Online procurement software is typically more flexible about what you can include and also more agile in providing access restrictions. You can limit everything from the type of purchases made and vendors picked, to the items ordered and accepted prices per vendor.
Keeping a tighter grasp on these critical elements reduces rogue spending and maintains consistency in items ordered. Plus, if you purchase a good-quality software, it should integrate seamlessly with your existing ERPs.
Reconciliation & Reporting
When purchases don’t match invoices exactly, the results can be a nightmare. Everyone acknowledges the importance of reconciliation. However, when the pressure is on, it’s one of the first things to go on the back burner. Trying to pull together historical approvals, or even reports on purchases, can be exceedingly difficult in a manual or ERP-based system. Online procurement software alleviates this problem with customizable reporting. It also makes it easier to implement 3-way matching and manage inventory.
eProcurement software systems are typically very cost-effective. If you’re working with a reliable software provider, they’ll be upfront with their pricing and you won’t have to worry about any hidden fees. Ideally, you’ll only pay for the services you use and the provider won’t charge extra for user licensing fees. That’s the kind of pricing system that NextProcess offers.
In addition to the money you’ll save in licensing fees, you’ll also see savings in labor costs. The time your employees save by using a more manageable procurement system helps keep the processing cost-per-purchase-order low.
Faster Updates and Implementation
With online procurement automation software, there’s very little wait time to implement a new system. You’ll be able to switch over to eProcurement very quickly with little trouble for your IT department. You’ll also get regular updates from your software supplier rather than having to upgrade your system manually. This makes eProcurement much easier on your IT department and also helps lower costs.
Works With Other Systems
Another big advantage to using online procurement software is that it can work with your other businesses process automation systems. Quite a few companies that offer eProcurement software also offer other software modules. These programs can automate the AP department, manage capital projects, and streamline other financial tasks. If you stick with just one company for your software needs, you’ll know for sure the software modules can all work together and it’ll make it easier to implement a new system.
Many of the potential down-sides to using online procurement software can be minimized by learning to use the software efficiently and customize it for your company. However, there are some limitations to the software that you should be aware of before deciding whether or not it’s the right fit for your company.
Flexible procurement software packages offer a wealth of classification and data analytics detail. In fact, there are so many ways to customize that there’s a risk of getting a little carried and using online procurement software to micromanage.
However, having too many fields confuses users and can ultimately slow down your system’s reporting efficiency. The good news is, you can adjust eProcurement software to find what level of customization works best for your company.
Lengthy Approval Chains
When the opportunity to expand insight into the purchasing process occurs, there may be some people within your organization who want to review purchases for varying reasons. These can also be the same people who take longer than others to pass purchases on to the next approver.
It’s very important to separate the necessary from the unnecessary early in the process of updating your procurement management. This helps keep approval chains from becoming bogged down.
Best For Indirect Materials
Whether or not eProcurement will benefit your company depends in part on what you’re buying. It will definitely help facilitate catalog-based buying of indirect materials like office supplies. The ROI of implementing a procurement software system for things like that is very definitely positive.
But things get a little more complicated when buying direct materials and services. Procurement automation software might not help as much if your company focuses on negotiating purchases in large, strategically important multi-million dollar deals.
Supplier Onboarding Issues
Although most suppliers are happy to accept online purchase orders, there’s a chance that some of your older vendors may have difficulty adapting to a newer system. Small companies, in particular, can have trouble adjusting to your use of online procurement software. Determining the extent of your supplier’s involvement in your new software rollout will be a critical piece of project scope when you start planning your transition to online procurement.
Less Direct Involvement
Some companies prefer using an on-premise procurement software system rather than going with an online, or cloud-based, solution. On-premise systems can be more customizable, easier to integrate with existing software systems, and comply with more strict security requirements. However, they’re typically not as flexible, user-friendly, and low cost as online systems. You’ll have to decide what features are most important to you.
So what about your company?
The many perks of implementing online procurement systems outweigh the downsides in most situations. However, when looking at the issues facing your purchasing team, you might still decide that now isn’t a good time to implement an online procurement system. If your company deals mostly with direct material and services or if you require extremely tight security, you might do better with an in-house system.
For the majority of businesses, though, online procurement software is a good move. Even if it’s not something you want to implement now, it might be good to keep in mind for the future.
If you’ve decided that an online procurement system is exactly what your company needs right now, the best tip we can give you is to look for a good software partner. The right software supplier can help you avoid common pitfalls when implementing new procurement software and build the platform you need.
With NextProcess, you’ll get all the up-sides of online procurement software. We’ll also work with you to customize our software and make sure it works perfectly for your company. This minimizes the risk that you’ll have to deal with any down-sides that could come with using an eProcurement system.
We invite you to find out for yourself how much implementing an online procurement automation system can help your company. Just get in touch with us and we’ll schedule a free, no-strings-attached demonstration of our Purchase Order Module so you can see how it would work for your business.