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A good indicator of the quality of the purchase-to-pay process in a company is incoming invoices. These 10 important key performance indicators [...]
In times of globalised and often volatile markets, procurement management plays a special role within a company. Its performance has a direct influence on the company’s results. Those who buy quickly at the best conditions and design procurement processes efficiently and transparently remain at an advantage. This applies to all process steps in procurement: from the notification of requirements to purchasing and goods receipt to invoice receipt and contract management. With a digital tool, the procurement process can be optimised so that previously unimaginable efficiency finds its way into procurement.
Here, you will learn how you can optimise the procurement process in your company to make it fit for the future and make it more effective.
Before we look at the topic of the automated, digital procurement process, we will briefly take a look at a conventional procurement process. This will help to highlight the advantages of the digital process. The English term “Procure to pay” alone helps to shed some light on this. The procurement process describes all processes from demand to purchase through to payment. It is not difficult to see that these procurement processes in turn consist of sub-processes.
At the heart of these sub-processes that make up the procurement process is the exchange of information. And this is done with external suppliers as well as between the various departments within the company. In addition, there are also the internal approval and checking processes.
The more this procurement process is based on paper and the more locations the company has, the greater the susceptibility to errors. It is time for the digital procurement process, which unites all sub-processes and as a result simply avoids errors as well as a loss of information.
You will certainly be familiar with the well-known inhibitors of procurement.
Nevertheless, we have listed them again:
But how do you avoid these stumbling blocks? In short, how do you make the procurement process more effective, more transparent and more profitable for everyone involved? By relying on the clarity of digital processes, relying on digital procurement processes – with the digital solution you automate and connect the sub-processes of procurement management.
Because being strung together like a string of pearls, there is no longer any threat of information loss between the sub-processes of procurement. From requisitioning, order receipt and invoice processing – everything is held together by the digital bracket of contract management in the company. This is what distinguishes modern procurement processes.
This is where efficiency and transparency gains beckon, and in the end, hard cash. But be careful: Before you set out without a well-formulated roadmap for the procurement process, you should first get a clear overview of the current state of procurement management in your company. Otherwise, you run the risk of getting lost in the minutiae of the extensive procurement process.
Now let’s take a look at the sub-processes of the digital procurement process – and contrast these with the corresponding sub-processes of the traditional type. The advantages of the digital procurement process are immediately clear.
At the beginning there is a requirement. Something is missing and needs to be reordered. In a traditional, paper-based procurement process, the method is usually as follows: Employees from any department place the purchase request with colleagues from purchasing via various media. This already causes the first issue: Requests are made by email, telephone call and fax etc. Cross-location transparency in procurement is lost right away. It is even worse if the requirements are not processed centrally via purchasing, but the departments simply order independently and usually uncoordinated. Economies of scale through supplier agreements are not exploited.
However, this is immediately followed by the second stumbling block in the analogue procurement process – colleagues from purchasing must first be reached; then they must determine whether an offer for the requested article is available at all and whether the supplier has been created in the system.
Procurement processes work more effectively, simply and quickly using digital channels. The digital procurement process starts with the electronic purchase requisition – the counterpart to the analogue requisition. The user roles and rights are determined immediately after logging into the digital procurement system. This gives the purchasing employee automatic access to a digital catalogue of possible suppliers. With a catalogue connection, it is also worth mentioning that individual purchasing conditions are usually already stored in the catalogue. This alone automatically eliminates many sources of error and disruptive factors for the further procurement process.
The automated and orderly selection of suppliers and catalogues in the digital procurement process avoids the well-known “maverick buying effect”. However: The increase in efficiency begins with the bundling of the requirements and thus the orders in a central purchasing department. This enables economies of scale to be realised through volume discounts in procurement.
The order is therefore placed under the best possible conditions, namely those negotiated in the contract. You can already benefit from the advantages of integrated contract management in purchasing. At the same time, the automated procurement process assigns the correct cost centre to the purchase requisition – ideal for efficient procurement.
The factual check in the analogue procurement process turns out to be just as cumbersome, time-consuming and error-prone as the traditional requirement notification. Who is responsible in the first place? Who checks the requirements against the available budget? And furthermore: Who checks the purchase requisition for factual and technical correctness and completeness? This is a crucial point in purchasing. Especially in companies whose production is absolutely dependent on ordering the right goods, e.g. raw materials or materials (A-goods), where errors in purchasing have consequences that should not be underestimated. Admittedly, depending on the industry and production process there could be completely different procedures here. Nevertheless, in the procurement process there is a risk of consequential costs due to production downtimes and the like. In addition, there is a lack of transparency across locations due to the use of media in the traditional procurement process.
A workflow is generally understood to be a work process. In procurement, a wide variety of workflows exist within the sub-processes of purchasing, supplier invoice processing and contract management. This is where digital workflows play a decisive role. Many work processes can be automated through workflows in procurement processes by checking certain events for conditions – and then making a decision. For example, procurement processes can be optimised through an escalation or substitution workflow for demand notifications if the contact person does not respond promptly. The same applies to supplier invoice processing. For example, supplier invoices can be posted automatically via invoice workflow as long as the invoice amount is below a sum to be determined. This and much more is provided by procurement management workflows – the motto is work less, get more done, and thus procurement processes can be optimised.
This is precisely where the automated procurement process can show its strengths to the full. The system is well aware of the classification of A, B and C goods. And the aforementioned questions no longer arise. This is because the electronic purchase requisition is automatically assigned to an agent from purchasing, who then takes care of the factual check in the further procurement process. If this person is on holiday, substitution rules apply. The main thing is that the objective of a factual check is achieved in the procurement process. As a result, not only are corporate guidelines adhered to in procurement management, but the workflow also ensures that the right materials are always requested in terms of quantity and quality – always at the right destination and at the right time. Another advantage: The digital process solution results in further transparency gains in procurement management. The entire process is traceable and documented. This is ideal for end-to-end compliance. The way is clear for a highly automated workflow in digital procurement processes, for example for C-goods.
The approval process is also one of the most time-consuming processes within procurement management. At least this is always the case when it is traditionally paper-based. The right contacts have to be found, contacted and reached. Then you have to wait for approval in the procurement process. Whether it’s direct supervisors, employees from purchasing, controlling or even management: Depending on the type of requirement notification, the responsibilities change. Without an automated, digital workflow, the approval process in the procurement process is unnecessarily delayed.
In contrast, the release process, which uses the organisational management of the procurement process, for example, runs largely automatically. Once the persons authorised to approve a purchase order have been defined, purchase requisitions are automatically forwarded to them. Further refinements are possible: Different approvers can be defined in the procurement process depending on the type of order (goods, raw materials vs. consumables) or the order value. All in all, the digital workflow increases the transparency and process speed of the procurement processes at this point. This also puts an end to the need to follow up further by telephone or e-mail afterwards.
Paper purchase requisitions have another disadvantage: once filled out on paper, the requisition can no longer be changed. The requisition is already in the hands of the approver in purchasing. Correcting or adapting the requisition again involves additional communication effort. If time is money, then this is where the digital workflow of a modern digital procurement process shows its advantages at this point: Of course, electronic requisitions and purchase orders can still be adjusted throughout the entire procurement process.
The last step of traditional purchase requisitions consists of completing and entering them into the respective procurement system. In purchasing, the vendor, cost centres, unit costs and delivery date and location must be entered. Of course, all this is done manually in purchasing – with the known sources of error for the entire procurement process. Only then the order can be placed.
The digital purchase requisition avoids these sources of error: business relationships with existing suppliers with whom framework agreements exist are integrated into the procurement process in the best possible way. New business partners can be optimally created by the organisation using a supplier creation workflow. The purchase requisition then automatically goes through all the steps of the procurement process – and automated checks take place automatically at each step. Without a successful check, the purchase requisition stops and can even escalate. In any case, the procurement process is set to continue. And finally, in the last step, the purchaser can simply transfer the existing data with a click of the mouse – and place the order so that the procurement process can continue.
A paper-heavy goods receipt is part of a procurement process characterised by diverse steps that often have to be performed manually. A look at the incoming goods process shows that it is extremely prone to errors.
After purchasing, the goods receipt must be checked:
If you rely on digital goods receipt, you will enjoy the advantages just mentioned. From now on, you can record and post goods receipts in real time. How does the digital procurement process work?
Even before the goods are received, you can reap the initial benefits of the procurement process. This is because your order is usually followed by an order confirmation and, if necessary, a shipping notification. Both can – and should – be processed in the digital procurement process. By doing this, you provide two additional data points that are immediately available as checkpoints in the digital goods receipt.
Directly after goods receipt, you can view the delivery notes using OCR technology. The procurement software is so smart from years of experience that the relevant data, such as order number, supplier details and delivery quantity, is immediately recorded in the system and is available for the entire procurement process. In procurement management, the goods receipt is designed in such a way that the data – controlled via a workflow – is transferred to the designated employees. At the same time, you benefit from audit-proof archiving of the order documents – in this case the delivery note.
But the digitised goods receipt has even more advantages. Order and delivery of goods are linked in automated procurement processes and a context is created – the employee in the warehouse can now see at a glance whether the order is complete. For the ordering of critical goods, such as raw materials, a multi-level release can take place in the procurement process so that only authorised colleagues who have an overall view of the process can post the goods receipt. In just a few automated steps, the goods receipt is recorded, posted and the procurement process can continue.
Regardless of whether the company receives invoices in paper form, as a PDF in an e-mail, or in a digital format (EDI, etc.) – with incoming invoice verification, you achieve accurate capture of invoice data plus plenty of automated workflows of the digital procurement process. For paper invoices, as with delivery notes, the relevant data is again scanned using OCR technology and batch scanners. Invoices that have already been digitised are captured and processed directly. The capture technology has matured over the years and is constantly evolving: more modern technologies such as artificial intelligence (AI) and deep learning have also played a role in the recent past. Even more precise and even better recognition rates are the result. This is a clear advantage for subsequent processes in digital procurement management.
In the case of purchase orders without an order reference, automated incoming invoice processing enables the invoice to be pre-entered: The invoice appears immediately in the purchase ledger: The vendor, the amount of the invoices and the discount periods of the incoming invoices are then visible across all locations for authorised employees of the specialist departments. In addition, the status of processing and the current processor of the invoice can be seen. This eliminates time-consuming queries – another advantage for the entire procurement process. This applies to invoices with a purchase order reference anyway – and the highlight is: Due to the now existing connection to the digital purchase requisition, the documents are automatically forwarded to the purchasers – faster, more targeted and with significantly less effort. In short, the automated incoming invoice workflow significantly reduces process runtimes and organisational effort in procurement. Invoice data obtained by OCR or already available in digital formats are also transferred to the purchase ledger by the automatic incoming invoice processing. As a result, authorised employees from the accounting and finance departments can obtain an overview of the situation in the purchase ledger at any time – and of course from any location: Modern user interfaces for incoming invoice processing support mobile working as well as providing occasional users with a set of functions optimised for their role. Perfect for working on a smartphone/tablet, perfect for a well-functioning procurement process.
However, much more can be automated at this point. Keyword “blind processing of incoming invoices”: Yes, even incoming invoices can be posted automatically without any problems and without anyone checking for correctness. Perhaps this thought makes the hairs on the back of your neck stand up. But don’t worry. This has long been the practice in many companies. Because: Not only are the recognition methods (OCR, structured data from incoming invoice formats) very sophisticated, but the upstream procurement processes of ordering and digital goods receipt provide you with additional data and thus check points that can be automatically compared with the information on the incoming invoice. In other words, the procurement management system “knows” what you ordered, at what price, in what quantity and quality – and it also “knows” what was actually delivered. Consequently, it is easy to compare this data with the incoming invoice. In the event of discrepancies, the exceptions set up for this purpose take effect. This means that only in such cases does the accounting department have to look at the incoming invoice again; in this case, the purchasing employee then decides on the posting. Further substantial advantages of blind posting are ultimately better cash flow planning and also the realisation of cash discount profits. Such a procurement process really pays off.
As with all other workflows in procurement processes, employees are defined for the approval role. During the verification step for invoice approval, the digital incoming invoice processing shows its strengths to the full. Based on the procurement process described up to this point, Procurement Management now automatically checks the following three documents through a 3-way-match:
This data is used to compare the quantities and totals in the procurement process. If the invoice appears with a green symbol in the Invoice software, the check has been successful.
The Invoice approval can then be carried out by the specified auditor with a simple click. Automated approval is also possible depending on the order value. The same applies here: Thanks to modern user interfaces, the invoice verification in the procurement process can of course also take place on mobile devices. In the next step, the approved invoice can also be posted with a simple click and made available for the payment process.
The subject of contracts and their management plays a special role in the procurement process. Think back for a moment to the beginning of the procurement process – to the requirements and purchase requisitions in purchasing. In this context, contract management ensures that the purchasing department carries out upcoming orders based on a selection of provided web catalogues. At the same time, contracts are already concluded with the suppliers from these catalogues on specific terms and conditions. Both form the basis for effective purchasing. Well-known phenomena, such as the so-called “maverick buying effect” can be largely avoided through contract management in purchasing.
However, contract management does much more. Particularly in procurement processes, integrated contract management means working more efficiently, remaining compliant and always placing orders within the framework of up-to-date contracts.
Contemporary contract management supports and accompanies the entire lifecycle of a contract – from contract initiation and creation to negotiation of addenda to contract termination and archiving of completed contracts. Contract management succeeds easily and smoothly and forms the basis for a comprehensive procurement process.
Electronic contract management supports the goal of digitising business processes. Increasing or maintaining compliance is a very important factor, which includes risk minimisation and transparency about risks. This transparency and control of risks also ensure that risks are averted and profitability and economy are ensured.
All departments involved in the procurement process benefit in particular from the simple and intuitive operation of contract management, fast access to all contracts in the company and reliable adherence to compliance guidelines. Different contract types, can be optimally supported through simple customisability.
Across all locations, the contract managers in Purchasing have an eye on contract and termination deadlines, upcoming contract extensions or warranty periods, as well as upcoming monetary obligations from the contracts concluded.
A structured, quick and easy overview of all data for each contract: Contract management bundles all important e-mails, office documents and paper scans in a structured manner in the right place in the contract file. Tedious, time-consuming searching is no longer necessary, which is essential for a functioning procurement process. In addition, supplier agreements can also be placed here. This enables you to take advantage of economies of scale in purchasing. For example, instead of requesting one article from four buyers in four independent purchase orders from one supplier, you make an agreement with the supplier that combines the purchase orders into one – only at much better conditions.
At the heart of procurement processes is the secure and reliable transmission of data between corporate clients and external suppliers, as well as the legally compliant, rule-based handling of review and approval processes within the companies themselves – for company-wide transparency and accelerated processes. Recently published studies point to positive effects of digital procurement management. You derive the positive effects from the following advantages of digital procurement.
Everything in the digital procurement process is automated and electronic. No one has to bother with paper documents anymore or search for them first – this ranges from the notification of the requirement and its approval to the order itself. Everything is directly accessible to the departments involved at all times. Gone, too, are the days spent communicating with suppliers for research reasons: No more going back and forth via e-mail, fax or by phone; no more rummaging around for the right offer. Finally time for meaningful, constructive tasks.
Take advantage of digital procurement management: cost savings and efficiency gains await you. Strengthen your purchasing by bundling different requirements and gain clarity about all current and planned relationships with a supplier. In addition, budget control is one of the essential elements of well thought-out demand management.
From the requisition to the purchase order, from the delivery of goods and the delivery note to the invoice – all the data generated in the various process steps is stored and documented digitally. And is available to the departments involved across all locations. This creates cross-site and company-wide transparency.
Contemporary solutions for the digital procurement process integrate seamlessly with widely used ERP systems: Our procurement system supports Microsoft Dynamics NAV and other ERP systems. In addition, we offer perfectly coordinated solutions for procurement management in SAP with the various EASY for SAP solutions.
Modern digital procurement management naturally includes meaningful monitoring. With all figures always in view, a monitoring dashboard provides you with up-to-date figures on the essential KPIs in procurement. Ideally, the monitoring section also has deep drill-downs for detailed views of specific figures and KPIs. This forms the basis for planning reliability in procurement processes.
Imagine: All departments involved in the procurement process – whether under one roof or at different locations – are digitally connected to each other through the electronic procurement process. Every authorised employee sees what has been ordered, delivered and paid for. Of course, this information can also be accessed on the move using a smartphone/tablet. With the history in view, the future can be planned better. That makes controlling happy.
Stellen Sie sich vor: Alle am Beschaffungsprozess beteiligten Abteilungen – ob unter einem Dach oder an verschiedenen Standorten – stehen durch den elektronischen Beschaffungsprozess digital miteinander in Verbindung. Jeder autorisierte Mitarbeiter sieht, was bestellt, geliefert und gezahlt wurde. Natürlich funktioniert der Zugriff auf diese Informationen auch mobil per Smartphone/Tablet. Mit der Historie im Blick lässt sich die Zukunft besser planen. Da freut sich das Controlling.