E-Procurement

Electronic procurement or e-procurement is a process that involves purchasing and selling goods and services on the Internet. Its aim is to acquire supplies and services while saving money and time. Moreover, it streamlines the procurement procedures through automation and eliminates the need to get in touch with multiple vendors. 

Organizations must build relationships with suppliers and negotiate contracts with them to make purchases at the best time and price. The digital transaction process involves employing a closed system of a supplier. This means only a registered customer can utilize it and reap the benefits. In this case, interaction occurs between suppliers and customers via invoices, purchase orders, and bids. 

E-procurement meaning refers to a digital process that typically businesses engage in to purchase goods and services. Organizations carry out the procurement over the Internet. This allows them to save money as well as time. This process helps in streamlining various procedures, like bids and invoicing. It involves using web interfaces and networked systems for supply chain operations because it occurs over the Internet. 

The development of this process that involves dates back to the 1980s. It involves using suppliers’ closed systems and includes components like supplier assessment and contract management. Other key elements include compliance and data analytics. Hence, it is much more than online buying and selling of supplies and services. 

The e-procurement process involves the following steps:

• Online Transfer Of Information: Also known as e-informing, online information transferring refers to the phase aligning with a conventional procurement cycle. This stage describes information exchange taking place between two parties. The exchange often occurs between internal units in a business and any relevant external supplier. This step is vital with regard to streamlining and optimizing the e-procurement procedure. 
• Online Sourcing: E-sourcing or online sourcing refers to the procurement phase in which the organization pre-qualifies every potential seller. Businesses do this on the basis of designated procurement requirements, enabling them to shortlist particular suppliers for the assessment or evaluation step.
• Online Tendering: E-tendering or online tendering refers to businesses requesting information, proposals, and quotes from shortlisted suppliers. It helps a company better evaluate and analyze potential suppliers. In this stage, a business may execute a strategy to make sure that the evaluation is transparent. 
• Online Auctioning: During this stage, every involved party sets the terms of the contract and negotiates prices. Once both parties reach an agreement, the purchasing organization acquires the services or supplies from the supplier. In some cases, multiple organizations aim to secure an agreement with a supplier by paying a higher amount. That said, an alternative to such a condition is a reverse auction. It involves different suppliers competing with one another to obtain an agreement with a purchase by offering a lower price. 
• Online Product Ordering: The final step of this process includes the requisitions’ approval and development. In this phase, the organization places orders and receives the same within the estimated date. Note that the business indexes the agreements using a digital catalog to finalize this process. This enables the employees to access them later and place new orders. 

Let us look at the different types of e-procurement. 

• E-Sourcing: It puts its focus on strategic sourcing procedures, which include supplier identification and evaluation.
• E-Procurement Marketplace: An electronic procurement marketplace provides businesses with access to an extensive range of products and suppliers. This enables businesses to compare and choose suppliers easily.
• Supplier Exchange: It facilitates collaboration with different suppliers via online portals for activities such as negotiation, bidding, and order management. 
• Catalog Management: It involves developing and managing online catalogs with prespecified prices and products. This can lead to the simplification of the procurement process concerning standard items. 

Let us look at a few e-procurement examples to understand the concept better. 

Example #1 

Suppose ABC Company utilizes e-procurement software for purchasing and selling goods over the Internet. The staff from the organization’s procurement department browse the online catalogs from different suppliers’ websites and choose items that they wish to purchase. Once the staff sends the request to any supplier, they include the supplier in the system of ABC Company and wait for the approval of their manager. 

Following a vendor’s approval, the e-procurement software automatically sends the purchase order requests. In case everything goes to plan, upon the order invoice’s receipt, payment is triggered. 

Example #2

In November 2023, Federal Bank announced a partnership with NCDEX e-Markets Limited to make the integration of the former’s e-auction and e-procurement systems stronger. It is expected that the alliance will facilitate an advanced electronic procurement solution, streamlining the processes for the state and Central government organizations. 

Moreover, the integration of the Host-to-Host solution of Federal Bank with the electronic procurement platform of NCDEX e-Markets Limited will ensure an efficient and seamless payment processing system. 

Let us look at the benefits and limitations of the e-procurement process.

Advantages 

• This process makes information and data transfer more transparent for businesses and their suppliers. 
• It automates the procurement process and allows organizations to sustain more cost-effective and consistent operations. 
• The process allows organizations to better manage the inventory. This is because it enables them to accumulate accurate information regarding the current supply of products. 
• Since every transaction and the procurement process takes place online, businesses can choose from an extensive range of supplies. 
• Another e-procurement advantage is that it restricts maverick spending. 

Disadvantages 

• The process is not recommended for direct services or materials. 
• Supplier onboarding issues may arise. Also, small businesses may find updating catalogs and information with the platform challenging. 
• Electronic procurement systems can be expensive, especially for small businesses. 

Individuals new to the business world may have confusion regarding the concepts of traditional and electronic procurement. That’s why knowing the key differences between the two processes is imperative.