How to get the most value from e-procurement tools
Electronic procurement—virtually unknown just eight years ago—is standard technology in nearly all companies today. E-procurement solutions initially served procurement department functions exclusively, but today its scope in some cases has expanded to that of enterprisewide systems. One result is the opportunity for procurement, operations, manufacturing, and logistics to work clos...
Electronic procurement—virtually unknown just eight years ago—is standard technology in nearly all companies today. E-procurement solutions initially served procurement department functions exclusively, but today its scope in some cases has expanded to that of enterprisewide systems. One result is the opportunity for procurement, operations, manufacturing, and logistics to work closely together.
Some of the most popular e-procurement tools include supplier analysis, e-sourcing and e-auction, contract management/approvals, electronic ordering and invoicing, spend analysis, and Sarbanes-Oxley requirements/reporting.
Bill Frankel, managing partner with The Ascher Group , a Highlands Ranch, Colo.-based procurement services and consulting firm, knows a bit about strategies for linking e-procurement to manufacturing and operations.
“A lot of companies have e-procurement, but it's limited to Internet ordering,” he observes. “Companies should expand to inventory management, where the manufacturing [operations] system can talk to the procurement department system about inventory levels.” Then, Frankel adds, if manufacturing inventory drops too low for a certain part, the system is automatically notified, and an order is placed with the vendor. Over time, it's possible to identify ideal inventory levels for each part based on ordering patterns.
While the system should link procurement to manufacturing and operations, Frankel believes the procurement department should actually manage the system.
“E-procurement is a comprehensive system that usually involves electronic ordering, and electronic invoicing and payment. All of these things need to follow the original contracts and service-level agreements that are set up through the procurement department,” says Frankel.
One company that has seen success with e-procurement is Delaware, Ohio-based Greif Inc ., a $2.6-billion container and protective packaging manufacturer.
As an extension of its lean manufacturing principles, Greif wanted to expedite the invoicing process, as well as eliminate nonvalue-added activity related to invoicing. At the time, invoicing was manual, and it took up to 15 days from the time a supplier mailed an invoice until it entered Greif's system. By reducing this time, Grief would be able to consider different value-added payment options, including taking discounts for early payment.
The company ended up selecting e-invoicing technology from OB10 . The system allows vendors to submit invoices electronically to Greif's accounts payable system, increasing speed and reducing keying errors.
According to Barbara Myers, manager of central processing for Greif, the key to project success was communication and collaboration with the supply chain team to ensure the company had the right information to give to the right contact people in the supplier organizations.
The project has been a success. “Invoices are getting into the system a lot quicker,” reports Myers. “We aren't getting as many calls about invoices being late or missed in the mail.”
In addition, Greif took 10 to 15 days out of the process of receiving the invoices, caused by mail float. “And since we aren't spending time keying invoice data into the system, we also have more time to perform value-added work,” she adds.
Greif now has about 60 percent of its invoices going through the system. “We are working with other vendors to get them on the system,” Myers notes. “We also are looking at the idea of using this system for invoicing our customers.”