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Paramount Technologies

Quantifying Savings from eProcurement – Part 3 – Process Controls and Summary


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This document is part of a series of white papers addressing the challenge of quantifying savings from the implementation of electronic procurement systems. The series consists of

  • Part 1 – The Macro View
  • Part 2 – Vendor Management
  • Part 3 – Process Controls and Summary

 

Quantifying Savings from eProcurement – Part 3 – Process Controls

The percentage of “Spend under Management” is a major determinant in how disbursements are controlled. A requisition, purchasing and receiving process ensures that

  • All requests for purchases are recorded and approved.
  • Approvals routing workflows are tailored to the purchase type, cost, and organizational structure.
  • Items are selected from preferred vendors.
  • Requisitions are within budget.
  • Purchase agents review requisitions, fulfill from existing stock if available, recommend alternatives, and obtain competitive quotes from vendors for new items.
  • In Receiving, quantities and prices are checked against the purchase order.

Measurable savings result from

  • The avoidance of unnecessary purchases of items that may be available at another location.
  • Purchases over budget that can be delayed or are not absolutely needed.
  • Identifying products from a different vendors at a lower price.
  • Corrections for short shipment or billing discrepancies.

Non-PO Invoices (Check Request)

Despite all efforts to increase spend under management, the reality is that many companies have a relatively large number of non-PO invoices coming into their AP department. Examples are emergency spending, legal services, consultants, facility services and repairs, and utilities. Without a Check Request (non-PO invoice) process, these invoices flow to AP and may be paid, often without the required vendor selection, price checking, approval, and budget control processes.

Non-PO invoices can be controlled when the vendor or internal employees submit the non-PO invoices to a folder or portal, via e-mail, fax, or scan of a physical document. The Workflow Invoice Automation solution creates a Check Request solution with the pertinent vendor and date, and applies the appropriate routing and approval rules. The Invoice Automation solution thus applies the same discipline as transactions originated by Requisitions and Purchase Orders. With a controlled process for non-PO orders, credit notes for discrepancies to work orders, verbal commitments, or consultant hours overbilling can result in significant cost savings.

Summary

Too often, decision makers reject investments in a purchasing solution when the benefits are not fully understood, or not sufficiently quantifiable to document a credible ROI.

The ROI is the bottom line result from the investment in a purchasing solution, including the hardware, software, implementation services, and ongoing maintenance and administrative expenses, or the cost of a cloud (hosted) solution.  Cost savings can be quantified by comparing the before and after cost on a consistent basis, for the same quantity and same or equivalent quality of items and services purchased. In the previously mentioned example of the group of veterinary clinics, the cost of products and services purchased within a time period before and after the implementation of Procurement, factoring out changes in quantities or the type or quality of services purchased.

 

Items Purchased Cost before eProcurement Cost with eProcurement Cost Savings

 

The investment is offset by cost savings from

  • Consolidating purchases to fewer vendors with contractual commitments at better terms.
  • Quote requests to multiple vendors to select the best prices and terms.
  • Credit notes correcting price and quantity errors for received items not matching the PO.
  • Overbillings for non-PO items.
  • Rejected or modified requisitions that can be filled from existing stocks, delayed, or are not necessary
  • Extra cost for expediting shipments that delayed due to a cumbersome purchasing process.

by Paramount Technologies

 

One Response to “Quantifying Savings from eProcurement – Part 3 – Process Controls and Summary”

  1. eProcurement and cloud-based technologies can help advance your business, save you money, and bring about strategic changes in thinking far beyond the role of traditional procurement in years past.