Procurement Systems: Functions, Types and Self-Test

Digitalization and technological progress are fundamentally changing procurement management. Companies have to purchase more efficiently, transparently and cost-consciously. Procurement systems help by automating procurement processes from planning to invoice processing.

At a glance:

• A procurement system is a software solution that automates, manages and controls procurement processes.
• E-procurement stands for electronic procurement, the use of digital systems across the entire procurement cycle.
• Core functions are demand planning, vendor management, order processing, invoice processing, reporting and ERP integration.
• Depending on how open they are to vendors, procurement systems are classed as open, semi-open or closed.
• Which system fits depends on your requirements. The self-test below helps you decide.

What is a procurement system?

Procurement systems, also called procurement management systems, are software solutions that companies use to automate, optimize and control their procurement processes. From demand planning, ordering and vendor management to invoice processing, they enable end-to-end control of purchasing.

E-procurement: definition and basics

E-procurement, short for electronic procurement, means using digital technologies and systems to automate and simplify procurement processes. The goal is to support the entire procurement cycle digitally, from catalog and order to invoice.

How an e-procurement system works

A procurement system brings procurement activities together in one piece of software. The key functions:

• Needs analysis and planning: users enter requisitions, budgets are set and demand is planned. The data is centrally available to authorized people.
• Vendor management: vendor profiles, quotes, contracts and evaluations are managed centrally, which helps optimize the vendor base.
• Order processing: requisitions are created and approved, orders are sent to vendors electronically and tracked through to delivery.
• Invoice processing: invoice data is captured electronically, checked against orders, approved and passed on for payment.
• Reporting and analysis: procurement data and KPIs are analyzed and form the basis for informed decisions.
• ERP integration: beyond a certain size, companies work with an ERP system. An e-procurement system complements it rather than replacing it and transfers order data directly.

Advantages over traditional procurement

Compared with traditional procurement, e-procurement, meaning procurement online, helps speed up processes, reduce risk and increase competitiveness:

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Open, semi-open and closed procurement systems

How companies organize their vendor relationships affects their competitiveness and adaptability. There are three types of procurement systems:

Open systems

Companies work with many vendors and partners and use various procurement channels. This is flexible, offers a wide choice and the chance of lower prices and innovative solutions.

Semi-open systems

Companies work with a limited number of vendors but can add new ones to their vendor network. This combines flexibility with the stability of long-term partnerships and allows economies of scale.

Closed systems

Companies work exclusively with a fixed group of vendors. This offers stability and control but limits choice and innovation. Closed systems are common where quality and continuity are critical, for example in aerospace or automotive.

Self-test: which procurement system suits you?

Answer each question with a) very important, b) important, c) less important or d) not important:

1. How important is a wide choice of vendors and products to you?
2. How important is flexibility in selecting and working with vendors?
3. How important is the long-term stability of your vendor relationships?
4. How important is optimizing and controlling procurement costs?
5. How important is compliance with legal and internal regulations?

Results:

• Mostly a: an open procurement system with wide choice and lots of flexibility suits you.
• Mostly b: a semi-open procurement system offers the right mix of flexibility and control.
• Mostly c: a closed procurement system with a stable, controlled vendor base suits you.
• Mostly d: the system question is secondary for you. Other criteria such as quality or innovation come first.

simple system as an e-procurement system

simple system is a neutral e-procurement platform with no trading of its own. More than 28,000 buyers order there from over 1,000 vendors through one access point, at their own negotiated terms. Approvals and budgets run digitally, and order data goes via OCI/punchout or directly into the ERP, such as SAP or Microsoft Dynamics. It takes around 30 days from start to go-live.

Conclusion

Procurement systems, especially e-procurement, automate the procurement cycle from needs analysis to invoice. They increase efficiency, improve cost control and strengthen vendor relationships. Which system fits depends on your requirements and priorities.

Want to try an e-procurement system? Try simple system free for 30 days or book a demo.

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