How ERP Optimizes the Procurement Process (2024)

Enterprise Resource Planning (ERP) systems bring disparate parts of a business into onesecure, centralized place. Procurement professionals and managers with the right access cantap into a plethora of data and resources that help improve procurement process efficiency,lower costs and find any contract or order status in just a few clicks.

What Is the ERP Procurement Process?

An ERP system is a software system that brings togethermany business functions, including accounting, order management, inventory management andhuman resources management. The functionality also includes procurement.

As anyone who works in procurement knows, this partof the company doesn’t work in a silo. Successful procurement processes involveoperations, finance, logistics, supply chain and vendor relationships. With ERP procurementprocesses in place, you can easily view information relating to those and otherparts of the business in one centralized location.

What is an example of procurement? Procurement can involve simple purchases or more complexpurchase contracts. Examples include making a one-time purchase from a major hardwarevendor, ordering supplies for manufacturing, or buying a software tool your business needs.

To keep everything organized, trained procurement professionals can use the ERP system toenter quote and order details and track a purchase order (PO) as it’s generated andfulfilled. Many of these steps are automated by the ERP. You can keep lists of approvedvendors and suppliers, automate quote requests, track quotes as they come in and analyzethem to help you make the best procurement and relationship decisions.

Once you accept a quote, the ERP will track any related POs, sales orders, invoices,shipments and payments. You can even view existing inventory to plan out future orders, setautomated order thresholds and keep products or materials coming in without a personspending additional time on the process.

Once your procurement ERPmodule is up and running, you won’t have to walk down and talk to someone inaccounting about a late payment a vendor is bugging you about. It could cut down on the timeyou spend creating reports and spreadsheets, as the information you need is convenientlyavailable in useful dashboards. The CFO will be your biggest fan when you find ways to cutdown on how much inventory needs to sit on the shelf.

The list of benefits goes on and on. To better understand how it all fits together,we’ll look at different ERP modules that can connect to improve procurement.

What Are the 7 Stages of Procurement?

Procurement involves techniques and structured methods that are designed to helporganizations follow a standard process. These seven steps help procurement teams save oncosts and time:

1. Need Identification
   The procurement process begins when a businesses delineates aplan for procuring goods or services at a reasonable cost and pace.

2. Purchase Requisition
   Purchase requisitions are documents that contain importantinformation on project requirements to help the procurement team fill an existingneed. They’re created by either customers or internal users.

3. Requisition Review
   After the purchase requisition is approved and checked forbudget availability, the review stage allows managers and leaders to confirm thatthere’s a need for the goods or services.

4. Solicitation Process
   Once the requisition is approved, you can generate a purchaseorder (PO). After the PO is generated, the procurement team develops a procurementplan and confirms the budget before sending out requests for quotations (RFQs) tovendors.

5. Evaluation and Contract Process
   Once the solicitation process is closed, theprocurement team reviews supplier bids to decide which will best fit the existingneed. After the vendor is selected and the contract completed, the purchaserforwards a PO to the vendor, the vendor accepts it and the contract is activated.

6. Order Management
   The vendor delivers the goods or services, and the purchaserreviews the order and alerts the vendor of any issues they may find.

7. Record Keeping
   Purchasers reviews their invoices and either approve or disputethem before sending them to payment processing, keeping records for accounting andauditing.

   See Also

   Stress in Procurement: Is It Time To Put The Glass Down?

What ERP Modules and Features Improve Procurement?

While procurement managers and team members may need to tap into other ERP modules, likehuman resources, from time to time, the main work in procurement comes from a dedicatedprocurement module and several others that closely relate to procurement processes.

When choosing an ERP or looking for ways to improve how you use the one you already have,look to these additional modules to enhance yourprocurement operations:

• Finance: Finance and accounting modules help you track the costsrelated to procurement and the accounts payable (AP) process for paying invoices. An ERPcan automatically match purchase orders to invoices and fulfillment tracking to automatepayments based on your company’s rules and policies.
• Manufacturing: If your company manufactures any physical products, youcan get insights into materials requirements planning (MRP) and track the status ofgoods-in-progress to ensure the manufacturing team has what it needs at the right time.
• Inventory Management: Inventory management helps you track what’ssitting on the shelves, both incoming and outgoing, and how much cash is tied up in thatinventory. Small companies handle POs and shipping in this module, while largerorganizations may want to use the more robust procurement module for this purpose.
• Order Management: This module tracks orders from order generation orreceipt through delivery. This can lead to significant time savings for procurementteams, as anyone with access can check order status independently with just a fewclicks.
• Supply Chain Management: Supply chain relationships are essential inprocurement. With this module, you can track goods and supplies through the entiresupply chain. It may also contain order details and other information you need, such astypical shipping costs and times, to track this critical process effectively.
• Service Resource Management: This project management module may giveyou important information regarding one-time projects that fall outside your recurringprocurement processes.

When these modules and their features are used totheir fullest extent, they can help you integrate and automate many parts of the businesswhile giving leaders key data and reports to improve efficiency and profitability.That’s a big win for any business.

What Are the Benefits of Using an ERP for Procurement?

The biggest benefits of using an ERP for procurement come from better process automationpaired with advanced data, reporting and analysis tools. For example, an ERP can help yousend out better requests for quotes (RFQs) and make the best choice from the responses inless time.

Procurement Automation

Once you’re up and running, much of the procurement process can be fully automated. Youcan set up systems to track inventory and send out orders when needed. Whether you’rekeeping retail shelves full or need parts for just-in-time manufacturing, this can help youwhile cutting down on working capital requirements.

Cost Tracking

Precise cost tracking that considers ordering, shipping, taxes and any other necessaryexpenses can keep your financial projections on-target while giving you insights to whittleaway at your cost per unit over time. A small improvement in cost per unit can add up tothousands or millions of dollars in savings over time.

RelationshipManagement

As your business grows in complexity, you may find it hard to keep all of your vendors andsuppliers straight. An ERP keeps data on every vendor relationship, including contracts,pricing, POs, orders and payments, in one place, so all team members are synced up onrelationship status. Just as many businesses use a CRM (customerrelationship management) platform to track customers, it’s important to use asystem to track your vendors. That’s already built into most quality ERPs.

CentralizedData Source

When every department uses its own system to track business information, it’s possibleto have two sets of numbers that don’t agree, miscommunication and ultimately mistakesand poor business decisions. With an ERP, everyone involved in ordering has one data setthat is the business’s undisputed information source.

Reporting andAnalysis

Business data is only useful when it influences business planning and decisions. An ERP canautomatically generate reports and dashboards that include cost, delivery and other analysiswhen used effectively. For example, a report could compare costs, defective rates anddelivery times among vendors to help you make informed relationship and ordering decisions.

7 Ways to Optimize Procurement With ERP

So far, we’ve discussed some high-level benefits of using ERPs for efficiency and costmanagement. Here’s a more detailed look at seven ways to optimize procurement with ERP systems.

1. Supplier Relationship Management: Tracking all supplierrelationships, including communication, contracts and pricing details, can helpwith future negotiations and order decisions. When a new team member takes over arelationship or joins your department, the ERP gives them the information to get up andrunning quickly.
2. Sourcing: When supplies are needed, a procurement team member can loginto the ERP to look at past purchases and compare sourcing options. The ERP could dothe math and compare quotes as well.
3. Contract Management: The ERP can send out notifications when contractsare expiring. You can also input contract details to better compare available options orenter into negotiations better prepared.
4. Order Management: Match orders with POs, shipping data and payments forend-to-end tracking and order management. Large companies with many incoming orders havea much easier time using automated matching than manual processes.
5. Requisitioning: When going through an RFP process for an internalrequisition, the ERP can automatically process quotes and store communications to helpyou best choose a winner.
6. Payment Processing: The connection between order and payment systemscan completely automate payments using digital payment tools. This eliminates the needfor signatures and mailing paper checks for payment approvals. If somethingdoesn’t match, the system can be set to send out a notice to accounting or APteams for further review.
7. Purchase Planning: Insights into cost and inventory help with futurepurchase planning for seasonal needs, one-time projects and recurring purchases.

Choosing the Right ERP for Your Business

There are multiple ERP software vendors to choose.Rather than basing your decision on convenience or price alone, it’s wise toinvestigate features and how the ERP can fit into your current business.

If you’ve decided that the existing tools and systems at your business are not enough,consider both direct and indirect cost savings, opportunities to increase revenue and howyou and your team can become more efficient and effective by using a centralized ERP.

You’ll also have to choose between cloud ERPs and ERPs you host yourself. Cloud-basedERPs give everyone at your team secure access to company information from the office, homeoffice or anywhere else without any need to maintain expensive servers.

How NetSuite ERP Can Improve Your Procurement Processes

A truly comprehensive ERP platform bringstogether the most commonly needed modules with advanced features and customizations to helpyour business reach its goals anywhere in the world. Whether it’s saving time onmanaging orders, offering your growing team self-service options to find information or theongoing quest for efficiency and improved profitability, there are endless reasons to add anERP no matter what your business size.