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Why E-Procurement

Neil Patterson, Managing Director of Requisoft plc, outlines his view on making e-procurement pay.

The justification for e-procurement always seems to come down to cost. However it is wrapped up, every article seems to end up with cost savings being the main goal of an e-procurement strategy. This being the case it is worth taking a critical look at the areas where savings are going to come from, starting with the Internet.

The lasting legacy of the dot com boom and bust is a perception that e-procurement is all about getting things cheaper. The argument was that the web would allow a new way to buy that would lead to lower prices. Hubs, marketplaces and auctions sprang up across the Internet, burnt huge sums of money and many have now disappeared. The reasons for this are complex and there isn't the space here to discuss them. However it is worth considering the perspectives of the two parties, suppliers and purchasers.

Why it was thought that suppliers would have any enthusiasm for a system where they would be engaged in a perpetual dutch auction is as unclear now as it was when the ideas were first proposed. Well it takes two to tango and the vast majority of suppliers aren't dancing. Expecting suppliers to completely change their behaviour and participate in marketplaces, hubs and auctions was like expecting turkeys to vote for Christmas.

The market places and hubs that have been set up appear to end up restricting choice. I have met very few purchasing professionals who warm to the idea that all their purchasing will be through a third party who will carry out all the selection, price negotiation and management of vendors that they can use. Likewise, there is a well founded suspicion that building your IT infrastructure around software and systems supplied by such organisations is a bad idea for future flexibility.

The hubs, marketplaces and auctions that have survived, tend to be those where both parties, buyers and sellers, have a common interest and can benefit. This makes sense and will be how things develop in the future but it will take time. Also, a lot of business will still be conducted directly between two organisations without an intermediary.

For any of this to happen, organisations need to get the IT infrastructure in place. So what's the best policy, wait and see, or implement now and be ready when it happens? If connecting to the web was the only way to save costs then waiting makes sense. However, this is not the case. The early and immediate savings to be made with e-procurement come from controlling what people buy, not just how much they pay for it.

Ultimately the managers of an organisation have to take responsibility for controlling purchasing and they need the tools to help them do this. How often do people sign requisitions without knowing if there is an alternative? Getting a laptop 5% cheaper by using a hub is not as good a saving as not having to buy a laptop at all.

The tools managers need are readily available. A good e-procurement system will automatically route requisitions to the right decision makers. If the organisation has an effective asset management system and procedures then, in the example of the laptop, a manager will be able to find out if there is one spare in another part of the organisation.

Controlling what people buy with catalogues can be very effective and bring a multitude of benefits. However it is also true that catalogues are the icebergs of e-procurement systems. The benefits are obvious and above the surface. However they can require huge amounts of work to maintain and can be fatally damaging to an e-procurement system's credibility if they are not managed properly. For the smaller organisation, they have to be limited to a sensible size and scope and be easy to maintain.

The automation of much of the drudgery of a manual purchasing system will free the purchasing department to spend more time in selecting the right suppliers and controlling them effectively.

A final point concerns the ability of many organisations to implement e-procurement. From Requisoft's own market research and discussions with existing users there are three main issues that keep on coming up. These are the cost of purchasing an e-procurement solution that is appropriate for an organisation, the effort required to implement it and the management of the system in the future. The emergence of systems like Requisoft's procurement 3.0 address these issues and now offer organisations an affordable and effective way of achieving the cost savings that e-procurement systems have always promised.

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Administration

The Administration Module is used to manage users and system configuration. Users are assigned a role and a cost centre. The role defines which modules of the system are available and what the user may do within them. The system allows these roles to be constructed. Examples of role types are:-

•  Administrator
•  Requisitioner
•  Approver
•  Budget Manager
•  Purchase Clerk
•  Goods Inward Clerk
•  Accounts Clerk

Cost Centres allow users to be grouped and managers to be assigned to be responsible for them. In this way, a hierarchy can be established which controls the access to information on the system. For example, a Manager may be set up as being in charge of a Cost Centre and able to see all requisitions raised within the Cost Centre.

The reporting module is accessed from within the other modules and provides the user with reports appropriate to their status. A number of standard reports are provided with the system but users may add their own, using a report generator such as Seagate Crystal Reports.

The Help Module is accessed from within the other modules and provides the user with help appropriate to their current position on the system.

Budgets

The Budget Module uses a flexible company and cost centre structure allowing budgets to be set up for financial years and financial periods.

The system is multi-currency and allows budgets to be viewed in the local currency, the standard currency for a Group of companies or in Euros.

For each budget period, the system keeps account of the budgeted amount, the amount outstanding on requisitions and the amount invoiced. Managers can view and allocate budgets as part of the Purchase Requisition Workflow process.

System security prevents a user from viewing data outside their Company and/or Cost Centre.

Benefits of this feature include:-

•  Flexible, powerful cost centre structure can handle budgets by Project and/or Department and/or period;
•  Up to date information ensure that Managers do not exceed budgets;
•  Cost Centre structure ensures that spend in properly allocated.


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