Home / Glossary / What is e-procurement?

What is e-procurement?

E-procurement refers to the set of digital processes that dictate B2B buyer-supplier relationships in the supply chain. Utilizing technology, e-procurement aims to centralize the workflows involved in purchasing goods or services and bring about efficiency improvements. It’s essentially the digitization of the standard procurement process.

E-procurement, short for electronic procurement, replaces traditional paper-based procurement operations and opens up opportunities for automation. It’s typically facilitated by dedicated e-procurement software, integrating a range of different features including supplier management tools, e-sourcing dashboards, and spend analysis functionality.

The concept of e-procurement was first properly realized in the 1980s with the emergence of electronic data interchange (EDI) technology. It has since transformed the way businesses interact with each other, streamlining supply chain relationships across a vast swathe of sectors. The impact it has had on B2B procurement can’t be overstated, with 90% of procurement professionals preferring e-procurement to the traditional process.

How e-procurement works

E-procurement works in a fundamentally similar manner to traditional procurement, with the key difference being that each composite part of the procurement process is instead carried out digitally.

Therefore, it still adheres to the traditional procurement lifecycle, which can be generally outlined as:

  1. Identification of required goods or services
  2. Supplier sourcing or selection
  3. Purchase order completion
  4. Delivery of goods or services and relevant checks
  5. Invoicing and payment processing

 
However, each step in the process operates slightly differently when handled digitally, meaning that, e-procurement is quite different from its predecessor.

The e-procurement process begins with a purchase requisition, which is submitted and approved electronically. Once approved, the process can move on to supplier sourcing or selection, sometimes through an e-auction. Already onboarded suppliers will have their details on the integrated supplier management platform, streamlining this process and facilitating communication.

With a supplier selected, a digital purchase order is created automatically using the purchase requisition as a template. This is then delivered electronically to the supplier.

The next step from the buyer’s side is to receive the goods or services ordered, along with an invoice which is handled by the accounts payable department. E-procurement has emerged alongside e-invoicing, the prevalence of which has almost doubled in less than a decade, so the invoicing process is also increasingly digital.

The benefits of e-procurement

The use of e-procurement over traditional methods has sky-rocketed over the last decade, due in large part to the significant benefits it offers. Implementing e-procurement, along with e-invoicing and other digital processes, is now considered one of the most pertinent steps for a business looking to improve operational efficiency. Three of the most notable benefits are that it:

Facilitates automation

Implementing e-procurement, either fully or in part, creates opportunities to automate laborious tasks that would otherwise take time from the procurement team. Activities such as evaluating and selecting suppliers, creating purchase orders, supplier contract retrieval, and invoice matching are all typically handled automatically by an e-procurement system.

Not only does this free up time, which can then be spent on other value-driving activities such as nurturing supplier relationships, but it also reduces the likelihood of human error. And, perhaps most importantly, it can reduce the cost of typical procurement tasks by up to 75%.

Centralizes processes

Procurement is a process that spans multiple departments and often involves multiple stakeholders who hold responsibility for certain activities. This makes it highly susceptible to workflows being inefficient, increasing the cost and time spent on managing purchasing and often resulting in delays of the required goods or services being delivered.

An e-procurement system goes a long way to solving this issue by centralizing all required information and tools and reducing workflow friction. With a centralized system, everyone who needs access to documents or supplier details can get it on-demand. Access controls can also typically be set up to limit what features users can utilize, reducing the risk of maverick spend.

Improves purchasing efficiency

Efficiency is the ultimate objective that all procurement departments aim to achieve, and e-procurement software plays a pivotal role in turning this goal into a reality. By providing enhanced visibility into suppliers and expenditures, it facilitates the streamlining of purchasing processes, making it easier to optimize procurement and, consequently, generate significant cost savings.

In a practical sense, this is achieved by features like real-time data-sharing and communication with suppliers, integration with spend analysis tools, and e-auction functionality which can drive better value purchases.

Challenges in e-procurement

Despite its increasing centrality to running procurement efficiently, especially for companies that operate at scale, e-procurement is not without its challenges.

Chief among these is making the switch to a digital system from a traditional, paper-based procurement workflow and onboarding internal stakeholders and suppliers to the new way of doing things.

However, modern e-procurement software is easier to implement and use than many businesses know, and a growing number of suppliers are already onboarded to digital systems. The Taulia network alone has over 2 million suppliers, and new users typically see supplier adoption rates upwards of 90%.

Adopting e-procurement software to improve procurement KPI performance

Common procurement KPIs, such as cost per invoice, procurement ROI, and purchase order cycle time, can often be the bottom line when analyzing procurement performance. E-procurement software is one of the best tools available for improving performance in these areas.

The benefits it offers, from helping to decrease the amount of time spent on manual tasks to improving the efficiency with which supplier communication can be managed, can result in significant uplifts in how effectively the procurement department contributes towards broader business objectives.

Flexible Funding is a feature for Taulia Payables that allows buyer organizations to use the right funding at the right time. It gives corporate treasurers options to meet their short-term cash flow needs without restricting the liquidity suppliers rely on.
A working capital funding gap is the difference between short term assets and short-term liabilities. Learn everything you need to know about funding gaps here.
The accounts receivable (AR) process is the series of actions businesses carry out to collect their accounts receivable. Learn more about it here.
The accounts receivable (AR) process is the series of actions businesses carry out to collect their accounts receivable. Learn more about it here.
Accounts receivable factoring is a way for businesses to secure financing by selling their unpaid invoices for cash. Learn more in our glossary post.
Debt financing allows businesses to borrow money to fund their short-term needs. Get a full definition and explanation in our guide to debt finance.
Working capital funding, also known as working capital financing, is a method of business financing. Learn more about the types of working capital funding here.
Integrated ERP systems refers to the combination of an ERP with integrated modules that can help you manage diverse business processes from one platform.
Lean supply chains are designed to maximize efficiency. Learn all about the principles of lean supply chain management in our glossary entry.
Learn everything you need to know about supplier segmentation, including what supplier segmentation model to use and how to tackle the process, in our guide.
What is ESG? ESG stands for environmental, social and governance. Together, these three principles form a framework that’s used to measure how sustainably, ethically, and responsibly an organization is acting. ESG is most often used to describe the efforts companies take to mitigate the potential negative outcomes of their operations. It also refers to a…
What is supply chain management? Supply chain management (SCM) describes the process businesses use to manage the flow of goods, data, and payments throughout a supply chain. Effective supply chain management is instrumental in ensuring every element of the supply chain works towards achieving broader business objectives, whether that’s cost-efficiency, resilience, quick order fulfillment, or…
What is supply chain optimization? Supply chain optimization is the process of refining the structure and operation of a supply chain. It aims to make the best use of resources and technology to extract greater efficiency and performance from the supply chain network. Well-optimized supply chains enable businesses to meet their broader objectives, whether that’s…
What is accounts receivable? Accounts receivable (AR) is the term used to describe money owed to a business by its customers for purchases made on credit. It’s listed as a current asset on the balance sheet, representing the total value of outstanding invoices for products or services sold but not yet paid for. Total accounts…
What is cash flow management? Cash flow management is the process of optimizing the flow of money in and out of a business to achieve a specific operational aim. Effective cash flow management enables businesses to use their working capital better and fuel growth or build resilience. It involves using several levers, including the approach…
What is strategic sourcing? Strategic sourcing is the term used to describe a strategic approach to the sourcing process. It involves the same fundamental steps – research, analysis, negotiation, contracting, and onboarding of new suppliers to fulfill demand for goods or services – but is oriented to contribute to broader business objectives. It also often…
What is automated spend analysis? Automated spend analysis is an automatic digital process that captures, consolidates, and interprets spend data across an organization. It’s used to provide insights into spend efficiency and effectiveness, informing sourcing and purchasing decisions. It’s typically facilitated through dedicated automated spend analysis software, usually integrated with a wider enterprise resource planning…
What is the new FASB accounting treatment for supply chain finance? In September 2022, the Financial Accounting Standards Board (FASB) — the governing body for accounting standards in the United States — updated its standards to include a requirement for SCF disclosure on company financial statements. For most organizations, disclosure of an existing SCF program…
What is spend visibility? Spend visibility refers to how well a company can understand and track how, where, and why capital is used in their business operations. Spend visibility increases when finance teams can more accurately see where company money is being spent. Low spend visibility is defined by difficulties tracking spend comprehensively or accurately….
What is 2/10 net 30? 2/10 net 30 is a trade credit often offered by suppliers to buyers. It represents an agreement that the buyer will receive a 2% discount on the net invoice amount if they pay within 10 days. Otherwise, the full invoice amount is due within 30 days. It’s one of the…
What is working capital ratio? Working capital ratio is a measurement that shows a business’s current assets as a proportion of its liabilities. It’s a metric that provides an overview of financial health and liquidity, indicating whether current liabilities can be paid by existing assets. In the case of working capital ratio, assets are typically…
What is a virtual card? A virtual card is a payment method that is virtual rather than physical. It functions similarly to a traditional credit card but takes the form of a single-use 16-digit number and three-digit CVV code generated online, instead of a plastic or metal card that is received through the post. Virtual…
What is e-procurement? E-procurement refers to the set of digital processes that dictate B2B buyer-supplier relationships in the supply chain. Utilizing technology, e-procurement aims to centralize the workflows involved in purchasing goods or services and bring about efficiency improvements. It’s essentially the digitization of the standard procurement process. E-procurement, short for electronic procurement, replaces traditional…
What is source-to-pay? Source-to-pay (or S2P) is the process that outlines how organizations fulfill their sourcing and procurement needs. It begins with the identification of demand for a product or service, encompasses steps including supplier selection, contract management, and requisition, and ends with a payment being made. It can be split into two composite sections:…
What is supplier relationship management? Supplier relationship management is the set of processes that organizations use to build, manage, and maintain relationships with their suppliers, or vendors. A supplier relationship management strategy is essential to ensure that relationships are built productively, with a view to increasing the overall effectiveness and resilience of the supply chain….
What is supplier information management? Supplier information management (SIM) refers to the set of processes or the system that organizations use to collect, store, access, and update important data about their suppliers. From contact details to contractual documentation, the data involved in supplier information management is essential in the broader process of vendor management. A…
What is AP automation? AP automation, short for accounts payable automation, is the use of software to automate part or all of the accounts payable process. It aims to create efficiency in the accounts payable workflow by digitizing how vendor invoices are received, processed, and stored. In removing manual processes and the need for paper-based…
What is accounts payable? Accounts payable (AP) represents the amount that a company owes to its creditors and suppliers (also referred to as a current liability account). Accounts payable is recorded on the balance sheet under current liabilities. When a business purchases goods or services from a supplier on credit, payment isn’t made straight away,…
What is accounts receivable (AR) financing? Accounts receivable or AR financing is a type of financing arrangement which is based on a company receiving financing capital in return for a chosen portion of its accounts receivable. An AR financing arrangement can be structured in several ways, including as an asset sale or a loan. Essentially,…
What is the cash conversion cycle (CCC)? The cash conversion cycle (CCC) – also known as the cash cycle – is a metric expressing how many days it takes a company to convert the cash it spends on inventory back into cash by selling its product. The shorter a company’s CCC, the less time it…
What is cash flow forecasting? Cash flow forecasting, also known as cash forecasting, estimates the expected flow of cash coming in and out of your business, across all areas, over a given period of time. A short-term cash forecast may cover the next 30 days and can be used to identify any funding needs or…
What is Days Inventory Outstanding? (DIO) Days inventory outstanding (DIO) is a working capital management ratio that measures the average number of days that a company holds inventory for before turning it into sales. The lower the figure, the shorter the period that cash is tied up in inventory and the lower the risk that…
What is Days Payable Outstanding? (DPO) Days payable outstanding (DPO) is a useful working capital ratio used in finance departments that measures how many days, on average, it takes a company to pay its suppliers. As such, DPO is an important consideration when it comes to managing a company’s accounts payable – in other words,…
What is Days Sales Outstanding? (DSO) Days sales outstanding (DSO) is a working capital ratio which measures the number of days that a company takes, on average, to collect its accounts receivable. The shorter the DSO, the faster the company collects payment from its customers – and the sooner it is able to make use…
What is dynamic discounting? Dynamic discounting is a solution that provides suppliers with the option of receiving early payment in exchange for a discount on their invoice. As a result, suppliers can typically access lower cost funding than they might otherwise receive, while harnessing working capital in order to invest in growth and innovation. Buyers, meanwhile,…
What is an early payment discount? An early payment discount is a form of trade finance, allowing buyers to pay a discounted amount to suppliers in exchange for settling invoices before their maturity date. Also known as a prompt payment discount or early settlement discount, it’s typically calculated as a percentage of the goods and…
What is inventory management? Inventory management is a systematic approach to sourcing, storing, and selling inventory. Effective inventory management involves optimizing the flow of goods within an organization, from purchase right through to sale, always ensuring that an appropriate quantity is available in the right place and at the right time to meet customer demand. Inventory in…
What is invoice processing? Invoice processing is a business function that involves managing incoming invoices from initial receipt through to payment. It’s carried out by the accounts payable department and is a critical component of the procure-to-pay process as the final step of any procurement activity. The invoice processing cycle is made up of several composite…
What is inventory cycle time? Inventory cycle time is the amount of time it takes to produce and deliver an order from a customer, usually measured in days. It essentially measures the speed at which a company can complete the manufacturing or assembly process from start to end, turning raw materials or components into a…
What is procure-to-pay? (P2P) Procure-to-pay is a term that encompasses the processes which take place when a company purchases, receives and pays for goods and services. The activities that make up the procure-to-pay process range from identifying the initial need for procurement of goods or services to the final steps of approving invoices and paying…
What is the procurement life cycle? The procurement cycle is the process businesses use to find and obtain goods. It involves multiple steps, including identifying the need for a good or service, finding the right supplier, negotiating terms, creating a purchase order, and receiving the delivery. It’s also known as the procurement life cycle or,…
What is receivables finance? Receivables finance, or receivables financing, is a trade finance method businesses can use to receive funding matching the amounts owed to it by its customers in outstanding invoices. These amounts are known as trade receivables or accounts receivable. By financing its receivables, a business can receive payments earlier, meaning it can…
What is reverse factoring? Reverse factoring is a type of supplier finance solution that companies can use to offer early payments to their suppliers based on approved invoices. Suppliers participating in a reverse factoring program can request early payment on invoices from the bank or other finance provider, with the buyer sending payment to the…
What is trade finance? Trade finance is the term used to describe the tools, techniques, and instruments that facilitate trade and protect both buyers and sellers from trade-related risks. The purpose of trade finance is to make it easier for businesses to transact with each other. It also helps to reduce the risks involved in…
What are trade receivables? Trade receivables are defined as the amount owed to a business by its customers following the sale of products or services on credit. Also known as accounts receivable, trade receivables are classified as current assets on the balance sheet. Most companies allow their customers to use credit on purchases of goods…
What is strategic procurement? Strategic procurement, or procurement strategy, is the process businesses use to acquire goods or services of the right quality, at the right price, and in time to meet customer demand. It brings procurement activities in-line with a company’s broader objectives, while also reducing supply chain risk. Strategic procurement is a long-term, organization-wide…
What is supply chain finance? Supply chain finance, also known as supplier finance or reverse factoring, is a financing solution in which suppliers can receive early payment on their invoices. Supply chain finance reduces the risk of supply chain disruption and enables both buyers and suppliers to optimize their working capital. Unlike other receivables finance…
What is vendor management? Vendor management is a term that describes the processes organizations use to manage their suppliers, who are also known as vendors. Vendor management includes activities such as selecting vendors, negotiating contracts, controlling costs, reducing vendor-related risks and ensuring service delivery. The vendors used by a company will vary considerably depending on…
What is working capital management? Working capital management is a business process that helps companies make effective use of their current assets and optimize cash flow. It’s oriented around ensuring short-term financial obligations and expenses can be met, while also contributing towards longer-term business objectives. The goal of working capital management is to maximize operational…