A Case for E-Sourcing and E-Procurement Integration

Even though some may argue that the two platforms should remain separate, especially since most providers today either excel in one platform or the other, I believe there is a strong case for the integration of the two platforms. Let’s start by considering a basic procurement process, pictured below. Even though it looks like there is a clean separation between e-Sourcing and e-Procurement between the “Contract Negotiation” and “Purchase Order” steps, and that one should be able to just slice the process down the middle, doing so comes with its disadvantages.

basicesp.jpg

Three major reasons for this are as follows.

1. The processes require the same data to be truly effective.
     
Take a good look at the process. You’ll notice a number of steps that depend on data created and obtained in other steps and vice versa. For example:

  • Spend Analysis is heavily dependent on actual spend culled from the AP systems, performance metrics culled from actual shipments, and contracts that resulted from prior contract negotiations.
  • Although not shown, the supplier identification phase of the RFX process requires supplier information culled from previous e-Sourcing rounds and performance data gathered during previous relationships and procurement cycles.
  • Purchase Orders require contract data and terms introduced in the RFX phase.
  • Invoice Reconciliation requires contract data, quality and lot size data on the shipment received.
  • Payment requires contract (or catalog) data to determine the payment terms.

2. Supplier Management and Risk Management cannot be cleaved in half.
     
Critical to any successful e-Sourcing and e-Procurement effort is good supplier management and good risk management, but these processes must be handled holistically to be truly effective. Not only is a supplier not
going to want to deal with Rep A for sourcing issues, Rep B for procurement issues, and Rep C for delivery issues, etc., but neither sourcing, procurement, or logistics will be able to make the right decisions under
pressure with at most 1/3rd of the relevant information at their fingertips. Furthermore, all of the risk mitigation planning that goes into an award decision is useless if the individuals responsible for actually procuring the goods as they are needed are not aware of the planning, and more importantly, what could go wrong and what to look for. For risk mitigation efforts to truly succeed, I would argue that everyone needs access to all relevant information at all times.

3. Decisions in one part of the cycle impact the other half of the cycle.
     
One area in particular where this is true is finance. For example, if an organization’s normal payment terms are 45 days, but a sourcing manager cuts a deal for 30 days to get a really great price, it’s critical that the
procurement and accounting team know about it. Otherwise, the invoice might sit on the shelf until day 44, at which point a large penalty clause might click in, costing the organization more than the sourcing manager managed to save in the special deal.

Furthermore, there are more reasons why the processes, and the platforms, should be integrated, but since I’m sure that the other guest authors lined up for this week will want something original to blog about, I’ll stop here.

Still quiet here.sas

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