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4 min read

How to Reach Excellence in Procurement Operations?

We can define procurement excellence as the opportunity for procurement strategies and programs to be aligned with the company's overarching strategic goals. Although this definition is filled with buzzwords, we can distill this definition of excellence into your company's purchasing processes, having a direct impact on improving company profits (through reduced costs).  

However, while this goal is not uncommon for any business, many teams are still struggling to implement a plan that will impact their company's bottom line. Often, because their plan should consider not only the business processes themselves but their people and how they are being enabled with modern technology.   

Therefore, the short answer to reaching procurement operational excellence is understanding how teams are currently working through the purchasing process, optimizing it as much as possible with automation, and reallocating your people to more strategic initiatives. Below, we outline how teams can do this step-by-step, considering the traditional process in depth. 

Simplify The Purchase Requisition  

Few recognize in operational procurement that by starting the purchasing process off strong with the Purchase Requisition (PR), teams can eliminate significant workarounds later. Currently, the PR process for the average business requires the manual creation of an internal document that outlines what purchase a department is requesting. Unfortunately, the back and forth between the person creating the document and their approver makes this process lengthy and expensive. In a process that achieves procurement excellence, businesses are encouraged to simplify the steps that the person creating the document must go through while also looking at the total process to identify what is redundant.   

Your team can achieve excellence in procurement operations with a guided purchase requisition process in a digital format. Under this model, the team member issuing the PR can follow a step-by-step process that selects from the business' preapproved suppliers, ensuring that the request is on-contract and that the approver can simply select yes in agreeance with predefined terms. 

 When all steps for a compliant purchase are followed, teams can go one step further and ensure the PR approval doubles as the automatic creation of the Purchase Order (PO). The benefit of doing so is that now your purchasing process has eliminated the time it would take to generate the second document in the purchasing process, one that, by many standards, is expensive. 

Reduce the Cost Per Purchase Order 

Although we briefly touched on the PO in the previous step, let's dive into why an automatic flip is so valuable for businesses. Consider that in a recent study by the Hackett Group, the cost per Purchase Order is, on average, $14.00 per document, whereas a leading company is only paying around $3.50 to complete the same task. 

Therefore, through a combination of PO flipping, which requires no manual effort for teams, and automated purchase order creation for repeat orders and preapproved vendors, teams are in a better position to reduce their cost for executing this step. 

Automating the Goods Receipt  

When receiving a good or service, many teams still use a clipboard and paper to record their deliveries. This means that afterwards, these same team members must also manually re-enter the data into their ERP system. Unfortunately, this often means data can be typed in incorrectly, and teams are dedicating a significant amount of time to data entry, both of which cost your business money.  

In a model of procurement excellence, teams often incorporate integrated barcode and QR scanning from their point of receipt to their ERP system (or system of record) directly. The benefit is that now, any manual input is eliminated, an otherwise redundant step. Additionally, since values are being updated in the point of record immediately, businesses see a more up-to-date and accurate view of their orders.  

Eliminate Invoicing with Evaluated Receipt Settlement 

The final step in the operational procurement process is invoicing. Under the traditional process, businesses would conduct a two-way or three-way match between the Purchase Requisition, Purchase Order and Goods Receipt before sending their payment. Although necessary, this step is tedious for the person with this task, especially if these documents live in different tools. 

For this reason, teams have looked to invoice automation and invoice elimination wherever possible. Under the SAP Evaluated Receipt Settlement (ERS) model, the system your team sets in place can automatically match the details in a confirmed purchase order and goods receipt to enable an automatic payment, therefore making the invoice redundant. The theory behind this model is that if all the numbers match, a machine can quickly make the approval on behalf of one of your team members. Then, your limited human capital can be engaged only in the event of an exception (a model known as management by exception).    

The benefit is that suppliers get paid on-time and purchasing organizations are no longer subject to a long invoicing process, opening the door for additional savings through dynamic discounting.   

Creating a Highly Proficient Procurement Function 

By looking at each step in the procurement process, teams will note that there are many opportunities to make a good process into an excellent one. However, while looking at these steps in isolation is beneficial, the real savings come from solving for the entire purchasing process with an end-to-end solution. Our team continues to recognize this reality in our product line through the release of the ConvergentIS Operational Procurement portal.  

Ready to take the first step towards procurement excellence? We encourage you to fill out the form below and let us know a little bit about what your team is hoping to achieve.