Procurement software helps organizations automate their purchasing efforts. With procurement software, businesses are able to handle most procurement-related activities online, including raising and approving purchase orders, selecting and ordering products, receiving and matching orders and invoices, and making payments. Procurement departments are also able to use procurement products to coordinate order shipments for optimal capacity, or to engage with suppliers bidding for business. The primary benefits provided by procurement software are the reduction in time and effort spent managing purchases, increased coordination with vendors, and the ability to leverage economies of scale.
Procurement software should not be confused with software in the Warehouse Management category or Purchasing category, despite some overlap in functionalities between these categories.
Buying Considerations for Procurement Software
Before you choose a procurement software product, you should make sure that the features you require are beyond those offered by purchasing software products. While many people use the terms procurement and purchasing interchangeably, these two software categories are in fact quite different despite sharing some characteristics. For context, the steps of the procure-to-pay (P2P) cycle are as follows:
Identification of Requirement
Authorization of Purchase Request
Approval of Purchase Request
Procurement
Identification of Suppliers
Inquiries/Receipt of the Quotation
Negotiation
Selection of the Vendor
Purchase Order Acknowledgement
Advance Shipment Notice
Goods Receipt
Invoice Recording
3-Way Match
Payment to Supplier
While procurement software is designed to cover all of the steps of the procure-to-pay cycle (P2P), purchasing software is limited to a specific subset of steps that span the purchase order acknowledgement to the receipt of goods and finally to the payment to supplier. While these steps of the P2P cycle are important, they are usually not tailored to suit the scope and size of individual businesses, and are instead routine and fundamental to good purchasing practice.
Procurement software vs. purchasing software: Procurement software includes these steps as well as those associated with sourcing and the initial identification of requirements as well as potential suppliers. Negotiation with suppliers and the strategic sourcing of goods and services are also managed within the umbrella of procurement software, whereas they are not typically handled by purchasing software.
Ease of sourcing with the procurement product: Procurement software products should be able to properly facilitate the sourcing process within the P2P cycle, such that market analyses, RFx, and communications, negotiations, and contracting with suppliers are all handled within the software. Furthermore, procurement software should provide easy to use macro views of the sourcing process, so that future efforts can be streamlined or adapted to changing environments.
Does the product integrate with your existing systems?: When choosing a procurement software product, it is important to be aware of available integrations with your existing systems. If your business already uses and is happy with a purchasing software tool, a CPQ software product, or a supply chain suite, for example, you may want to maintain those systems if possible while investing in procurement software as opposed to replacing them in their entirety.
Is the software easily scalable?: As your business and its procurement needs grow, you should be confident that the procurement software you choose will be able to scale with them. Whichever procurement tool you pick should be customizable in order to adjust to your changing circumstances and needs over time. Additionally, you should check to see whether the customizations that you’ll need are included in the software’s cost or if it requires an additional charge. If customization is not offered, you may want to look at another procurement software option in order to ensure that the product is scalable with your business.
How are software updates managed and how strong is customer support?: Last but not least, you should consider the regularity and ease of software updates. The nature with which the procurement vendor notifies customers is important, as you do not want to be surprised one morning with a notice that due to issues with an automatic software update you might be unable to use the software for its regular functions. Furthermore, the cost of and frequency of these software updates is relevant to your decision, as is the quality of vendor support should issues arise as a result from these updates.
Key Benefits of Procurement Software
We have discussed how procurement software can help you streamline the sourcing and purchasing functions of the procure-to-pay cycle, but a successful procurement tool can directly benefit your company in other ways as well.
With procurement software, you can:
- Reduce costs by leveraging supplier relationships to improve performance
- Ensure contract compliance with centralized transaction tracking
- Improve procurement staff efficiency by automating order processing
- Simplify communications and negotiations with suppliers
- Reduce rework and errors with a fully integrated procurement system
- Improve spending controls with standardized approval processes
