As businesses complete their digital transformation and move away from complex (and often manual) legacy systems, modern procurement solutions are rapidly replacing traditional methods. This is especially true for leaders and teams wanting to become much more agile and resilient in light of the challenges created following recent supply chain disruptions.
This guide shows how businesses can benefit from cloud-based procurement software and what strategies they should use to create a more reliable and connected procure-to-pay cycle.
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What is cloud procurement?
A cloud-based procurement system is a fully integrated solution that streamlines the way procurement teams operate and automate procurement processes. This end-to-end system’s built-in collaboration and data analysis tools eliminate process friction commonly created by manual or disjointed workflows.
By leveraging the connectivity and instant access of cloud computing, cloud-based procurement software brings stakeholders, processes, data, and tools together for better and more strategic decision making.
With access to end-to-end data, teams have better access and control over company spending to reduce costs, improve vendor selection and negotiations, and sustain effective regulatory compliance.
Benefits of cloud procurement
Despite their relative newness, cloud procurement software is already creating smoother operational processes that are more convenient and efficient than the legacy systems they’re replacing.
The benefits of cloud procurement generally include:
- Cost savings
- Process transparency
- Better supplier management and regulatory compliance
The reduction in operating costs is one of the biggest advantages in switching to a cloud-based procurement system. On-premise options have high upfront and maintenance costs compared to cloud solutions that use pay-as-you-go subscriptions without any investment.
These solutions also save money on sourcing, which is the process of identifying and assessing suppliers. Negotiating with suppliers ensures that a customer receives the best value for the goods and services it receives, since this process often involves suppliers bidding against each other.
Procurement organizations are primarily measured by cost savings, making it imperative for them to reduce purchase prices as much as possible. Procurement software can help users achieve this goal by ensuring that contracts comply with the organization’s spending policies.
Cloud procurement allows users to focus on the accessibility and usability of their systems from the beginning. This advantage means they can focus on validating accessibility, requirements specifications, and vendor research before accepting and implementing a solution.
Cloud technology allows employees to access their procurement system from any location and device, provided they have internet access. Accessibility is particularly beneficial for users with mobile devices like smartphones and laptops.
Efficiency and automation
Cloud procurement solutions usually include a dashboard that provides an overall view of the procurement process. This dashboard shows progress bars for each task, resulting in 360-degree visibility over procurement that organizations can use to identify bottlenecks that are impacting efficiency.
Most cloud procurement solutions also have built-in reporting features that allow users to obtain valuable insights into processes at the click of a button. The reports should be easy to interpret, so they can aid in strategic decision-making and contingency planning.
The Hackett Group reports that automated procurement reduces staffing costs by up to 21%, largely by providing easy access to spending history and helping managers make better purchase decisions.
Automation also allows managers to perform cost analyses more easily, which is essential for eliminating maverick spending. In addition, automation reduces labor costs, since the procurement process requires fewer people.
Their ability to streamline procurement means that cloud-based software lets organizations adjust their capacity according to demand. In addition, this software automatically applies updates as they become available, eliminating the need to provide support. Furthermore, users don’t need to buy and maintain additional hardware as their capacity increases.
Scalable procurement software is particularly helpful for startups and other small businesses that are likely to expand rapidly. In these cases, the software can easily adapt to these processes as the business grows by automating purchase management.
Some cloud procurement solutions only activate some of their features based on the user’s requirements, such as contract, invoice management, spend management, and procurement action plan design. This capability extends the solution’s scope without burdening users with features they don’t need at the moment.
Better supplier management
Supplier management is a major component of procurement for several reasons. For example, it helps protect the organization from the risk of overpaying or paying for inferior goods and services. In addition, effective supplier management places managers in a stronger position to handle supply chain problems, which is particularly common in global markets.
Suppliers who provide products and services for a company are critical to its success, making it crucial to ensure those suppliers are suitable business partners. Procurement software aids in this process by assessing factors like the supplier’s regulatory compliance and financial viability.
After the vetting is complete, this software can also manage these relationships by performing actions such as issuing reminders when a vendor’s qualifications are about to expire or their risk profile changes.
Cloud procurement software types
Cloud procurement software is based on one of the following three models:
- Software-as-a-Service (SaaS)
- Platform-as-a-Service (PaaS)
- Infrastructure-as-a-Service (IaaS)
The SaaS model uses applications from various sources on the internet, relieving users of the burden of caring for complex hardware and software. As long as they can access the end-user solutions, users don’t even need to install the software. The providers of SaaS software also handle scaling by providing the user with more resources as needed. In addition, the provider is responsible for maintaining encryption, backups, and updates.
Most cloud-based out-of-the-box procurement solutions use the SaaS model. Payment is typically based on factors like usage time, data stored, number of users, and number of transactions processed. This model allows users to get started quickly with minimal expenses.
The PaaS model provides users with a platform upon which to develop, run, and manage their applications without the need to maintain a cloud system. It includes infrastructure components such as development tools, databases, networks, operating systems, servers, and storage. Customers typically pay for a PaaS with a flat fee based on the services and number of users they have, but they can also pay as they go.
Vendors can deliver PaaS solutions through types of clouds via Java development and application hosting services. This delivery model is therefore well-suited for software developers that can create and modify procurement software to their preferences. In contrast with SaaS, PaaS also allows users to manage their own databases.
PaaS is also popular for users with a large number of internal tools that they need to integrate with the procurement process. An organization with a non-standard procurement process may also benefit from PaaS because it has special requirements that SaaS solutions can’t provide. In addition, PaaS can help companies with procurement workflows that change at different stages in a project’s development.
The IaaS model provides a cloud-computing service in which users rent servers that provide the infrastructure for the procurement solution. This model gives users a high degree of flexibility for special requirements such as hosting custom software and a shared data center. It’s most common for organizations that need complete control over their procurement platform, as well as those that aren’t yet sure about their requirements.
Key features of cloud procurement software
Choosing the best procurement software can be a challenging, time-consuming process due to the possibility of revenue loss, customer turnover, and legal complications if you make the wrong decision. The main problems are the large number of choices available, combined with the need to compare complex factors such as business value, cost, customization, and scalability.
In addition, you must also weigh your organization’s business requirements against the software’s features. The following key features will help identify the best cloud procurement software for your needs.
Sourcing documents in procurement include requests for information (RFIs), requests for proposal (RFPs), or requests for quotation (RFQs), known collectively as RFXs. These documents include requirements gathered from various internal experts. Cloud procurement software can aid in the creation of RFXs by enabling approval workflows, guided authoring, editing, and collaboration.
The terms of a contract deal with factors such as suppliers, purchase category, and service levels, creating challenges for negotiating the contract. Contracting officers must also ensure the contract will provide what they negotiated and the right people approve the contract.
Procurement software helps them take control of this process and reduce risk. Negotiating agreements with this software will also help you follow your policies more closely by delivering greater visibility.
A purchase requisition is a document requesting the purchase of a product or service. A requester submits it to a procurement department, which must then approve it before the organization issues a purchase order for that item. Procurement software should be able to create and manage requisitions, thus reducing the effort needed to make a purchase.
A cloud procurement solution should include a purchase order process that helps procurement team members interact more easily by removing communication barriers. This capability facilitates the entire purchase process, which requires extensive collaboration. A purchase order system also eliminates repetitive tasks, allowing staff to focus more on procurement activities requiring creativity.
When a company receives an invoice from a supplier, it first goes through an approval process. The information on invoices is then matched to other data such as payments, purchase orders, and sales. Procurement software automates these tasks by scanning invoices, reading and updating data from existing records, and making payments.
Some of these solutions include mobile apps that allow users to remotely view and approve invoices, select an account and allocate payment. Once the invoices are processed, the software stores them for easy access at a later date, either in the cloud or on the premises. Procurement software often allows users to manually enter data in addition to automatic data capture.
The benefits of automated invoice management include the elimination of paper records, mailing physical checks, and manual data entry. Some of these tools can integrate with other software like accounting and billing software.
Supplier management functions include identifying, onboarding, and analyzing suppliers, often across multiple categories and departments. A basic supplier management feature could be just a database that stores vendor documentation, including personal and transactional information, such as order history, payment details, and purchase catalog.
High-end procurement solutions provide users with great flexibility in qualifying and onboarding suppliers. For example, they allow users to evaluate a supplier’s performance at regular intervals, which is essential for protecting a company’s interests. Another element of supplier management is providing self-service workflows and tracking for suppliers.
AI and machine learning
Artificial intelligence (AI) and machine learning (ML) generally refer to the use of advanced technologies that enable machines to perform tasks that have traditionally required humans to perform.
AI and ML should be able to complete these tasks with greater speed and accuracy than humans to be useful. Within the context of procurement, these technologies automate the procurement process, allowing organizations to make better decisions, optimize resource allocation, and improve operational performance.
AI and ML are particularly helpful when an organization has many suppliers and contracts to manage, since they can analyze supplier data, historical performance, and market trends to identify the best supplier for your requirements.
For example, you can obtain a list of top performing suppliers with the click of a button or by simply asking a question, saving hours of time and ensuring you make an informed choice.
Mobile procurement refers to the use of mobile apps or the mobile web to log in to a procurement system from a mobile device. Users can thus remotely control their procurement processes, including purchase orders, notifications and real-time analysis of their activities.
Businesses also use mobile procurement to expedite data transfers via software-based servers, allowing them to monitor their operations from any location, as long as they have a mobile device with an internet connection.
Traditional procurement software is a collection of standalone applications that don’t interact with other tools. However, cloud-based solutions integrate with other types of software, typically through the use of application programmer interfaces (APIs). This capability eliminates data redundancy between applications and the need for manual intervention by providing a single version of the data.
Choosing the right cloud procurement solution
Choosing the right provider is usually the most challenging part of implementing a cloud procurement solution. This process requires you to first define your organization’s needs, after which you can look for the solution that best meets them.
The two most important factors to consider in addition to features include the delivery method and the vendor.
You should first look at SaaS solutions, since they’re generally the least expensive. However, they also require you to build servers and manage databases. Furthermore, SaaS solutions may not provide all the functionality your organization requires.
In that case, a PaaS delivery model may be a better fit, unless you have unusual security needs like isolated databases or a private cloud. An IaaS procurement solution would be a better solution for these requirements, especially if you also have greater need to scale resources.
Begin your evaluation of vendors by reviewing their service level agreements (SLAs) for information on their support and uptime guarantees. You also need to examine their disaster recovery procedures to determine their ability to maintain services under poor conditions. Additional factors to consider include the vendor’s history, including legal issues, product reviews and customer satisfaction.
Even if the vendor has a good reputation, they still need to meet your particular needs. Many procurement software providers specialize in businesses of a particular size, so they may not be the best choice for customers outside that range. In addition, you should ensure that you aren’t paying for a high degree of customization if your organization has standard procurement processes.
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With countless integration options and dashboards to continuously track data, process performance, and improvement opportunities, a smarter, more seamless, and strategic procurement is possible.