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Quantifying Savings from eProcurement – Part 2 – Vendor Management

This document is part of a series of white papers addressing the challenge of quantifying savings from the implementation of electronic procurement systems. The series consists of

  • Part 1 – The Macro View
  • Part 2 – Vendor Management
  • Part 3 – Process Controls

 

Quantifying Savings from eProcurement – Part 2 – Vendor Management

Part 2 of this whitepaper series is focused on quantifiable spend control and measurable cost savings examples resulting from specific actions that are supported or enabled by a purchasing solution. It is important to recognize savings that are sustainable on an on-going basis. A Procurement Solution with well-designed approval workflows ensures that organizations don’t creep back into old habits that diminish the value of savings over time.

How does Vendor Management create sustainable and measurable savings?

The following items discuss specific solution features that create quantifiable cost reductions.

Quotation Requests

Automation of the Request for Quote (RFQ) process, such as through the WorkPlace vendor portal, ensures that purchase orders are awarded for the best price and terms rather than employee preference for a vendor, or simply reordering from the usual supplier. A formalized process

  • Sets spending limits requiring formal quotes
  • Makes formal quote requests availed to vendors with embedded details of the requirement
  • Captures, tracks, and compares supplier responses.

The mere formality of a quote request through a formal RFQ portal alerts vendors of a competitive bidding situation. More detailed responses allow the purchasing agent to make informed decisions. Measurable savings result from vendors offering discounts or terms in a competitive bidding situation.

Vendor Contracts

Vendor contracts generally commit to quantity purchases, in exchange for favorable terms. To realize the cost savings from these contracts, eProcurement solutions must ensure that

  • Qualifying purchases comply with the vendor contract
  • Commitments to the vendor are tracked in order to realize the contract savings
  • Contracts are reviewed prior to the expiration or renewal date.
  • Blanket purchase orders may be set up to authorize multiple purchases during a time period, up to the total PO amount.

To realize the anticipate cost savings, procurement solutions can be set up to require higher levels of approvals for items purchased outside of the vendor contract, or quantities exceeding the contract or blanket PO.

A single repository of vendor contracts and a formal process ensure that competitive bids are received prior to a termination and contracts are not automatically renewed without competitive bidding.

Purchasing from Approved Vendors and Catalogs

Real cost savings result from the consolidation of purchases to fewer vendors offering quantity discounts, by combining purchases of like items from multiple sources. Procurement systems facilitate this by making items from the preferred suppliers more easily available, or by requiring additional approvals and justifications for purchases from non-contract vendors.

Example: Group of formerly independent veterinary clinics.

Before After
Office managers ordered from their familiar suppliers, resulting in many purchases of the same or like items at sub-optimal quantities, and from multiple suppliers. Office managers submit Requisitions to Central Purchasing, selecting the items requested from an approved supplier. Purchasing establishes negotiated contracts with fewer suppliers, at higher quantities and more favorable prices and terms.

PunchOut cXML

E-commerce capabilities encourage the use of the preferred suppliers by making it much easier to shop their catalogs. A good example is PunchOut cXML, an industry standard based on cXML (commerce eXtensible Markup Language) to connect Requisition and Procurement applications directly to major e-commerce vendors.  PunchOut enables a requisitioner to select approved items at negotiated prices within their purchasing system, for purchase directly from a vendor’s website. All browsing, shopping, real-time inventory availability and pricing are done from the vendor’s website and their catalog.

WorkPlace users select their PunchOut vendor with a single click from the WorkPlace Requisition page to be taken directly to the customer specific site. Many of the major vendors of office supplies, technology, medical supplies, scientific tools and supplies, and industrial products offer PunchOut catalogs and electronic ordering. Examples are Office Max, Staples, Office Depot, Dell, CDW, Henry Schein, McKesson, and HD Supply.

PunchOut catalogs are set up to display products and prices negotiated between the client and supplier. The requester selects the items needed and adds them to the shopping cart. Checkout adds the selected items, quantities, descriptions, and prices to the requisition. Requisitions flow through all the required approval workflows followed by a review by the purchasing agent. Instead of issuing a Purchase Order, a cXML transaction places the order with the supplier.

The benefits of PunchOut cXML integrated with a procurement solution are:

  • No Catalog Maintenance. Catalogs are maintained by the suppliers. PunchOut catalogs eliminate the risk of ordering items that are no longer available, or where prices changed.
  • Better Product Information. Buyers have access to up-to-date details about product availability, discounts, and shipping information, all maintained by the supplier, in real time.
  • Spend Management. By accessing approved catalogs from within WorkPlace, procurement managers reap the benefits of negotiated prices with preferred vendors. PunchOut catalogs promote purchasing consolidation with easy access to the favored suppliers.
  • Improved Shopping Experience. PunchOut catalogs simplify the buying process by letting users conduct product searches, read descriptions and user reviews, and compare items.
  • Higher Productivity. PunchOut eliminates the duplicate entry of products selected into Requisitions and Purchase Orders and the printing and mailing of paper PO documents.

Internal Catalogs

Internal catalogs fulfil a similar role as PunchOut, albeit with a lesser degree of automation, for orders from vendors who do not support PunchOut. Similar to PunchOut, requisitioners select items from an approved catalog, for approved products at negotiated prices. Procurement solutions offer the capability to build internal catalogs by adding and modifying catalog items, or a mass import from a vendor-provided file.

by Paramount Technologies

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