Traditional procurement and electronic procurement both have advantages and disadvantages. Manual procurement is generally done face-to-face, or via telephone, while e-procurement is generally done online. But that simple answer hides many factors. Manual procurement is really a collection of processes that involve many steps and interactions with the other departments of a company and with suppliers. Because purchasing costs typically run to 50% of operational costs, the procurement process provides many opportunities for cost savings that can make a great difference to a company’s bottom line. The rule of thumb is that a 5% savings in purchasing costs can increase profit by 50%, and would equal an increase in revenue of 50%, or a reduction in overhead costs of about 20%.
That is why the procurement process has evolved. Traditionally, procurement was paper- and conversation-based, usually with procurement officers interacting with long-time partners or well-known suppliers and purchasing at fixed prices. In recent years, this has changed somewhat to become a strategic function: Procurement officers seek suppliers that fit with a company’s overall strategy.
E-procurement involves moving the procurement process online to cut out steps and save money. For example, traditional procurement involves getting quotes and then approval, probably from finance, as well as a purchase order, which could take more than a week. With e procurement, this process is simplified and speeded up considerably, thanks to real-time interaction with pre-approved suppliers and trading partners, who can be anywhere in the world. With online purchasing, the purchase can be approved online and the order completed within minutes; the required item often arrives within days. In business, time is money, so the more a company can reduce staff time involved in purchasing, and the more quickly it issues a purchase order, the more it can reduce operational costs.