What is Procurement?
The users of procurement content are organizations, businesses, and individuals involved in the procurement process. This includes procurement professionals, supply chain managers, purchasing managers, and others involved in the process of acquiring goods, services, and works needed for the functioning of an organization. Procurement is a critical part of the supply chain management process, and it is important for those involved in the process to have a good understanding of procurement objectives, steps, trends, and models to be able to execute an effective procurement strategy.
Procurement encompasses all the actions a company takes to purchase the goods, services, or works needed to function. Those goods and services are acquired from an external source and, most of the time, through a bidding process.
It plays a significant part in an organization. It is a critical part of the supply chain management process, as it ensures the timely and cost-effective acquisition of materials and other resources needed to complete business operations. An effective procurement strategy requires careful planning and execution and involves assessing potential suppliers and negotiating the best conditions and prices. It consists of several stages, such as creating a procurement plan, selecting suppliers, evaluating bids, negotiating contracts, and coordinating delivery. Each step is critical to ensure that the items and services acquired meet quality standards and serve the company’s best interests. The procurement process can be complex and risky, so companies must take the time to plan, evaluate, and negotiate for the best deal.
Procurement Objectives
Generally, procurement involves optimizing the value of purchases while minimizing overall costs and risks. To achieve these objectives, organizations should focus on the following primary purposes:
Reduce overall costs
Procurement aims to secure the best prices for goods and services. To achieve this goal, procurement professionals employ various strategies and tactics. They can invite multiple suppliers to submit proposals, compare the different offers, and select the best value for money.
Guarantee a high Quality
Quality assurance refers to the measures taken to ensure purchased items meet the required quality standards. The purchasing organization may set these required standards internally, or external regulatory bodies may impose them. To ensure compliance with these standards, procurement professionals utilize strict evaluation criteria, which are used to assess the quality of the goods, services, or works being procured. In addition to evaluating the quality of the items themselves, procurement professionals also monitor the supplier’s performance to ensure that they meet the required quality standards. This may involve reviewing the supplier’s track record, analyzing their production processes, or conducting on-site inspections.
Deliver on time
One of the main goals of procurement is to ensure the timely delivery of purchased items. Procurement experts establish clear delivery schedules with suppliers to achieve that goal and monitor their performance. It helps minimize disruptions to the organization’s operations. The necessary items are available when needed.
Manage Risks
When it comes to procurement, risk management is a critical objective that every company wants to reach. External sourcing exposes the company to various risks as it involves the acquisition of goods, services, or works from external sources. By establishing clear contracts with suppliers, procurement professionals can outline the terms and conditions of the purchase, including the price, delivery schedule, and performance standards.
How does Procurement work?
Procurement typically involves the following steps:
Determine the need
The first step in procurement is determining what materials, services, or labor are required. The identification enables the company to ensure it has the resources necessary to achieve its goals. Obtaining the needed commodities from outside sources can begin after the requirement has been determined.
Analysis of the market
A market study throughout the procurement process enables the selection of possible suppliers and the evaluation of their qualifications and costs—this aids in identifying the ideal provider of the required item or service. The procurement team examines all the stakeholders throughout this process, including the customer’s demands, the suppliers’ capabilities, and costs, as well as the current market circumstances and trends.
Choose a provider
Choosing a supplier is a vital phase in the procurement process that entails picking the best supplier in light of the market study findings. When comparing the capabilities and costs of possible suppliers, procurement specialists utilize their experience and industry knowledge to choose the one that provides the most value for the money. This might entail a formal bidding procedure.
Negotiate a contract
Concluding the terms and conditions of the acquisition through contract negotiations with the chosen supplier is a crucial stage. In addition, clauses governing dispute resolution, termination, and other significant concerns may be included in the contract. Procurement specialists utilize their knowledge and negotiation abilities to get the best conditions for the company while negotiating a contract.
Monitor supplier performance
Monitoring supplier performance is a crucial phase in the procurement process that entails ensuring the supplier is adhering to the terms and conditions of the contract, such as delivery deadlines and quality standards. The performance of suppliers is tracked by procurement specialists using various methods, such as monitoring delivery logs, examining production procedures, and doing on-site inspections. When keeping an eye on supplier performance, procurement specialists can guarantee that the organization receives the products, services, or tasks it has contracted for in a timely and satisfactory manner.
Procurement Process and Technology
Procurement processes and technologies have evolved significantly in recent years with the adoption of digital platforms, artificial intelligence, and other advanced technologies. Some of the key trends in procurement technology include:
Electronic procurement
Systems for electronic procurement enables businesses to automate and streamline their purchasing procedures, from contract administration and payment through sourcing and bidding. These systems may be connected with other business systems, such as supply chain management (SCM) and enterprise resource planning (ERP) .
Supplier relationship management
Through instruments like performance ratings, collaboration portals, and supply chain analytics, supplier relationship management systems enable businesses to manage their relationships with suppliers more successfully.
Spend analysis
Systems for spending analysis help businesses examine their spending habits and spot areas where they may cut costs and boost productivity. Using data mining and machine learning approaches, these systems may evaluate vast volumes of data from many sources.
Procurement Models
There are several different procurement models that organizations can adopt, depending on their specific needs and circumstances. Some of the most common procurement models include:
Direct procurement
A direct procurement model is a procurement approach in which the supplier is contacted directly by the organization to purchase products or services. This approach is often employed when the company can find a qualified provider who can satisfy those objectives and has a clear grasp of its own needs. A lot of advantages come with the direct procurement approach, such as:
- The flexibility to negotiate specific terms and conditions,
- The possibility for cost savings through direct talks with the supplier, and
- The capacity to forge enduring, trusting bonds with the provider.
On the other hand, the absence of competition might lead to higher pricing and increased transaction costs, possible drawbacks of the direct procurement approach.
Indirect procurement
“Indirect procurement” refers to the acquisition of items, services, or labor that is not immediately connected to the organization’s primary functions or outputs. These products are often referred to as indirect commodities or benefits, including office supplies and expert services.
While standardizing the organization’s purchasing criteria and assisting with supplier negotiations, indirect procurement can sometimes lack customization and call for sophisticated supply chain management systems.
Strategic sourcing is another term for indirect procurement, which is often managed differently from direct procurement, as it involves aggregating purchases together and negotiating contracts with multiple suppliers at once.
Types of Procurement
There are several different types of procurement based on the nature of the goods, services, or works being procured:
Capital procurement
A long-term asset acquisition that creates value over time is referred to as capital procurement. Larger, more complicated purchases are made and are typically subject to more rigorous planning and evaluation processes. The anticipated return on investment, the influence on the operations and capacities of the organization, and the risk profile of the acquisition are essential variables to consider when making capital purchases. The generation of long-term value through this procurement method is possible, but it not only comes with high levels of risk but also with considerable upfront expenses. To ensure that decisions are wise and strategic, it is crucial to weigh the possible advantages and disadvantages thoroughly.
Construction procurement
Construction procurement is acquiring the materials, labor, or other services needed to complete a construction or infrastructure project. Several methods, including design-bid-build, design-build, construction management at risk, and integrated project delivery, are available for procurement.
Information technology procurement
The process of procuring products, services, or works linked to the creation, installation, or maintenance of an organization’s IT systems is known as information technology (IT) procurement. It includes determining the need for IT resources, soliciting bids or proposals from prospective suppliers, assessing requests, negotiating and awarding contracts, and tracking and evaluating the supplier’s performance.
Professional services procurement
The process of procuring specialist services, such as consulting, legal, or financial services, from outside sources is known as professional services procurement. It includes determining the need for the services, soliciting proposals or bids from possible providers, analyzing proposals, negotiating and awarding contracts, and monitoring and evaluating the provider’s performance.
Commodity procurement
To produce goods or services, raw materials, consumables, and other goods must be purchased. This process is known as commodity procurement. It includes establishing the need for the commodities, soliciting proposals or bids from possible suppliers, assessing proposals, negotiating and granting contracts, and observing and evaluating the supplier’s performance.
What is the difference between Procurement and Purchasing?
The main difference between Procurement and Purchasing is the scope of the activities. They are often used interchangeably, but they are different activities part of the overall process of acquiring goods, services, or needs from external sources.
Procurement is more widely focused on the whole procurement management process, including identifying the need, requesting proposals or bids, evaluating proposals, negotiating and awarding contracts, and monitoring and evaluating the supplier’s performance. On the other hand, purchasing often focuses on acquiring products and services. It refers specifically to buying goods or services from an external source. It is typically the final step in the procurement process after the need has been identified, proposals or bids have been evaluated, and a contract has been awarded.
While purchasing deals with buying and receiving products or services, procurement deals with identifying, selecting, and negotiating suppliers.
Finally, although purchasing is more likely to entail operational planning and tactical execution, procurement is more likely to involve strategic planning and budgeting.
Procurement Accounting
Procurement accounting is the process of recording and tracking the financial transactions related to the procurement of goods or services from external sources.
It involves recording the procurement costs from the initial request for a quote to the delivery of the goods or services and allocating them to the appropriate cost centers or expense categories. Procurement accounting helps ensure that procurement costs are accurately recorded and properly distributed. It is a vital tool for managing the organization’s budget and ensuring that procurement decisions are financially responsible.
Direct vs. Indirect Procurement Cost
Direct procurement costs refer to expenses incurred for goods or services that are intrinsic to the production of a product or service delivery. For instance, the cost of raw materials for a manufacturing company would be a direct procurement cost since it is directly related to the production of the finished product. Direct procurement costs are typically more straightforward to track and quantify
On the other hand, indirect procurement expenses encompass those not directly related to the manufacturing of a product or the delivery of service yet are still imperative for the organization’s functioning. Examples of such expenses include office supplies. Indirect costs can be more challenging to measure.
An organization must incur direct and indirect procurement costs, which can affect total expenditures. Therefore, while making purchases, enterprises should consider them. They will be able to select the most economical options as a result.
Key benefits of streamlining the procurement process
There are many advantages to optimizing the procurement process for a company.
Reduced manual labor can free up personnel to work on other productive duties and speed up purchasing. It can also substantially cut paperwork. Reducing human error can make the procurement process more effective, saving money, enhancing decision-making, and developing vendor relationships. Furthermore, it can aid in supplier performance monitoring, allowing for better tracking and identifying trouble areas. Not to mention, improving the purchase procedure can improve supply chain visibility, giving managers better control over performance, cost, and risk management.
Best Procurement practices
To guarantee a profitable and efficient venture, procurement techniques are essential.
Establishing solid policies and procedures that encourage adherence to relevant laws and regulations and monitoring and reviewing procurement activities are all part of best practices.
An evaluation of potential risks, the choice of suppliers and vendors based on a value-for-money analysis, the use of competitive bidding processes, the establishment of clear and transparent contracting processes, and the implementation of contract management procedures should all be included in these procedures.
To ensure they are all working effectively and to find any areas for improvement, they must all be examined and monitored regularly.
Conclusion
Procurement is a crucial function for any organization, as it plays a key role in ensuring that the organization has the necessary resources and materials to operate effectively. By following best practices and utilizing advanced technologies, organizations can optimize their procurement processes, leading to better value for money, improved efficiency, and stronger supplier relationships. It is important for those involved in the procurement process, including procurement professionals, supply chain managers, purchasing managers, and others, to have a thorough understanding of procurement objectives, steps, trends, and models in order to execute an effective procurement strategy. Overall, procurement is an essential component of an organization’s supply chain management process, and its success can have a significant impact on the organization’s bottom line.
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What Is SaaS ERP? Best ERP SaaS in 2024
This article is great reference for IT and Business professionals interested in understanding the basics of SaaS ERP (Software as a Service Enterprise Resource Planning), how it works, and its benefits and disadvantages compared to other ERP solutions. It also provides an overview of the features offered and the cost involved with SaaS ERP.
Recent advances in cloud computing technologies and software-as-a-service (SaaS) deployments are at the forefront of changing how businesses think about ERP. Moving ERP to the cloud allows businesses to simplify their technology requirements and see a faster return on their investment. SaaS ERP software allows easy access to business operation software via the internet. It’s cost-effective to install and maintain as the software vendor supports software, servers, network connectivity, and security. It comes in different forms, including SaaS (Software as a Service) and ERP. We will discuss SaaS ERP to help you differentiate it from other ERP types. SaaS ERP has pros and cons; we will discuss these and more below.
What is Cloud ERP?
Cloud ERP is web-based software. It runs from the vendor’s server, allowing users to access it via a web browser. A cloud ERP deployment has different versions. The most popular versions are single-tenant and multi-tenant versions.
In a single-tenant ERP, one user gets a separate and dedicated software instance. In a multi-tenant cloud ERP model, many businesses share the same software instance and hardware to reduce costs. However, none can access the other person’s data as it is secure and confidential.
What is SaaS ERP?
A cloud ERP system has a subset called SaaS ERP. We refer to software products in a multi-tenant cloud ERP as SaaS(software-as-a-service). Customers using a multi-tenant SaaS deployment model share the software and the hardware hosting. However, the vendor keeps the software on a server in their data center but delivers it over the Internet.
Top 10 Reasons to Migrate to SaaS ERP
See our top ten reasons for migrating to SaaS ERP below:
- This version of ERP is cheaper to install and use because the vendor sets up and maintains the server.
- You can save money when your software users are few by getting a SaaS ERP model with enough modules.
- With a multi-tenant SaaS ERP, users get automatic updates and upgrades. This is not the case with an on-premise ERP system.
- Maintenance or adding new users without IT knowledge or a team is easy. The vendor will do it for you.
- It has an advanced & user-friendly user interface. It focuses on simplicity and functionality.
- Vendors provide data security features enough for different companies sharing the SaaS ERP. A single-tenant SaaS option may be better if you need robust data security.
- Your employee can access the cloud-based ERP from any place.
- Deployment of SaaS ERP is easier and quicker because you only pay an affordable upfront fee and do not do a local installation.
- You can access ERP software with emerging technologies like machine learning and the Internet of Things.
- Easy to scale because vendors provide enough avenues for that.
SaaS ERP Features
Features include access to:
- Accounting, AP, AR, GL
- Warehousing
- Distribution
- Logistics
- CRM
- Live operating metrics
- Financial and accounting data
- Sales
- Supply chain status
- Customer relations
- Inventory management tools
- Warehouse Management
- Emerging technologies like AI, IoT, and machine learning.
SaaS ERP Benefits
Why should you opt for a SaaS-based ERP model instead of a single-tenant or an on-premise cloud solution? The benefits of this ERP over these models include the following:
- It provides different business management modules at once. Hence, SaaS ERP improves accounting, finance, inventory, warehousing, order management, etc.
- The vendor provides the shared multi-tenant software instance, preventing the buyer from adding infrastructure or configuring servers.
- The SaaS ERP vendor produces automatic software upgrades several times a year. Hence, users continue to use current software features.
- This form of ERP is technologically advanced and offers an idiot-proof user interface.
- It also offers the best user experience without endangering data security and privacy.
SaaS ERP disadvantages?
As you look for SaaS-based ERP, consider its disadvantages. They include:
- Does your organization set strict regulatory and compliance standards? If so, the shared SaaS ERP might be the wrong choice for your organization. It is so because the SaaS software vendor tackles data security. Their methods might be inadequate for your needs.
- In a shared ERP model, users lack the chance to customize the software to match their unique needs.
- You will pay a monthly subscription to keep using SaaS ERP. Unfortunately, costs might grow with your business over time. Unless you have a way to control software usage, you may not foresee rising operating costs.
SaaS ERP Cost
SaaS ERP costs can vary based on your specific business needs. The more features and modules you require, the more you will pay monthly. Generally, businesses using SaaS ERP spend less because they do not buy or maintain hardware or software.
Hence, a vendor will set their subscription fees per user or via a tier system. Consider using a cost of ownership calculator online before buying SaaS ERP.
Which is best for your business?
Businesses have different needs and goals. Hence, one ERP deployment model might not suit all of them. When selecting the most applicable SaaS ERP model, consider unique factors. For instance, choose a multi-tenant SaaS model in the following situations:
- You want to avoid software maintenance and upgrades. It is costly, time-consuming, and complex, requiring a large team of IT professionals.
- You wish to install ERP without incurring hefty upfront fees and taking too long to finish.
- You can handle the security features of a public cloud. Can your organization afford a SaaS system requiring no customizations? If yes, do not hesitate.
Although these ERP models are more advanced, some businesses still require on-premise ERP. Hence, choose it in these circumstances.
- You want considerable and extensive software customization because of your distinct business model.
- You need to manipulate business data physically and cannot trust a third-party storage location.
- Also, You have enough IT experts to set up, run, and upgrade your on-premise ERP.
- The company has adequate capital resources to support the entire implementation, customization, and upgrading processes.
You also have the single-tenant SaaS ERP solution. It might work if you want more control over your data and tighter server security. A single-tenant model allows you to update and upgrade the software. It is dedicated and flexible. Choose this choice if:
- You want to avoid a shared SaaS ERP solution
- You require a dedicated solution offering more physical security and fewer data control concerns
- Additionally, You aim to lower IT staffing fees
- You are not looking for full software customization ability as with on-premise ERPs.
SaaS vs On Premise SaaS
We have already defined SaaS ERP. Next, on-premise ERP is software that runs from the company’s servers. When obtaining the software, the company pays a hefty licensing fee. Then, it must pay a maintenance fee every year. SaaS ERP and on-premise ERP try to create one unified database for everyone. However, they differ in the following ways:
- Hosting type – A software vendor hosts the SaaS ERP in their online-based server. On the other hand, a business using an on-premise ERP system hosts it in its data center.
- Licensing method – A SaaS-based ERP model uses a recurring monthly bill. The bill may increase as your business grows. In contrast, an on-premise ERP user initially pays a huge upfront licensing fee. From there, they pay the vendor an annual maintenance fee.
- Maintenance – When using a multi-tenant SaaS ERP model, you will not maintain, support, or upgrade the infrastructure or configure the software. On the contrary, a business using an on-premise ERP tool employs a third-party professional to install, maintain, and upgrade the system. Hence, SaaS ERP is more reliable for a person with limited finances.
- Software type – If you choose SaaS, your software will be in the cloud. There is no other way around it. Quite the opposite, an on-premise software system is not in the cloud. However, some businesses are now blending cloud and on-premise ERP aspects. Their hybrid versions require complex customizations to operate right.
If you want a more private SaaS version that works better than any on-premise ERP system, get a single-tenant ERP. The vendor will offer you a dedicated software instance that no other user can access. However, your business will not get the advantages of the multi-tenant SaaS we discussed earlier.
ERP business use case and capabilities
Who is turning to SaaS ERP these days? SaaS use cases vary based on several factors. These include the following:
- New businesses and the fastest-growing enterprises prefer SaaS ERP. First, this model has cheaper upfront costs and is easier to manage.
- Companies focusing more on customer relationships prefer SaaS ERP. As the vendor maintains and upgrades the software, they can focus on improving customer satisfaction.
- This ERP pleases businesses that want a scalable system. Most vendors make extensible ERPs, allowing you to add more modules as your company expands.
- Some large-scale organizations prefer to combine SaaS ERP with their on-premise ERP software. However, they put this ERP in their local or international subsidiary while running the on-premise ERP in their headquarters. It is also easy to integrate both options to share data insights.
- Companies that are tired of running expensive and inflexible legacy ERPs ask for SaaS ERPs.
Business Digital transformation through SaaS
Did you know that the global ERP software market will be worth 32.6 billion dollars in 2024? That will be an increase of 4.3 billion dollars from 2019. The same IDC report suggests there will be more cloud ERP deployments than on-premise ERP setups in 2024. This is good news for those interested in SaaS ERP.
It is a cheaper model suitable for companies looking to introduce ERP software or dump outdated legacy versions. SaaS ERP provides the fastest way to modernize and automate your business processes. It can help improve business efficiency, which can enhance customer satisfaction.
Besides, SaaS ERP allows businesses to add more helpful integrations, like BI, data analytics, and visualization tools. Above all, it enables the company to experience digitalization by allowing data sharing on any internet-enabled device.
ERP Steps to Deploy SaaS ERP
Implementation of SaaS ERP is quicker and faster because a business does not have to set up servers or meet a high upfront cost. Also, it is easier to integrate various modules when the software is in the cloud. Data migration will be challenging, especially for large-scale businesses with confidential information. Steps include:
- Discovery and planning
- Designing
- Developing
- Testing
- Deploying
- Providing support.
Future of SaaS ERP
Top ERP software providers are striving to extend the capabilities of their cloud products. They are improving analytics, user interfaces, and automation of processes. Soon, everyone using the software will interpret and deduce meaning from ERP data without calling an IT staff for assistance.
Vendors are introducing modern technologies like Blockchain, the Internet of Things, and machine learning. In the future, they will find ways to integrate these technologies for better results. We expect future ERPs to use machine learning to automate small repetitive tasks and flag fraudulent activities.
The IoT will improve warehousing and logistics and relay data from different devices to the ERP. Above all, blockchain technology will improve data storage in ERP systems. It will also facilitate and automate business transactions between companies in one blockchain network.
Conclusion
In conclusion, SaaS ERP is a type of cloud-based ERP solution. It is delivered via the internet from a vendor’s data center and shared among multiple customers. SaaS ERP offers several benefits such as lower costs, automatic upgrades, advanced user interface, accessibility from anywhere, and access to emerging technologies like AI and IoT. However, it also has disadvantages such as lack of customization and potential for rising costs. The cost of SaaS ERP varies based on the required features and modules and is typically based on a per-user or tiered subscription fee system. Before choosing SaaS ERP, it is important to consider both its benefits and limitations and ensure it meets your specific business needs.