Can a Digital Procurement Process Really Save Money?

Can a company, in the lower middle market, really save money using a digital procurement process?

Let’s take a closer look …

The First Step
The first step towards digitizing the procurement process can only begin if a company already has a procurement program in place, i.e., process, templates and a submission network.

This being the case, let’s stipulate that management has decided to examine which process is better for the company, a manual or digital purchasing requisition program.

To simplify this example, we will only look at the first part of the process and that is creating and submitting a purchasing requisition to the Purchasing department.

Time Study
To begin, it is necessary to benchmark the company’s current manual process. The time for processing and submitting requests for operational supplies needs to be measured.

Below are the results, using a random sampling of purchasing requisitions, extrapolated to equal one year’s worth of requests.

The next step involved processing the same requisition(s), but this time the requests were processed and submitted electronically. Here are the results. Again, the same sampling of requisitions was used and extrapolated as in the first case.

When comparing these two studies, it is easy to see there is a significant reduction in costs when using the digital creation and submission process. In addition, requisition accuracy increases by eliminating repeated data entry that is an integral part of the manual process.

More Reduction in Costs When Digitizing Other Processes
The reduction in costs achieved by a company can be even greater, once the entire process is digitized. This can be seen when the entire purchasing and administrative processes of the company are digitized (i.e., purchase orders and Accounts Payable).

The Bottom Line. Once a procurement program is in place, a company can analyze the idea of migrating from a manual to a digital requisition process. The first step is a time study to benchmark manual processes. Likewise, the digitizing of the purchase requisition creation and submission process must be measured. The time saved by a requestor in processing and submission of a requisition was approximately 50%. More opportunity for cost reductions exists when considering digitizing the purchase order and Accounts Payable processes.