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The Impact of eProcurement on Direct Spend

As businesses bring direct spend under eProcurement management, we explore how eProcurement cuts costs and automates direct procurement processes.

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In recent years, eProcurement adoption has skyrocketed. As we revealed in the 2021 U.S. B2B eCommerce Market Report, eProcurement is now the fastest growing digital procurement channel. Buyers recognize that procurement digitization is critical to spend management. By adopting eProcurement, they gain greater control of spending. By integrating their eProcurement systems with supplier eCommerce stores, they streamline procurement, reduce errors, and bring transparency to what was once a fragmented and opaque system.

However, B2B eProcurement adoption focuses primarily on indirect spend. Or it did until recently. As eProcurement vendors seek to expand their market, they have introduced tools that enable order to invoice automation for direct spend. At PunchOut2Go, we’ve seen a significant increase in the number of B2B buyers seeking to streamline direct procurement with eProcurement integration and automation.

Direct Spend vs. Indirect Spend

Direct spend relates to the purchase of goods and services used to manufacture products sold to customers. For example, a pharmaceutical company buys chemicals to manufacture medication. It’s direct because purchased goods flow directly to the customer.

In contrast, indirect spend relates to other purchases a company makes to support its operations. Businesses need chairs for employees to sit on, computers for them to work at, and various other goods and services that don’t find their way into the company’s products.

Historically, businesses have preferred to adopt eProcurement for indirect spend, leaving direct spend in the hands of procurement professionals or executives. Direct procurement is critical to the business’s operations. Buyers spend significant time and effort building supplier relationships, which are typically long-term, collaborative, and based on close cooperation between buyer and seller. Supplier relationship management is the priority, and there are established strategies for successfully managing those relationships.

In contrast, indirect procurement is more transactional. It’s essential to a business’s operations—everyone needs a chair to sit on—but it’s not as consequential to its success. Direct spend issues go right to the bottom line. Late delivery of supplies leads to interrupted manufacturing, lost business, and damaged reputations. Problems with indirect spend don’t hit so hard and fast. Additionally, indirect spend was often fragmented across the company, making it an ideal target for centralization via an eProcurement platform.

Nevertheless, as businesses adopted eProcurement, they began to see how powerful data analysis and automation features could build more robust supplier relationships, particularly when eProcurement is enhanced with supplier integration and automation features.

eProcurement Platforms Target Direct Spend

As B2B buyers begin to adopt eProcurement for direct spend, eProcurement platform vendors seek to increase their market size by expanding beyond indirect spend. They are building or acquiring software systems aimed squarely at the direct spend market. SourceDogg focuses on direct spend eProcurement. Jaggaer offers direct spend features for ordering and RFQ management. Last year, Coupa acquired Llamasoft less than a year after releasing a new AI-powered platform that improves decision-making for direct and indirect spending.

The Benefits of EProcurement for Direct Spend

We’ve looked at what’s happening in the eProcurement direct spend space, but why is it happening?

  • Automated order processing – Just as with indirect spend, eProcurement integration facilitates purchase order automation, allowing sales and purchase orders to be automatically communicated between buyer and seller platforms. Automatic data exchanges reduce transaction costs and help to eliminate errors that can hurt supplier relationships.

  • Centralizing and standardizing direct and indirect spend – Companies will likely continue to use familiar procurement strategies to source direct spend goods and services. But other aspects of the procurement cycle are ripe for automation. They include requisition and purchase order management, invoice management, and more. We expect to see an increasing focus on digitization and automation for order-to-invoice.

  • Direct spend resilience – As businesses discovered when the COVID-19 pandemic hit, stability and supplier diversity are just as crucial as supplier relationships. When supply chains are disrupted, organizations require data transparency. They need to know who they are ordering from, where goods are used, the volume and variability of orders and supplies, whether key departments receive the materials they need in good time, how demand from different parts of the business has evolved, and more. A centralized eProcurement platform provides the data, and analytical tools businesses need to manage direct spend when disaster strikes.

To learn more about how eProcurement integration and automation could help your company to enhance its direct spend management capabilities, complete the form below, and an eProcurement integration specialist will contact you soon.


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