What is a Procurement System?

A procurement system is typically a computerized system designed to manage the procurement process. Procurement is a term used to describe purchasing activity for a business or organization. There are two primary types of procurement systems: electronic procurement and standard procurement. Both types of systems are widely available and are often included in an enterprise resource planning (ERP) or accounting software product.

Although the functionality provided varies by software, a typical procurement tool includes purchase requisitions, purchase orders, goods receipts, and invoice processing. In additional to these core requirements, most systems include an array of reporting tools. Built-in approval processes, controls, and funds management tools are usually standard in the larger products.

The primary concept of procurement is that advanced planning, scheduling, and group buying will result in cost savings, more efficient business operation, and therefore increased profitability. A procurement system is used to manage this process, providing turnaround time for invoices, tracking of total spending by commodity type, as well as financial commitments and cash flow management. The complete implementation of a procurement system usually results in significant changes to the existing business process, as the system will require certain internal controls and procedures to be in place.

An electronic procurement system is also known as e-procurement. This term is used to describe software that allows purchasers to access supplier’s catalogs via the Internet, as well as accepting electronic invoices. The purchasers select their materials, indicate the accounts to be charged for the purchase, and create a purchase order in the accounting system. All procurement-related activity is completed in the electronic system, reducing paperwork and increasing efficiency.

Electronic invoice processing allows selected companies to further streamline invoice review and approval. The data is then routed through a series of online approvals before being processed for payment in the accounting system. This type of procurement system is very popular in large firms, where procurement contracts are in place to manage spending activity. For these firms, the reduction in staff time for invoice processing provides an excellent return on investment.

A standard procurement system is fully integrated with the accounting software package used by the organization. All purchasing activity is tracked and managed through this module, allowing the firm to control spending and track opportunities for greater savings. Reports, analysis, and internal controls are all built into this type of software and are designed around best practices. The implementation of a procurement system is one of the easiest ways to improve operational efficiency.