Procurement may not be rocket science, but it still demands constant attention, creative thinking and the application of strategic sourcing policies.

Until recently, many companies regarded procurement as a low-priority activity ruled by gut feelings and the black art of negotiation. But the application of technology to support strategic sourcing can make a radical difference to a company’s understanding of its procurement processes and the potential savings and benefits they can provide.

E-procurement applications automate the process of buying the products that employees need, from generating requisitions to gaining managerial approval and creating the purchase order. E-sourcing tools, on the other hand, are used to support requests for information, requests for proposals and requests for quotations as part of a tendering process.

As part of its procurement overhaul – see case study, p24 – HM Prison Service made a simple change to using a standard black ballpoint pen across the whole of the service. This has saved almost the equivalent of a full-time prison officer’s salary.

Steve Singleton, senior manager of consultant Accenture’s supply chain practice, says such initiatives, when replicated across the entire organisation, can produce immense benefits and cost savings. But gaining an understanding of the breadth and mix of purchasing strategies remains one of the biggest challenges for many companies.

‘As procurement professionals you need to know where you spend your money to support the business at a more strategic level,’ he says. ‘Many large companies still can’t push a button and find out who is buying what against which contracts.’

The result is that organisations are looking to technology to give them a better view of the whole procurement process.

The Shaw Trust, the largest provider of employment services for disabled people, has automated its purchasing and invoicing processes and expects to save half-a-million pounds in the first year. Gregory Asante, head of commercial enterprise finance at the Trust, says there were significant benefits to be gained from using an e-procurement tool.

‘The Shaw Trust had more than 5,000 different suppliers, generating 50,000 invoices a year,’ he says.

‘We used the e-procurement system to create a preferred supplier list, reducing the number of suppliers to a third of what it was. We then negotiated better discounts from them on the basis of increased volume and regular supply.’

Software systems that improve the efficiency and effectiveness of procurement have been in use for almost 10 years, but interest in emerging systems is growing rapidly. They include contract lifecycle management, electronic invoice presentment and payment, automated spend analysis and services procurement.

Forrester Research analyst Andrew Bartels says the e-sourcing part of the market has matured.

‘Corporates have been focusing on controlling and reducing costs during the past years of low inflation, and the limited ability to raise prices has been the major driver for e-sourcing systems,’ he says.

‘We predict that automated spend analysis will grow by more than 20 per cent in 2008.’

Auction bids and other supplier selection techniques help buyers choose the best contractor. Ashley Dew, sourcing operations manager at British Airways, says streamlining the company’s buying procedures has saved more than £500m and revolutionised the tender process.

‘Moving to online tenders with a standard format has improved our processes and reduced the tender cycle time,’ he says. ‘Instead of receiving 15 tenders all in their own style and format, which made it difficult to extract the information for comparison, we can now automatically score and compare our suppliers at the touch of a button. We can consider a much wider range of suppliers because we can evaluate all their replies more easily.’

Companies are starting to recognise the value of visibility throughout their processes, and not just in dealings with the top suppliers and commodities. Organisations want spend visibility that goes beyond the data to results-driven analysis and bottom-line savings.

Andy Kyte, research fellow at analyst Gartner, says that effective vendor management creates a solid foundation for spend analysis.

‘By the end of 2008, at least two-thirds of financial audits will comment on supplier data accuracy and demand improvements,’ he says.

‘The apparently simple task of maintaining contact information defeats many businesses. Those with low data accuracy pay higher administrative costs across the full procurement lifecycle. Many cannot even identify how much money is spent with a specific supplier.’

As supplier spending increases, auditors are taking more interest in the administration of procurement. Organisations aiming for better visibility must have all their spending data aggregated. This gives the IT manager the ability to identify sourcing opportunities and monitor compliance.