Procurement BPO | Procurement Outsourcing | Procurement Process

What is Procurement Business Process Outsourcing (Procurement BPO)?

Procurement is either buying goods or acquisition of services or combination of both.

In the following example:
  • Company refers to: One who buys good or uses services from supplier.
  • Supplier refers to: One who sells good or services.
  • Vendor refers to: One who has necessary IT infrastructure and buy goods or services for company from supplier through their integrated IT based platforms.

If a company outsources its procurement activities to vendor, then it is called as procurement BPO Outsourcing. We will describe how procurement business process outsourcing is done by using Source to pay and Procure to pay.

Procure to Pay:

Procuring materials from Suppliers through Payment to Suppliers. It usually involves:

  • Creation of requirements by companies;
  • Approval of requirements by higher authorities within the company;
  • Creation of purchase order by the companies;
  • Receiving of invoice for the materials from the suppliers;
  • Matching the information present in purchase order, receipts of materials, and invoice;
  • Payment to Suppliers;
  • Reporting;

So, procuring the material from supplier and paying to supplier is called as Procure to Pay process.

Source to Pay:

Sourcing the Suppliers, Contract Management, PLUS Procure to Pay Process mentioned above. Here companies contact vendors, then vendors takes care of sourcing suppliers, managing contract management between companies and suppliers, procuring material from supplier through payment to supplier, hence it is called as source to pay process.

In general, materials are classified as direct procurement and indirect procurement materials. We can say that material (raw materials) need to manufacture a car is grouped under Direct Procurement and other (operating, maintenance, repair) materials that are needed to sell a car are grouped under Indirect Procurement materials. Example for Indirect Procurement materials are office supplies, IT Software, Computers, Services, facilities management etc. A company may outsource its specific indirect procurement materials to vendors.

ERP Oracle Application’s Advanced Procurement module has got internet based applications, with the help of which a company sends requirements to Procurement BPO Service Providers (Vendor). Vendor sees those requirements and find out whether suppliers are already available for those requirements. If suppliers are not there, then buyers (title of an employee of vendor) source suppliers, get price from the suppliers and send it to the company or if the company has given certain priorities, vendors speak to the suppliers, explain about contract terms of the company, negotiate price, ask them to sign the contract and thus establish the contract between company and supplier. Since vendors sourced the supplier, procured material from supplier and paid to supplier, it is called as source to pay process.

If suppliers are already available and contracts established, vendor procures the material from Supplier, supplies to the company, and issue the payment to the supplier. Since it is only procuring the material from supplier and paying to supplier, it is called as procure to pay process.

All communication/transactions are saved and most of them happen through internet based platforms between company/vendor/suppliers.

If a company is interested in price alone, then vendors do reverse auction over the internet with many suppliers and get price details.

At times, companies are also interested in doing analysis on their spend activities and it is outsourced to vendors.

 

BPO | Business Process Outsourcing | Advantages of BPO

What is Outsourcing/Business Process Outsourcing (BPO)?

Most of the companies produce products or sell products or provide services to products. Companies, to get benefits, outsource to vendors/service providers.

Example:
  • A car manufacturer may outsource certain parts to produced by other vendors.
  • A recruitment company may outsource sourcing resumes to vendors.
  • A costumes manufacturing company may outsource a part of its sourcing/procuring/spend analysis activities to vendors/service providers.

So Outsourcing is contracting done by the companies with vendors/service provider. Business Process Outsourcing is contracting of few or many business processes to vendors/service providers.

Why companies need Outsourcing?
  • Adopting to Global Standards and Global Collaboration model.
  • If it is IT based, No need to purchase hardware, software, implementation, upgrade, and support it. No need to hire consultants for implementation purpose.
  • Adopting to Six Sigma Technologies/Standards.
  • Improved metrics on Quality, Costs, Delivery, and Compliance.

What is Insourcing?

Insourcing is the opposite of Outsourcing. Instead of outsourcing activities to vendors, they insource the activities within the company itself.

Example:

Several Staffing companies head quarters are in USA and they have their own company in India. USA company, manages Sales Business Unit and in source accounts, recruitment, HR, and payroll activities to their Indian company.

What is Cosourcing?

Cosourcing is neither Outsourcing nor Insourcing. Part of the work is done by the company and another part of the work is done by vendor. In staffing industry, all business process is managed by the company.

Example:

In Payroll, they outsource a portion of it to vendors/service providers; In Recruitment, sourcing resumes alone is outsourced to third party vendors.

How companies evaluate Vendors/Service Providers?

After finding the exact business process to be outsourced, Companies send documents like Request for Information (RFI), Request for Proposal (RFP), Request for Tender (RFT), Request for Bid (RFB), and Request for Quote (RFQ) etc., to vendors/service providers and get response from them. Then companies read the documents and evaluate them whether vendors/service providers can take care of the business process outsourcing. Companies call those vendors/service providers, speak/discuss to them over phone/face to face and if they are 100% okay, companies agree and sign the contract to vendors.

 

Business Activity Monitoring

Business Activity Monitoring component is one of the features of BPM tool that provide monitoring, aggregation, analysis, measurement and presentation of business activity results to the executives or whoever needs to take better decisions.

Most of the BPM tools provide necessary utilities to monitor the processes, but only some BPM tools project the high level details about the business activities. Since an organization contains many complex and critical business processes, managers of an organization may not be able to take better decisions with detailed level of business analysis. In these situations business activity monitoring component provides the overall details of the processes and helps the managers in many ways to take advantage of it.

Advantages:

  • Business Activity Monitoring can watch out each step of business processes and provide information in a graphical format from applications like Business Process Management (BPM), Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), Materials Resource Planning (MRP), and Supply Chain Management (SCM), Databases or any other applications.
  • Business Activity Monitoring, monitors key performance indicators of an organization, abrupt changes in an industry, and competitor’s offers.
  • Business Activity Monitoring provides insight about IT systems performance, statistics on business process performance which fine tune operations.
  • Business Activity Monitoring provides real time access to business information.
  • Business Activity Monitoring helps the organization to respond to new opportunities and threats.
  • Business Activity Monitoring provides historical trends, score card, balanced score card based on organization’s key performance indicators, which improves s the speed and effectiveness of business operations. Scorecards can be of organization level or department level or business process level.
  • Business Activity Monitoring acts like a fore-teller and predicts the critical elements of business processes, the problems of an organization very much earlier.
  • Business Activity Monitoring alerts about the new problems, quickly address the problem before it reaches a bigger level.

 

Workflows

An organization performs several business processes, route tasks of business processes to employees, systems, within an organization and across the organization (Business to Business transactions – B2B) to achieve it’s goals or objectives and most of the processes are handled manually in many cases.

Manually maintained business processes very often result in errors, higher cost for resources and it is difficult to manage these processes in an efficient and effective manner. These problems can easily be overcome by using workflow software to automate these business processes.

Workflow software uses a set of instructions known as Workflows to schedule and run the business processes.  As per specific conditions, these business processes are executed in a sequential way to accomplish the goals of an organization. Workflows can be started manually, or as soon as the server is initialized, or at particular day or at a particular time, or at a particular week or at a particular month according to the needs. These workflow tools have the capability to suspend a workflow if there is a problem in a particular process and as soon as the problem is fixed, then workflow can be started once again to run the processes.

Workflow software records business process run or execution information to a repository. When the repository is queried using workflow monitor tools, information like start and finishing time of the business processes, status of the   processes (started, stopped, succeeded), errors and exceptions of the processes can be easily retrieved for further analysis. Workflows can be used to notify the process status through email to the topmost executives of the company or whoever in need of it.

Advantages of Workflow:

  • Workflow software enables the tasks to be completed in no time when compared to manual process by coordinating the tasks done by people and systems.
  • Workflow helps the topmost executives to take decisions immediately.
  • Workflow is very important for continuous process improvements.
  • Workflow reduces errors and exceptions.
  • Workflow reports provide plenty of information about tasks that have been completed, stopped or suspended.
  • Workflow is the core of B2B transactions and it provides partners, vendors, and suppliers to quickly receive, send, and analyze data that helps to take decisions, settlement of business transaction amounts.
  • Workflow reduces the number of human resources to complete tasks, which increases the enterprise’s profit.
  • Workflow can be very useful to implement Sarbanes-Oxley rules and other rules imposed by government.

 

Business Process Modeling Tools

Business Process Modeling Tools are used to create business process models, process flow models, and data flow models.

Tool NameCompany Name
All Fusion Process Data ModelerComputer Associates
VisioMicrosoft
Corporate ModelerCasewise Systems
ProcartaDomain Knowledge
Aris ToolsetIDS Scheers
Live ModelIntellicorp
Workflow ModelerMetasoftware
AionPlatinum Technology
HolosofxIBM
System Architect BPRPopkin
Designer/2000 BPR SoftwareOracle Corporation
ProvisionProforma Corporation
Smart DrawSmart Draw

 

Business Process Reengineering

What Is Business Process Re-engineering?

Quite often it is necessary for an organization to revise and re-examine it’s decisions, goals, targets etc., in order to improve the performance in many ways and this activity of re-engineering is called as Business Process Re-engineering which is also known as Business Process Re-design or Business Process Improvement.

Analyzing present business process diagrams, process flow diagrams (work flow diagrams) and data flow diagrams may lead to success in business process re-engineering since these diagrams are very powerful in visualizing the activities, processes and data flow of an organization.

Business Process Re-engineering Examples:

The entire organization’s business processes or an individual department’s business processes can be re-engineered according to the needs of an organization.

For example, a bank may have many activities associated with it like investing, credit cards, loans, etc.,  and they may be involved in cross selling (e.g. insurance) with other preferred vendors in the market. If the credit card department is not functioning in an efficient manner as the way the bank expected, it might re-engineer the “credit card” business process.

In this situation, bank may think about decreasing the interest rate, offering promotion, redemption, balance transfers etc., to the customers in order to facilitate the performance. This would lead to re-engineer or re-design the current bank’s credit card process. The net effect is the improvement in performance of credit card division and conversely, if anything goes wrong, major losses are also expected.

Computer system’s infrastructure, competition, financial strength, expenses reduction, customer satisfaction, product quality, better management, employees involvement are some of the areas that an organization is interested to do business process re-engineering and change the existing processes.

Project Infrastructure:

An organization may migrate from X database to Y database for better performance, storage capabilities and reliability.

Competition:

An organization may buy a new and sophisticated application in order to overcome the competitive pressure.

Financial strength:

Many small and big companies need money to expand their business and in this situation, they may get loans, or issue shares etc.

Product Quality:

A calling card distributor may buy good calling cards from the vendors that are good in quality, time and easy connection.

 

Advantages of Business Process Management

Business Process Management (BPM):

Business Process Management has been implemented in many organizations in order to leverage the automation of existing and future business processes. BPM is a key to maximize an organization’s ROI(Return On Investment), Quality and service provided to the customers. Growing popularity of BPM tools and the need for automation of business process in today’s business world turns many companies to go for BPM.

Advantages of Business Process Management (BPM):

  • BPM’s activities like Modeling, Automating, Monitoring, Analyzing, and improving the business processes helps an organization to get good profits in less time.
  • BPM’s business process models visualize the activities within the organization and business-to-business transactions.
  • BPM’s process flow models visualize the process flows within the organization and business-to-business transactions and the relationships between process flow.
  • BPM’s data flow models visualize the data flow within the organization and business-to-business transactions.
  • BPM’s decomposition diagrams for business process modeling, process flow diagrams and data flow diagrams visualize the processes and activities in a detailed manner.

Workflow:

BPM&’s workflow helps to define, create, execute, automate and manage processes within the organization and business-to-business-transactions to get more productivity.

Documentation:

The entire business process procedures can be documented in a shared multi-user repository. This provides technical and non-technical persons to understand the different processes that occur in each departments of the organization, its performance and the outcome of each business processes.

Quality:

BPM increases quality and quantity of a product or a service provided by the organization.

Reports:

BPM reports can be very useful to the topmost executives of an organization and whoever needs it.

Resources:

BPM reduces the working hours of the employees.

Exceptions:

BPM reduces the errors and exceptions when compared to a manual process.

Regulations:

BPM helps an organization to abide by the regulations of the government.

Business-to-Business Transactions (B2B):

BPM is the core of B2B transactions to gain leverage with vendors, customers, consumers, and suppliers.

Competition:

Provides significant competitive advantage over competitors.

Simulation:

Simulation techniques with different scenarios can be used on business processes to explore the effect of change.

 

Business Process Management | BPM

Business Process Management:

Business Process Management, a set of activities, is essential for a new or existing business in a way that it helps an organization to optimize current business processes and future organizational and operational changes.

Any service or a particular product is the result of execution of series of related tasks or activities in a successful manner. In business terms, these tasks or activities are individually called as Business Process/business processes. These business processes help an organization to achieve it’s goals efficiently.

Business Process Management helps to automate, monitor, analyze business processes and helps an organization to achieve it’s targeted profit. There are plenty of tools available to evaluate business processes and to create new business models. Follow the below links to read more.

Business process management is done with the help of different tools that help in capturing, modeling, designing, integrating, deploying, testing, measuring and maintaining several business activities. The success or failure of each company depends on how good or bad it is able to manage the entire life cycle of its processes.

Need for Business Process Management:

  • To plan for a new business or for a new change in the business.
  • To avoid the common mistakes that happens in a project.
  • To document business processes in a common language to help IT and non-IT team members.
  • To draw business modeling and data modeling diagrams and to capture business rules in a way we want them.
  • To implement enterprise architecture or enterprise integration architecture (EAI) or ETL architecture.
  • To measure data by using business intelligence tools.
  • To enhance business to business transactions.

 

Business Process Management Tools

BPM Tools:

Business Process Management (BPM) Tools are used to create an application that is helpful in designing business process models, process flow models, data flow models, rules and also helpful in simulating, optimizing, monitoring and maintaining various processes that occur within an organization.

Many tasks are involved in achieving a goal and these tasks are done either manually or with the help of software systems. For example, if an organization needs to buy a software application that costs 6 million dollars, then a request has to be approved by several authorities and managers. Here the request approval may be done manually or with the help of change management software(e.g. – Serena, Test Director); whereas when a person applies for a loan of three hundred thousand dollars, several internal and external human-centric or enterprise application-centric business processes are to be triggered in order to find out the details of that person before approving the loan. For these activities, BPM tool creates an application that co-ordinates the manual and automated tasks.

Apart from coordinating the processes, BPM tools also facilitate the capturing of the rules defined for processes, simulation of business processes, executing the processes in a sequential manner by workflow component, monitoring the business processes by Business Activity Monitoring component,  creating score cards for key performance indicators and balancing score cards to help the executives in taking better decisions.

Tool NameCompany Name
BPM SuiteUltimus
Process SuiteStaffware
Business ManagerSavvion
Pega Rules Process CommanderPegaSystem
E Work VisionMetaStorm
Team WorksLombardi Software
IntalioIntalio
BizflowHandysoft
FugeoBPMFugeo
Business Process ManagerFilenet

 

Data Flow Modeling

Data Flow Modeling and Data Flow Diagrams (DFD):

In Business Process, DFD is a top-down approach, that focuses on the flow of data between various Business Processes and helps to capture & document the movements within a business or organization. Business process DFDs were created for the purpose of developing application software and they describe about the data sources, destinations, flows, data storage and transformation.

DFD contains five basic constructs namely: Activities (processes), Data Flows (arrows), Data Stores, External References and Physical Resources.

1. Activities or Processes:

An Activity describes an action that transforms or manipulates the data flows within the system or resources. Simply processes are transformations, changing incoming data flows into outgoing data flows. These activity boxes are generally rectangular, rounded corner ones and often labelled with a noun like a name of a system or an object rather than a verb as with the case in Process Flow Modeling. These Process boxes are divided into three sections, identification number, optional location or the role responsible for the process and the process name.

2. Data Flows or Arrows:

In Business Process DFD, arrows represent the flow of data between activities, data stores and external references with the arrowhead showing the direction of flow of data from source to destination.

In DFD, arrows can be split into multiple branches, and each new branch can re-labeled in order to reflect the decomposition of the data being processed. In the same way, arrows can be merged to show the aggregation of data.

3. Data Store:

In Business Process DFD, a data store represents a database, file or any other data store physical or logical.

4. External References:

In Business Process DFD, external references refer to any location or entity that acts as a source or destination of the data which are external to the scope. Only those entities which acts as a source or destination of data are represented on a DFD.

5. Physical Resources:

In Business Process DFD, physical resources represent the flow of physical objects like material movements and are represented as broad arrows. These differ from the data flows (arrows) in a way that these describe the actual flow of resources related to the information carried by the data flow arrows.

 

1 2