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;
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.