Managing your spending rather than just spending means that you know what you want to buy and exactly how much you will pay for it. You don’t have to wait for an audit process to figure out what you spent last year; you have the information before you even place the purchase order.
This is what catalog and contract management do for you. They help you structure your product and service needs with a fiscal budget. By separating the two pieces and putting them back together, you can focus on your goal: smarter spending.
Catalog management, in simple terms, means determining what you want your business to purchase. You will most likely divide your purchasing into two types: direct and indirect goods. Direct goods are the products and services you need to buy in order to produce the goods and/or services you provide for your customers. If you operate a restaurant, this means food. If you operate a medical clinic, this means medical supplies. Indirect goods are the general products and services you need to simply keep your operation running, such as cleaning supplies, office supplies and lighting.
Both direct and indirect goods are broken down into category management and auctioned out to the appropriate vendors. For office supplies, for example, you may break the category into printer supplies, paper, writing instruments, filing supplies and so forth. This becomes an important part of electronic catalog management. The ease of finding products and services online is no different than in a printed catalog. You need to have structure.
The steps of choosing a vendor and choosing correct products at the correct price are where the payables liability for purchase order management resides. If you are going to place an order with a vendor, it should be to the correct vendor for the correct item. In the last issue, we covered supplier enablement and the importance of interacting electronically with those vendors. Now you must choose the correct products from those vendors.
Beginning with the vendor’s universal catalog of all products and services, most procurement systems allow you to download this catalog into your own database (called a hosted catalog) or to punch out to the vendor’s own website to view it. Whether you use a hosted or punch–out catalog, you can still place control parameters around the purchase–order process.
Narrowing the universal catalog to a list of approved products is the natural progression in determining what products you want your business to purchase. You most likely will have a sub–list of items on your approved product catalog that you order from the vendor. This approved product catalog is typically what the satellite locations of your business will see on your ordering system, while the corporate purchasing office will have view of the entire catalog.
Once you have the approved product catalog, you then load the pricing that you and your vendor have agreed upon. This is contract management. As I mentioned, vendor, product and price form the backbone of payables liability for any company. Rarely does a business purchase products on a regular basis without knowing what it should pay for them. Electronic contract management simply means loading the prices on your procurement system for approved products that you intend to purchase.
Having an annual contract with the vendor does not matter when you are setting up an electronic purchase process. You can still load the price you have agreed to pay the vendor for a particular product even if that price may change regularly. The price can be updated on a regular basis, as well. It is critical to have a price associated with a product or service that you will purchase on your purchasing system. This leads to the controlled and wiser purchasing you want to achieve with electronic procurement.
Using catalog and contract management in tandem will set up electronic invoicing capabilities and more importantly, move the audit process to pre–order versus post–delivery. You will not have to go back and see if you were invoiced for the correct goods at the correct price if you set up electronic catalog and contract management to audit all incoming invoices before they are paid. In the next issues, we will continue this discussion; we will look more closely at this workflow, the electronic invoice process and the spend analysis capability that results from the entire process.
