Purchasing automation, previously considered only a nice-to-have, is now actually a critical element in the optimal optimization of procurement operations. Not only is it achieving efficiency but is also laying a pathway to cost savings.
Increasing demands for regulatory compliance, effective relationship management with suppliers, and meeting specified organizational financial goals enhance the rationale for embracing complex purchasing automation solutions. Sophisticated purchasing automation encompasses such processes as approval workflows, three-way matching, catalog and non-catalog purchasing, and integration with ERP.
Of course, compared to former times, this procurement process has evolved from being totally labor-intensive to a data-driven and technology-enabled system of AI and LLMs, all designed for accuracy maximization, cost minimization, and efficiency enhancement. Still, most companies get stuck in legacy systems that are inflexible, lack visibility, and are not scalable.
This article covers the concepts of auto-purchasing basics, why approvals need to form workflows with automation, how AI and LLM work to address procurement-related pain points, like errors in 2-3 way matching, among others, and highlights the imperative need for a seamlessly adoptable system as well as a solution provider who would allow easy and rapid onboarding with API integration seamlessly into existing ERP and AP systems.
What is Purchasing Automation?
Purchasing automation may be defined as implementing technology to automate the procurement process. This includes requisitioning, raising purchase orders, processing invoices, and even payments to suppliers. Automated purchasing solutions are built to reduce manual interference, improve precision, and knock bottlenecks out of the procurement workflow.
Critical features of a complete purchasing automation solution:
- Automated approval workflows and threshold settings
- Catalog and non-catalog purchasing integration
- Automated 2–3-way matching for invoices, purchase orders, and delivery receipts
- AI and LLM-powered fraud detection and risk analysis
- Full API integration with ERP and AP systems
By automating these processes, businesses can reduce costs, improve compliance, and ensure more efficient supplier relationships.
The Importance of Automated Approval Workflows and Approval Thresholds
Probably one of the most important aspects of purchasing automation is the automated approval workflow. It means that procurement teams can set up predefined processes for purchases based on certain rules, such as dollar thresholds, product categories, and department needs.
Approval Thresholds and its Value
An approval threshold is the amount where you have determined that all purchases should be reviewed by a supervisor or procurement professional, before the final approval. For instance, no approval might be needed for low-cost items but purchases of higher cost (above $10,000) need approval in multiple stages.
Automated approval workflows and thresholds have countless advantages:
Reduced Bottlenecks: With automated approval, the procurement teams can save time by making low value purchases faster.
Compliance and Control: Approval thresholds ensure that big or important purchases cannot be completed without proper checks in place. This automatically minimizes errors and fraud.
Efficiency: Automated workflows save procurement professionals’ time to do more strategic tasks by relieving them from the burden of having to personally approve routine purchases.
A fully configured approval workflow helps in smooth processing, reduces errors, and tracks events electronically to comply with the requirement of maintaining an audit trail.
Role of AI and LLM in 2-3 Way Matching
Procurement further requires the validation of the goods and services ordered, received, and invoiced against what was agreed. The process is known as 2–3-way matching.
This means, on your part, comparing the invoice of the supplier with the purchase order. Here you ensure that the quantities and terms between the different documents agree. 3-way matching adds one step more by comparing this PO and invoice with the delivery receipt to confirm that items ordered have been received as expected.
However, most legacy purchasing solutions struggle to achieve 2–3-way matching as data is not well integrated or automated. Errors associated with the difference in quantities ordered versus received or price mismatches tend to go unnoticed in such processes, leading to overpayment, underpayment, or lost savings.
How AI and LLM Solve 2-3 Way Matching Issues
AI and LLMs are game changers for heightening the accuracy and efficiency with which 2-3 way match is made. The smart capabilities of AI and LLMs are to be mentioned about here:
Automated Discrepancy Identification: With AI, discrepancies between invoices, POs, and delivery receipts will instantly be flagged by the system, so procurement teams can correct these mismatches before making payments.
Predict and Prevent Errors : By analyzing historical data, AI and LLMs can understand patterns that procurements have committed in terms of errors, such as the price of suppliers being mismatched, which would have otherwise led an organization to make costly mistakes.
Streamline Matching : AI and LLMs can automate the matching process which is otherwise wasted when done manually. All documents would therefore be matched correctly and the compliance as well as the audit-readiness of the same would increase.
AI-powered 2–3-way matching not only increases accuracy but also enhances the ability to capture savings that might otherwise be lost due to mismatches or invoice discrepancies. It also ensures that companies do not overpay for goods or services that have not been delivered, further enhancing the overall cost-efficiency of the procurement process.
The Challenges with Legacy Providers and Long Onboarding Processes
Many organizations rely on outdated purchasing solutions that, often, are slow to implement, very difficult to configure, and truly cannot integrate with their current systems. Many legacy providers have multiple pain points:
Onboarding Time: Months —— really, years in some cases. These older purchasing solutions require a great deal of tailoring to fit the business.
Complex API Integration with ERP Systems: In general, most procurement systems must be integrated with already-implemented ERP and Accounts Payable systems. Most legacy ERP and AP systems do not have built-in robust APIs for integration with these various platforms.
Lower Flexibility: Legacy purchasing applications do not have much flexibility, and it’s very difficult to build custom workflows for approvals, catalog and non-catalog items integration, as well as accommodate specific business rules.
As a result, procurement becomes difficult due to the lack of transparency, and leads to missed saving opportunities, putting the company in jeopardy of being noncompliant with procurement regulations.
The Value of a Catalog Purchasing Solution Integrated with Non-Catalog Items
The largest challenge in procurement is managing catalog and noncatalog purchases. A catalog purchase is a preapproved purchase from a list of specific suppliers, while a noncatalog is an item that falls beyond an organization’s approved agreements with specific suppliers on their agreed use.
Catalog Procurement Solutions
The facility of catalog purchasing solutions enables procurement teams to create an approved list of items and suppliers that employees can order from. This simplifies purchasing and thus complies with procurement policies. It streamlines the approval of high purchase items and helps in enforcing pricing agreements with preferred suppliers.
Non-Catalog Items Integration
However, not all procurements can be done via catalogs. Procurement teams also must be flexible enough to manage non-catalog procurements which refer to the goods or services that can be purchased only as and when needed, and these goods or services are often procured from suppliers who do not have standing agreements with the organization.
A holistic purchasing solution will align catalog and non-catalog items under a single, streamlined purchasing process, making sure that all purchases are accounted for in a complete view of all spend for the procurement team. Since it enables procurement professionals to track spending more accurately, integration of catalog and non-catalog items allows for the easy tracking of total spend across all categories and suppliers by the procurement team.
Improve Supplier Relationships: Full spend visibility of both catalog and noncatalog suppliers allows companies to negotiate far more effective contracts and ensures that they are getting the best value on all of them.
Simplify Procurement Process: All toggle screens between the numerous systems required for catalog and non-catalog purchases can be done away with using one system, thus increasing user adoption and providing efficiency.
The Ease of an Easy-to-Use Interface for Effective User Adoption
Any purchasing automation solution that is to be effective will need to be easy to use. One of the common problems of legacy systems is a complex user interface, which creates difficulties for employees who have difficulty using the system to complete purchase requests.
An intuitive, user-friendly interface increases user adoption, ensuring that employees follow the correct purchasing procedures, reducing errors, and increasing compliance with procurement policies.
Why Easy UX Matters
Increased Compliance: When the purchasing solution is easy to use, employees are more likely to follow proper procedures, reducing the risk of rogue spending and policy violations.
Reduced Training Time: An intuitive system requires less training, thereby saving time and money in terms of new-user onboarding.
Improved Productivity: Employees can make purchases faster and accurately when working in an intuitive system, incorporating an intuitive user interface that is streamlined.
Quick and Easy Onboarding with Full API Integration
Every organization should have a purchasing solution that can facilitate the quickest onboarding and make available its full API integration with clients’ existing ERP and AP systems. This reduces downtime, ensures data consistency and allows the procurement process to be initiated as soon as possible.
Important Factors for Smooth Onboarding:
Time to Value: A provider that can onboard the customer in under 6 weeks means that the organization achieves benefits of the purchasing solution sooner.
Full API Integration: This means very smooth integrations with ERP and AP systems that include error-free data flow between platforms and providing full visibility over procurement activities.
Ease of Configurability: A configurable solution allows the organization to tailor the system to its exact business needs, including approval workflows, supplier catalogs, and purchasing rules.
Providers like Gainfront offer quick, easy onboarding and full API integration to ensure a smooth transition into automated purchasing.
Conclusion
Choosing the Right Purchasing Automation Solution
Organizations today need a purchasing automation solution that simply streamlines their procurement process while integrating with the systems in place, minimizing errors, and maximizing adoption by users in the process.
Key Features to Look for in a Purchasing Automation Solution:
Automated Approval Workflows: Ensure that the solution offers flexible workflows and approval thresholds that minimize bottlenecks while enhancing control.
AI-Powered 2-3 Way Matching: Research the capabilities of AI and LLM technology to automate matching, identify errors, and provide predictive insights with added accuracy and savings benefits.
Catalog and Non-Catalog Integration: The system should integrate catalog and non-catalog purchases for a seamless, unified procurement experience.
User-Friendly Interface: Purchasing solutions with a user-friendly interface can promote higher adoption, decrease training time, and increase productivity.
Fast Onboarding and API Integration: Choose a vendor that has quick onboarding within 6 weeks and full API integration to ERP and AP systems so the transition can be done with minimal downtime.
The right solution will help empower procurement teams, increase visibility, and realize long-term savings by using AI-driven technology and intuitive user interfaces.
Once the right provider, such as Gainfront is chosen, the organization can quickly implement an advanced purchasing solution that is customized to their specific business needs and impact efficiency, compliance, and value creation at each point in the procurement lifecycle.
Rahul Asthana has a PhD in Operations Management from the Anderson School at UCLA. He has 25 years of experience in supply chain management, starting his career in IBM working in supply chain operations. He then moved into product management and product marketing of supply chain software while at SAP and Oracle. He manages product strategy and product management at Gainfront. In terms of hobbies outside of work, he really enjoys tennis. Follow Rahul Asthana on Linkedin!