What you need to know about Approval Workflows in an eProcurement / Procure-to-pay process

Approval WorkflowAn approval workflow is the method for routing the necessary procurement information to the appropriate people, so that they know they need to review and approve/reject a Purchase Requisition (usual case) from an end-user.

 

When is an approval workflow used?

The approval workflow can typically be used at 3 stages of the eProcurement process:

  • Purchase Requisition step: this is the most common use as the Purchase Requisition has just been entered by the end-user and now needs to be looked at prior to being sent to the supplier.
  • Invoice step: when an invoice is received that is not linked to a Purchase Order (subscription, p-card, maverick buying, …), the approval needs to take place after the invoice is received and entered in the system. Obviously, this is not the best-case scenario as it is always better to get the approval up-front instead of after the facts but it is sometimes justified and a standard process. 
  • Purchase Order step: since most of the time the approval will take place at the Purchase Requisition step, the number of case where the approval is done at the Purchase Order step or a second approval takes place at that step is quite rare.

Also, there could also be an approval workflow at the Receiving step for specific items like hazardous materials for example.

 

Who needs to be involved in an approval workflow?

  • User manager: this is the most common financial approver as the requester Manager needs to control what employees reporting to him buy and make sure that these purchases are within his spending limits and made according to the company policy.
  • Budget manager:  irrespective of the company “chain-of-command”, some specific employees might be assigned budget management responsibilities. This tends to be the case in larger companies. The budget Manager will has financial responsibilities for specific items, categories or types of purchases.
  • Project manager: the project Manager is a special type of budget Manager. Whereas budget are typically defined each year for 12 months, projects can be executed on shorter or longer periods and include sub-projects with their own budgets. Being part of the approval workflow will insure that the project Manager effectively controls purchases related to the project.
  • Subject matter expert (SME): in special case, for example IT services, hazardous materials, custom-made items, a subject matter expert will be involved in the workflow. Most of the time, the goal is not financial but to make sure that the SME give his seal-of-approval, from a technical standpoint, on the items or services purchased.
  • Buyer: the goal is always to have the Buyer involved as little as possible in the approval workflow. Indeed, he should be focused on sourcing products instead of approving the transactional data. However, when a prce is missing, or a non-catalog item is ordered, the Buyer will be in the workflow.

Obviously, depending on the company, its type of business and what is purchased, only some or all of the approvers described above will be included in the approval workflow.

The amount of what is purchased will also influence the number of workflow levels. For example, for a purchase worth $200.000, a manager will be involved but maybe also a director, VP, CFO and even the CEO, from just a pure financial approval.

 

How complicated does an approval workflow need to be?

Approval WorkflowThis has to be decided by the company. Obviously, a smaller company will tend to have smaller workflows whereas workflows in larger companies will be more complicated.

A rule of thumb is to replicate the approval workflow in place in the company when the eProcurement solution is implemented and then make it evolve.

In my experience, I have seen the simplest workflows like manager-director-VP-CEO depending on the purchase amounts to extremely complicated one involving more than 10 different steps.

When the workflow is designed, remember that the main criteria is for the appropriate people to approve/reject the purchase but also to do it in a reasonable time. If it takes 3 weeks to approve an urgent purchase because too many people are supposed to approve, your workflow missed the mark.

 

What about the difference between MROs and manufactured items?

MROs will typically be assigned an approval workflow. It will be simple if the purchased items are catalog items of more complicated for off-catalog items.

In the case of manufactured items, these purchases are generally created by the company ERP and the supplier, item and price are well-defined. So, a workflow should not be needed if the ERP system has been implemented correctly. Only in case of exceptions (missing supplier, missing price, expired contract), a workflow should be triggered for the Purchasing Department to handle the situation.

 

How can a user approve a Purchase Requisition?

The historical way was for the approver to receive an email notification that a Purchase Requisition was to be looked at. He then would log on to the system, review it and approve/reject it. This works somewhat well if you are in front of you computer all the time. But we know that, in the best possible world, it is no the case, be it only because of meetings.

Fortunately, thanks to smartphones, we all have access to emails all the time. So, the new way is for the approver to receive the Purchase Requisition information in an email and approve/reject it simply by hitting the reply button. Once again, the goal here is to shorten the time it takes to approve a Purchase Requisition to the minimum.

The last few years saw the advent of apps for iPhone or Android for example. In terms of functionnality, they however are similar to the email approval and so, currently, they are more of a marketing gimmick than a step forward.

 

In conclusion

Even if your eProcurement solution allows you to create the approval workflow of your dreams, like our eProcurement partner b-pack for example, you should always consider how easy/complicated will it be to maintain the approval workflow and how long you want your approvals to take. By defining those 2 criteria up-front, your will be able to design an approval workflow or workflows that will fit your needs.


Leave a Reply