1. Digitalising the exchange of information in procurements
Procurements involve a wide range of information that needs to be exchanged: buyer and seller information, product or service descriptions, prices, delivery addresses, units of measure (e.g. kilograms, meters, litres), VAT information, etc.
Typically, this information exchange process is handled by email or phone. However, this results in additional manual work that can be inefficient and prone to human error.
The exchange of information in procurements can be digitalised using so-called procurement messages.
The term procurement messages is an umbrella term for e.g. orders, order confirmations, catalogues and invoices that have been exported to a format that can be processed by information systems, i.e. “messages”. For example, an order message contains the typical information that is usually recorded for an order (party information, products, prices, delivery address, etc.), but its format also allows information systems to process the information automatically. The most widely used procurement messages are invoices, which are commonly referred to today as e-invoices. By using procurement messages, you can allow your exchange of information to be handled by information systems. This helps reduce the number of errors related to re-entering and managing procurement information, and it will make your procurement processes considerably smoother. The use of a new operating model demands diligent practice, and it may even require the procurement of a new information system. However, the digitalisation of procurements is necessary for Finnish companies that wish to remain competitive in the Nordic and European marketspace.
Example 1. A construction company orders construction materials to its construction site
No procurement messages in use
- A construction company orders construction materials from a supplier to its construction site. The supplier writes down the information they were given by phone, but makes an error in the materials’ units. The work site receives the wrong materials, resulting in delays and time lost to investigating the error.
Procurement messages in use
- The construction company sends an order message that details the products it needs from the supplier. The order is based on a catalogue previously provided by the supplier. The supplier’s information system receives the order, and the supplier can automatically check if the requested products are in stock in its warehouse. The supplier approves the order and the information system automatically transfers the information to the warehouse management system. The correct products are delivered to the site. When you use procurement messages you reduce the risk of human error, as no one will be required to manually enter the same information again and constantly ask for additional clarification, which helps make the entire process more efficient.
Example 2. Everyday life in financial administration
Procurement messages in use
- A municipality orders first aid training for all of its schools. The municipality sends an order message to a supplier offering first aid training. The supplier confirms the order and arranges the first aid training as agreed. The supplier creates its invoice on the basis of the order message it received, which means that it will not need to re-enter any of the information manually. The municipality’s financial unit receives the invoice, and since the invoice matches the previously approved order, the invoice can be processed automatically, reducing the work required in financial administration.
Example 3. Utilisation of information
Procurement messages in use
- With the digitalisation of procurements, organisations have plenty of data at their disposal that they can use to, for example, monitor the performance of procurements, develop knowledge-based management, carry out product-based reporting and statistics, and monitor the implementation of their sustainable development practices.
2. How can I begin using procurement messages?
In order for procurement messages to flow from one information system to another without issue, the exchanged procurement messages must be based on a common model. In essence, both information systems must speak the same language so that they can understand each other. This means that each party must agree on a common model for exchanging procurement messages. While larger organisations may have several models at their disposal, it is usually more cost-effective for smallest organisations to use a single model. One example of a common model is the Peppol network.
What is Peppol?
Originally, Peppol (Pan-European Public Procurement On-Line) was the name of an EU-funded project between 2008 and 2012. After the end of the project, the participants established the OpenPeppol association to manage the project’s results. Peppol is a network that defines:
- the technical infrastructure and standardised messages that enable a uniform exchange of information between the parties in the network
- the governance model, agreements and rules to ensure the quality, security and overall development of its information exchange process
In 2024, the central government will adopt Peppol procurement messages. The majority of Finland’s most important trading partners will also promote the use of Peppol messages in their national territories. For decades, Finnish wholesalers, industrial companies, logistics companies, importers and many of their trading partners have relied on bilateral “EDIFACT” procurement messages. However, establishing bilateral connections is expensive, as each connection must be built and agreed separately, which is not cost-effective for all organisations. Figure 1. The transmission of EDIFACT procurement messages is based on bilateral connections. One organisation can therefore have several separately built and agreed connections, which is not cost-effective for all companies. In Peppol, the exchange of information is based on a network-like model. This means that an organisation can use one connection to communicate with every other organisation in the same Peppol network. This model enables the cost-effective implementation of procurement messages in both the private and public sector. Figure 2. Each organisation in the model has built one connection with their respective service provider, after which the organisation can communicate with all other organisations operating in the model.
Updating or procuring information systems
A suitable service is always needed to process procurement messages. Therefore, the first step is to enable the processing of procurement messages in your own information system or, for example, the system used by your Peppol service provider (see Connecting with trading partners). Many information systems already support the processing of Peppol procurement messages. Most organisations rely on many, but not all, procurement messages (order, delivery, catalogue, referral, invoice messages, etc.) and their corresponding business processes. As a result, different information systems may not support every type of procurement message. Each organisation should therefore consider what kind of information they primarily transmit to their trading partners, and what types of procurement messages these partners can send and receive as well. Both parties must be able to process procurement messages in their own information systems. Read the list of available Peppol procurement messages and the more detailed descriptions of Peppol procurement messages. You should check the list together with, for example, the person responsible for procurements and your system supplier or service provider. When you are planning the introduction of procurement messages, it is also a good idea to consider your organisation’s procurement process as a whole and, for example, what other systems are already involved in the process. If the process involves different information systems that do not communicate with each other, you may need to manually transfer and format data between systems, which leads to inefficiency. You may not necessarily be required to integrate your system to use procurement messages, but their integration can improve the efficiency of your organisation’s operations and increase the benefits provided by procurement messages.
Connecting with trading partners
Similarly to the way that a telephone operator forwards your calls, the use of a Peppol network requires an intermediary who can forward the Peppol procurement messages between your and your trading partner’s information systems (see Figure 2). In a Peppol network, these intermediaries are referred to as Access Points, which are operated by service providers. List of service providers operating in Finland.. A Peppol service provider is your organisation’s link to the Peppol network and all the actors in it. A large number of e-invoicing operators in Finland are also Peppol service providers.
The change from manual work to the world of digital procurement messaging can be a demanding process. In general, a successful change requires developing your personnel’s competence and commitment to your new operating methods. This change will particularly affect those who work with procurements. The competence and commitment of your personnel is important, as the benefits provided by procurement messaging will increase when your entire organisation can rally around a common digital operating model.
The Real-Time Economy project is implementing a cost and impact study on the introduction and use of Peppol procurement messages. The study focuses on companies and municipalities. The study is being implemented by Gofore Lead Oy and will be completed by the end of 2022. The results of the study will be published openly once the study has been completed.
Who can help you move forward
If you are interested in using Peppol procurement messages in your organisation, get in touch with your system supplier or Peppol service provider. For example, if you have already signed an e-invoicing agreement with an e-invoicing operator, you can ask them about their Peppol procurement message forwarding services.
Read more about Peppol procurement messages:
Real-Time Economy – procurement messages State Treasury – Peppol authority