Study shows big early returns from e-procurement investments
By Industrial Distribution Staff -- Industrial Distribution, 2/1/2000
B2B e-commerce is already delivering dramatic returns on investment for firms doing electronic procurement, a major new study concludes.According to Deloitte Consulting, a top management consulting firm, more than 200 respondents in a survey of large international firms said their ROI will average 300 percent during the first two to three years. That is based on an average implementation cost of $2-4 million and annual procurement savings of nearly nine percent during the first two years.
Most of the companies surveyed last fall have more than $1 billion in revenues. Of the firms that reported using e-procurement solutions extensively, 85 percent said they were highly satisfied with the resulting benefits. In contrast with companies' experiences with other technology investments, the returns have met their expectations.
"Clearly, the question for today's company should be, 'how soon can we move to an e-procurement solution in order to fundamentally change our competitive position?'" says John Ferreira, a principal at Deloitte Consulting and a study co-author.
Consultants expect that by 2002 more than 80 percent of large firms will have implemented computer systems for online purchasing. Len Prokopets, a senior manager and another study co-author, says it "will fundamentally change the dynamics between companies and their suppliers. The traditional 'purchasing' department will cease to exist. Its focus, instead, will be on understanding the requirements of the business, coordinating information exchanges and improvements with suppliers, and developing negotiation and sourcing strategies."
Other highlights of the study include:
- More than 90 percent of firms have incorporated e-procurement into their business plans. One third have begun an initial solution.
- Most of the respondents' top e-business objectives relate to procurement and the supply chain, including improved supply chain performance, supplier relationships and reduced overall costs.
- Manufacturers are less ready to adopt e-procurement than other industries, which, in order of readiness, include: high tech manufacturing; telecommunications; banking and insurance.
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