E-procurement impacts the system in three ways:
Increased preferred vendor purchases: E-procurement fosters purchasing from preferred vendors, who in turn offer volume discounts and contract pricing. A typical e-procurement system can boost preferred vendor transactions by 25%, returning substantial savings assuming a weighted average preferred-vendor discount of 7%.
Preferred vendor consolidation: As volume shifts to preferred vendors, low-volume vendors will eventually be eliminated from the supplier network, driving more purchases to preferred vendors and enabling them to increase consumer discounts.
Spot discounts: Because of the dynamic nature of on-line pricing, vendors can offer limited-time spot discounts on excess inventory. Even a one-percent reduction in purchasing expenses can yield significant savings for large organizations.
Reduced labor time/reduced transaction costs
By far, the greatest e-procurement savings result from the combination of less time required for the total purchasing cycle and the subsequent reduced transaction costs. Together, these decreased transactional factors translate into significant cost savings.
The table below shows the approximate time it takes to complete each step in a single corporate purchasing cycle, comparing manual or electronic data interchange (EDI) purchases to e-procurement.
This Table demonstrates nearly fivefold reduction in time and nearly 80% reduction in cost directly attributable to e-procurement.
E-procurement offers Tremendous Opportunity to Save Both Now project your own potential e-procurement benefit by multiplying the Per Purchase Savings rate by the number of purchase orders your own organization processes in a single year. Depending on the size of your enterprise, e-procurement savings could amount to millions of dollars annually. For suppliers, e-procurement stands to yield significant reductions in inventory holding times and safety stock levels, and an overall reduction in the purchasing cycle—the time it takes from ordering an item to receiving it.
Key factors for E-Procurement implementation
While e-procurement offers many quantifiable benefits, it still poses many issues that must be carefully considered before implementing a specific solution. Effectively addressing these issues will help ensure both a rapid and a complete implementation—one that will help your organization realizes all the benefits of e-procurement, including a lower initial system investment and an increased return on your investment.
Consider these questions before you choose an e-procurement solution or provider, and consider how your answers will help you minimize the risks and maximize the rewards of your new system:
Is my organization ready for e-commerce?
Do you already have an e-commerce strategy? How will e-procurement integrate into that strategy? If you don’t have an e-commerce strategy in place, how can you build one that will support e-procurement as well as all future e-commerce activities?
How will I bring my suppliers on board?
E-procurement will change the buyer/seller relationship.
How will your current supplier relationships need to change to maximize the e-procurement solution?
What strategies must be developed to build and maintain those relationships?
How will my current procurement processes need to change to maximize e-procurement
Is your business model aligned with your system model? Where are the gaps and how can they be closed?
How can I create a scalable infrastructure that will support future growth?
Industry studies indicate that e-procurement is poised for explosive growth.
Factors driving this growth include the number of buyers and suppliers participating, increased accessibility to authorized users throughout an organization, improvements in Internet e-commerce software, and organizational growth.
This translates into increased transaction volume that can easily overwhelm the capacity of an e-procurement system. Will your current infrastructure support e-procurement?
Is your hardware configuration scalable to support additional servers, processors, and an increase in transactional volume? Note that e-procurement software must be object-based to support the addition of custom or third party applications, as well as easy integration with your current back office systems, as the needs of your marketplace change.
