E-purchases Show Quick Returns

SINGAPORE (01/26/2000) - Enterprises around the world that have chosen the electronic-procurement route are seeing dramatic returns on investment (ROI).

Over 200 respondents to a survey conducted by Deloitte Consulting, have found that their ROI, based on an implementation cost of US$2 to $4 million, averages 300 percent over the first two to three years.

A study, titled Leveraging the E-Business Marketplace: Business-to-Business e-Procurement Trends, Opportunities and Challenges, based on the survey done in the third quarter of 1999 and just released here, revealed that organizations can also expect to enjoy annual procurement savings of nearly 9 percent over the first two years.

Among the survey's respondents, who come from a variety of industries in Asia-Pacific, Africa, the Americas and Europe, over 40 percent are CEOs, COOs, CIOs and CFOs, and 85 percent of whom represent companies with over $1 billion in revenues.

For the organizations polled, the push for e-procurement comes from both within and outside these enterprises, said Stephen Chang, Deloitte Consulting's managing director in Singapore.

"As companies find ways to reduce costs, they have begun to realize the savings potential of procuring electronically instead of the (cumbersome) traditional process that involves having to raise purchase orders, sending these documents out by post, and subsequently getting customers to confirm them," he said. "As an external force, these same organizations in their capacity as customers are driving their suppliers to e-procurement."

Companies that embark on e-procurement also enjoy more value for their purchases.

"They can get to more suppliers beyond their traditional supplier pool.

Traditionally, customers work with suppliers within a single supply chain grouping. Electronic-commerce allows enterprises to choose new partners from other supply channels which in turn could provide more savings through better pricing schemes," Chang said.

Doing procurement through electronic means, that is online and in real time, also lets buyers and sellers enhance their processes to reduce lead-time which is very important in today's just-in-time manufacturing environment.

The survey found that e-procurement is or soon will be a way of life for 91 percent of the survey respondents.

"E-procurement adoption goes through three stages - awareness of it, understanding how it is part of the business plan, and implementation," Chang explained.

So far 30 percent of respondents have implemented it, while 61 percent plan to do so in the next two years.

"Multinational corporations (MNC) appear to be the early adopters and front-runners of e-procurement implementation, while small and medium enterprises (SME) are being driven to it by their customers," Chang noted.

Also, many large organizations prefer to build their own e-procurement infrastructures and portals, which allows them to have closed communities.

"They are new in e-procurement, so it allows them to train their own suppliers first before becoming part of open portals," Chang said.

The most popular spending categories among respondents are for indirect goods like office supplies, office equipment, computer hardware and software. But new capabilities offered by the Internet have enabled companies to re-examine their operational approach to direct goods and materials purchases, which has led to nearly half the study respondents, or 48 percent, using e-procurement to purchase raw materials and goods for resale.

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