Why e-procurement makes sense: enhanced control, savings and efficiency all make electronic procurement a compelling idea, yet research shows that usage, if anything, is down.

• Author: Williams, Anre
• Position: Purchasing

Five years ago, corporate technology budgets were J focused on supporting the revenue side of the balance sheet. But with the bursting of the dot-corn bubble in 2001, IT projects aimed at reducing labor, maintenance and support costs, including the automation of various administrative tasks like expense reporting, are now top IT budget priorities.

The collapse of many Internet firms appears to have taken something of a toll on e-procurement efforts, too. Executives reported that they were purchasing only 8.3 percent of indirect materials over the Internet during the first quarter of this year, down from 9.5 percent in the fourth quarter of 2001, according to a recent poll of 350 organizations by Forrester Research and the Institute for Supply Management™.

Likewise, Internet research firm Aberdeen Group has found that fewer than 10 percent of corporations are using expense management automation, despite the studies that show it can save companies 80 percent of the costs of settling an expense voucher.

These are disturbing developments, because numerous products and services are available to assist purchasers and C-level executives in quickly achieving significant savings and bringing other benefits to their organizations. Adapting to the new cost-consciousness, many solution vendors have developed Web-based services, offering companies an alternative to licensing and installing customized software packages internally.

Aberdeen Group estimates that purchases of non-production materials like office supplies, computer equipment and maintenance, repair and operating (MRO) provisions, can account for 30-60 percent of a company's operating expenses. But, typically, these purchases are "poorly controlled and costly to process," Aberdeen says. By implementing online purchasing, corporations can:

* Quickly produce substantial savings.

* Enhance service to their internal customers and suppliers.

* Refocus their finance and purchasing department resources to more value-added, strategic programs.

Driving savings to the bottom line

Aberdeen forecasts that automating procurement at a company spending approximately $50 million on indirect expenses could achieve nearly $2 million in annual savings from lower prices paid for goods and services, as well as by paring administrative costs.

A number of e-procurement solutions on the market today enable companies to source, buy, and track delivery of indirect materials. Not all of them require a hefty upfront...