CIO — Business has always devoted itself to selling—spending billions on sales tools and strategies, on packaging and marketing, on advertising and perfecting the pitch. But outside the automotive and high-tech industries, few companies have devoted any real thought or money to improving the (cheap) beer-and-a-handshake way they buy things—a process also known as procurement.
   Procurement. The name alone is enough to scare off all but those hard-nosed types who enjoy doing the work of salesmen in reverse—except without the yearly bonus, the fancy car or the expense-account steaks.

Procurement is one of those dark dungeons in the corporate castle that actually houses engines critical to business success. After all, the average manufacturing company spends 50 percent of its yearly revenue buying stuff to make its products and to keep its offices flush with pads, pencils and computers.

But now procurement, the poor stepchild of the company, along with the other equally invisible pieces of the supply chain—order processing, inventory and warehouse management, delivery, and fulfillment—has emerged as the next great economic opportunity for business, the ultimate ROI.

Procurement is one of those business functions that has long cried out for automation, for a systematic, repeatable way of carrying out those identical transactions that happen every day, week and month. But until recently, high cost and complexity of creating computerized links to suppliers has kept procurement in the shadows. Only since the arrival of cheap, networked computing—a.k.a. the Internet—have companies looked beyond the brews over which buyer and supplier have done their business for hundreds of years.

The numbers—and the potential—are staggering. According to Boston-based AMR Research, in 1999 U.S. companies spent more than $9 trillion on costs of goods sold (which includes labor, overhead and material costs) and more than $2.5 trillion in sales, and general and administrative (SG&A) costs. Reducing costs of goods sold spending by 9 percent could yield $330 billion annually—the equivalent of the combined sales of the last 100 companies on the Fortune 500 list. A 2 percent improvement in SG&A cost could yield $21 billion.

And savings in procurement have a way of thundering, rather than trickling down to the bottom line. Take the average company in the Standard & Poor's Register with $5 billion in revenue. If that hypothetical company could reduce the cost of supply chain management by just 5 percent, that would increase the annual profits by $20 million and the market value by approximately $450 million, according to Stephen G. Timme, president of FinListics Solutions, a consulting company based in Atlanta.

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