Buying Online Can Save Big Money

Companies can reduce their total purchasing budget by up to 8.5 percent by buying online, according to an IDC (a sister company to CIO’s publisher) study published in 2001 on e-procurement applications. E-procurement is the use of the Internet by buyers and sellers to access and exchange large amounts of data for B2B e-commerce transactions.

How Does Your Company Compare?

profile: Compaq Computer Corp.Revenue 2000: $42.4 billionAnnual spending on indirect goods and services: $6 billionNumber of employees using e-procurement applications: 4,000 worldwideCost to process a purchase order before e-procurement: $167Cost to process a purchase order using e-procurement: $84Percent cost reduction per purchase order: 50 percent

Best Practices

1. Understand the costs of software. The biggest expense associated with implementing e-procurement is on the software and licenses, which can run between $100,000 and $1.5 million, says Pang. Companies that choose to have e-procurement hosted offsite by an ASP can expect to pay between $10,000 and $20,000 per month.

2. Use e-procurement for your indirect material purchases. Companies will see expenses drop in the short term more dramatically by purchasing indirect materials and products such as office supplies. Purchasing direct materials has already been automated to some extent by most companies and by EDI and other technologies.

3.Work with an experienced e-procurement supplier and an application that can scale to a large number of users, suppliers and partners. Your vendor should provide an easy process to Web-enable your suppliers as well. “E-procurement technology is still pretty new,” says Pang.

IDC Analyst Albert Pang says that less than 10 percent of all business procurement today is conducted online.