For years, analysts have been predicting that e-procurement would be the next big thing and that it would significantly alter the way businesses worked in the future. Unfortunately many companies and investors have failed to realize the promise of e-procurement. One procurement software vendor saw its stock fall from $330 per share to $2. That's an incredible plummet to say the least, but falling stock prices do not necessarily mean that e-procurement has tumbled off the business radar. Between 2002 and 2003, the e-procurement market actually grew by 12% and about 17% of businesses are planning to implement these programs in the near future. There are also ready a large number who are already using e-procurement. Despite this growth, one size fits all e-procurement strategies may not be right for every business.
Before a company rushes into a full-functioning e-procurement strategy, there are some important questions the top management needs to ask themselves. First, the business must ponder whether or not the commodities they buy can be easily replaced with substitutes. Many businesses require very specific products and that do not always work well with e-procurement systems. Another question involves the level of competition both for and between suppliers. If a business buys numerous bottleneck items (items supplied by only a few sellers), then they may want to secure and forge lasting relationships with those suppliers outside of an e-procurement network. Furthermore, businesses need to carefully examine the efficiency of their internal processes. If those processes can be refined and more productive it is likely that e-procurement can help. Finally, the company must decide whether its spending budget is worth making the change. Companies that do not spend a lot on buying goods and materials may not find the switch profitable.
Once a company addresses these questions, managers will be in the position to make a more informed decision about what level of e-procurement will work best for the company's situation. In fact, there are three primary options available.
Obviously one of those options is to purchase everything via the Internet. In these cases, businesses that typically made purchases offline either switch suppliers for their goods, or they opt to use an existing supplier's online purchasing support. Companies that do choose this option must be prepared for major changes in the goods they buy and the people they work with. However, the benefits can be worth the change. For example, one business realized a large ROI in their first year and anticipates a much larger, triple digit ROI increase during the next couple of years. These are impressive figures.
Another option is to choose only certain aspects of the e-procurement process to automate. Some businesses, for example, do their own negotiations outside of the e-procurement system, while using the Internet to do all of their purchasing and order tracking. Depending on the needs of the individual company, this type of approach could include almost any combination of e-procurement services and conveniences. Even without using the full strategy, businesses see positive results. One business saved just under $200,000 in annual inventory carrying costs and claimed that their e-procurement system generated nearly $1.5 million cash flow.
Finally, many businesses choose to simply use e-procurement for connectivity purposes. Using the Internet to place, track, handle, and manage purchasing does allow buyers and suppliers to stay connected more effectively than with more traditional means of communication and order placement. This option works well for businesses that aren't interested in making a major switch or that are already happy with the procurement system they have in place.
No matter which type of e-procurement a businesses pick, for most companies, these systems can deliver an impressive return on their investment.