Electronic procurement reduces purchasing costs and time by more than 70 percent, according to a study by Aberdeen Group, so it should come as no surprise that International Data Corp. (IDC) expects e-procurement application sales to reach $9.7 billion by 2004.
Aberdeen’s study found companies that move their purchasing online dramatically reduce costs, shorten purchasing cycles and drive improvements to their bottom line. It also found that new service-based hosted offerings extend the benefits of e-procurement to the broadest audiences.
In both 1998 and 2000, Aberdeen surveyed users of e-procurement systems and collected information on product selection and implementation, as well as actual benefits realized by user organizations. In its report “e-Procurement: Finally Ready for Prime Time,” Aberdeen compares the results of research conducted in Nov. 1998 and Nov. 2000, and found consistent savings courtesy of e-procurement.
“Although executives and investors have soured on the promise of other business-to-business technologies, Aberdeen end-user research demonstrates that e-procurement delivers rapid and quantifiable results,” said Christa Degnan, research analyst. “Aberdeen expects these benefits will translate into considerable e-procurement market growth, representing more than $9 billion in sales by 2003.”
Aberdeen’s report documents detailed benefits of e-procurement in the following areas: reduced purchase requisition processing expense; reduced purchase requisition processing time; decreased “maverick” spending; lowered prices of goods paid; and reduced inventory expense.
Based on these findings, Aberdeen estimates that an average midsize organization can expect to save almost $2 million per year through automation in process and product costs.
Large implementation costs and additional maintenance responsibilities were the original barriers to e-procurement implementation. But this has been changed with the arrival of hosted procurement solutions, which allow smaller organizations to benefit from Internet purchasing automation. According to Aberdeen, service-based offerings provide significant benefits over premise-based applications, including reduced deployment cycles; reduced implementation costs; and reduced ongoing operating costs.
Increased demand for high-performance e-procurement applications, especially those that can handle a myriad of mission-critical functions such as strategic sourcing; supplier relationship management; and direct materials procurement, is providing a boost for the e-procurement market. According to IDC, e-procurement application sales, which jumped 167 percent in 2000, will reach $9.7 billion in 2004. By comparison, they were $47 million in 1997.
“E-procurement applications have become one of the most sought-after Internet products by enterprises that want to lower their costs, improve operations through real-time data collection and enhanced workflow, and strengthen relations with trading partners to boost product quality and output,” said Albert Pang, research manager of IDC’s eCommerce Applications program. “As corporations continue to roll out their B2B strategies with a quick-to-market mentality — opting for off-the-shelf e-procurement applications to speed implementations — demand for e-procurement applications will get even stronger.”
The competition will be stiff, however. Currently, more than 200 vendors have been shipping e-procurement applications. This number is expected to increase in the coming months as new players enter the market with second-generation software to address requirements from users to automate complex business processes and integrate legacy systems.
The most stringent test for e-procurement vendors, according to IDC, will be brutal market forces resulting from slow e-marketplace adoption, as well as general skepticism over the long-term viability of B2B e-commerce sites. The companies that survive and thrive in the e-procurement market will need to ride the wave of e-procurement adoption among large and small customers, sustain their growth through innovative products, maintain deft marketing maneuvers, and build effective business alliances.
“The real winners will be those that smooth over the adoption of complex technologies while shielding users from the complexities,” Pang said.