Web-Based Procurement Saving Dollars

The costs of existing procurement processes can average a hefty $50 to $250 per transaction, but these costs can be reduced to the $5 to $20 range per transaction using Web-based procurement processes, according to a study by Zona Research.

Zona’s report “Buy Side, Sell Side, Upside: Market Trends and Opportunities in Web Procurement,” found that American firms purchase an estimated $250 to $300 billion worth of operating resources each year, and as much as 80 percent of these costs are for office-related products and supplies.

Overall, Zona found that organizations within the study have largely selected ASP-based and database-oriented Web procurement solutions for their current needs while also rating these types of solutions as the most likely Web procurement solutions they would implement in the future. In addition, the survey reveals that users are not necessarily searching for complicated high-tech solutions to their procurement challenges.

“Although the technical advancements of Web procurement solutions are nearing, Jetson-like sophistication, our study shows that users are first and foremost seeking easy-to-use templates that integrate Web-based product searching within the context of a multi-vendor purchasing network,” said Jack Staff, Director and Chief Economist at Zona Research. “At present the Web procurement market is largely responding to two basic needs: robust database links and for ASP outsourcing that can relieve new adopters of the burdens of implementing these complex solutions.”

The Zona report is based on a study conducted in March of 2000 by interviewing the key purchasers or purchase influencers of Web procurement solutions at 97 organizations that have deployed or are planning to deploy such solutions within the next 12 months.

Other findings of the Zona report include:

• 70 percent of companies surveyed are currently buying or plan to buy within the next 12 months office-related products and services through their Web-based procurement solution
• 52 percent of respondents indicated their organization currently buy or plan to buy within the next 12 months corporate travel-related products
• 60 percent of organizations rated Web-based product-searching features within a Web procurement solution as a somewhat or extremely important factor in their selection of a Web procurement implementation
• 57 percent of the survey rated an “industry tailored” approach to Web procurement as a somewhat or extremely important factor in their choice of Web procurement solution.

A report by Forrester Research found that by 2002, most companies will be doing hands-free procurement of IT products and services using eMarketplaces.

“Entrenched relationships with resellers, concerns about system integration, and the lack of clear financial returns keeps five out of six IT purchasing managers offline,” said Simon Yates, analyst at Forrester. “By 2002, more than half expect to use purchasing systems integrated with online resellers, vendors, and business-to-business exchanges.”

According to Forrester, IT purchasing today is facing enormous obstacles due to manual processes and duplicated buying efforts. Strategically focused eBusiness will demand streamlined online systems that are able to handle large and complex orders quickly. Forrester believes that in order to overcome current obstacles, corporations must assess their technology buying profile, including service-level requirements and diverse product needs, before engaging in costly integration projects.

The cost of integration will keep most firms from creating online relationships with more than three vendors, leaving them to pursue one of four strategies depending on their needs. Companies that plan to buy from a few preferred vendors must rigidly enforce standards around the infrastructure to ensure that all buying is concentrated among these vendors, as well as find an online marketplace for occasional spot market purchases.

Forrester believes that companies with in-house technical skills and multiple vendor relationships will connect to emerging eMarketplaces that offer a full supply of IT products. Evaluating distributors for logistical expertise, including real-time access to inventory, incorporating business rules, and supporting back-office systems will enable them to contain integration costs. Firms that require a wide variety of services as well as best-of-breed products must connect with integrators familiar with their existing procurement systems.

“By 2002, online IT buying will become much more common because online procurement eliminates IT’s tedious manual process,” Yates said. “As companies focus more on e-commerce, firms will use rules-based online procurement applications instead of inefficient offline purchasing models.”

Forrester interviewed 50 purchasing managers responsible for corporate IT procurement at leading firms for its report “Buying Infrastructure Online.”