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E-Procurement: Steady Value

January 04, 2005

Metrics show cost reduction, faster cycle times, and increased efficiency; still lots of opportunity to sell.

by Demir Barlas, Line56
Tuesday, January 04, 2005

   E-procurement, once saddled with the expectation of changing the way business was conducted and then unfairly vilified for having failed to do so, delivers steady and increasing value to adopters, according to a new research report from Aberdeen.

   At the high level, Aberdeen found, e-procurement reduces maverick spending by 64 percent, reduces the cost of purchasing by 7.3 percent (that is, for goods bought on contract), cuts down requisition-to-order costs by 58 percent, and delivers a 66 percent reduction in the requisition-to-order cycle. Moreover, e-procurement benefits scale with use across spending categories, with Aberdeen noting that every dollar managed by an e-procurement system can deliver as much as 20 percent in cost reductions.

   What's particularly interesting is that, compared with the two other e-procurement benchmarks that Aberdeen has done since 1998, the metrics reported in 2004 are the best. This means that e-procurement has steadily been delivering more value -- and is cheaper to boot, with license costs having declined 75 percent since 1998. The average e-procurement license today costs $383,000, and maintenance fees tend to be just under 15 percent of the license.

   Despite proven value and declining costs, Aberdeen found that only 39 percent of its survey respondents have a full e-sourcing platform, The most popular category within e-procurement is currently catalog management (used by 56 percent of respondents), with procurement outsourcing (34 percent) on the lowest rung.

   These numbers point to a continuing opportunity for vendors. For prospects, Aberdeen counsels not just close attention to the technology bakeoff but also an awareness of the importance of extra-technological factors like C-level commitment and a dedication to supplier enablement.


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