E-procurement is ready for ROI

E-procurement should deliver savings but how do you measure them? Daniel Thomas reports on BuyIT's new guide to getting the best...

E-procurement should deliver savings but how do you measure them? Daniel Thomas reports on BuyIT's new guide to getting the best out of Net-enabled purchasing.

The first generation of e-procurement projects should be starting to deliver measurable savings by now, but the extent and value of those savings is still unclear, according to a recent report by the BuyIT Best Practice Network.

To overcome the problems of measuring the return on investment (ROI) from e-procurement projects - a vital issue at a time when most businesses are controlling the purse-strings tightly - BuyIT Best Practice Network, an independent IT purchaser-supplier forum, last week issued an e-procurement best practice "guideline".

The report, entitled Measuring the Benefits: what to measure and how to measure it, sets out to define the costs and benefits of e-procurement and provide guidance as to how to create a compelling business case for e-procurement in an organisation.

Formulating a strategy to measure ROI is important, particularly in an area where claims can be fanciful, according to BuyIT. "Since 1998 many claims and predictions have been made for ROI achievable through e-procurement projects. By mid-2000 these had reached 'between 200% to 400%'," BuyIT's guide says.

"A year later a random survey of purchasing managers using a consistent assessment model indicated a potential average ROI of 8%."

Despite these wildly differing figures there is no disputing that savings can be made from e-procurement, said Frits Janssen, chief executive for BuyIT.

"We asked early adopters whether e-procurement ROI was a reality - and the answer was yes," he said. "Our guideline offers measurables to support this message."

During the dotcom boom many boards were prepared to fund any project with an "e" in front of it, but the current economic climate has made them more cautious.

"ROI is always important but in times like this companies are particularly keen to prove it," Janssen said.

"A guide like this - based on real-life experiences of early adopters - helps people to put their case to the board, with real, defined measurable benefits."

The guide outlines examples of the potential benefits of e-procurement. Some, such as automating the purchase-to-pay process to speed procurement cycle times and facilitate supplier performance improvements, will be familiar to most firms.

However, the guide also focused on areas BuyIT has found are often under assessed or ignored, such as e-invoicing.

"During negotiations the procurement manager can more credibly guarantee the supplier a level of prompt payment, which was not possible prior to e-procurement," the guide says. "A better price can be arranged as a result."

Although e-procurement can bring a number of different benefits to a business, it is important to recognise that not all buying of the organisation is addressable by e-procurement processes, the guide warns.

"Some products by their nature would not be usefully transactable, such as utilities," it says. "In other cases, certain categories of spend may involve a lack of competition between suppliers - for example a duopoly - and an e-auctioning capability would not be applicable."

In addition, global local area network and desktop capabilities likely to affect IT delivery must also be factored into the business case assessment, as speed of rollout is key to the speed at which benefits may be realised, the guide says.

BuyIT group members Cable & Wireless, Guinness and Rolls-Royce were early adopters of e-procurement technologies and have all achieved measurable ROI.

Their input into the guide was important, Janssen said. "Companies like to learn from the experiences of early adopters as it helps them to cut through the hype," he said.

"This is the concept behind the BuyIT Best Practice Network - members like to know exactly what other companies are doing to help guide their own decisions."

However, Janssen said, only a few companies have committed to large scale e-procurement projects.

In the meantime, guides such as the one published by BuyIT last week may prove invaluable.

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