Most of the savings will come from encouraging the bank's 65,000 employees to use a new e-procurement application, SAP Supplier Relationship Management (SRM), which went live in March.
Lloyds TSB procurement director Caroline Booth said the project was particularly significant because it could deliver big savings for a small investment.
"Some of the prizes from other business process transformation programmes are in the same order of magnitude as procurement, but the investment is higher," she said.
Lloyds TSB brought in the SAP system because its existing application was only being used for 5% of total procurement spending. It decided that a system incorporating simpler purchasing processes and containing a greater range of products purchased by the bank would lead to greater use of the application.
The bank's board has set Booth a target of £1bn being put through the system by the end of the year. Since its March launch, 10,000 users have put 50,000 orders through the system.
IT developers have built a simple intranet interface called [email protected]iNeed to give Lloyds TSB staff easy access to procurement catalogues from which they can select products. Once a purchase is completed, the web interface processes the transaction in SAP SRM, which the bank has integrated with its SAP R/3 enterprise resource planning platform.
Booth said, "We decided the switch to the new system had to be a big-bang implementation."
However, she said the biggest challenge lay in encouraging users to accept the system, and to this end IT support was providing more "simple handholding" to end-users than was expected.
Procurement savings generated by using the application have already been enough to pay back the cost of the implementation, said Booth.
Asked what advice she would give IT directors considering similar projects, Booth said, "If your chief executive tells you to take on procurement without involving people, processes and technology, do not take it, because it will fail."
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