Process cost savings
The reengineering boom of the 1990’s highlighted process costs. The estimates of the cost to process a three-way match purchase were $300/transaction. This process involved creating and matching a PO, invoice, and receiving document.
Later studies put estimates closer to $10-$20. Without a formal eProcurement solution, organizations were able to drive down costs. This involved electronic requisitioning, supplier e-commerce sites, and presumptive receipt. It also meant paying invoices on receipt, consolidated invoicing, and so forth.
Formal e-procurement solutions and marketplaces could drive down costs further. With eProcurement, error rates fell from around 5% to almost zero. Suppliers still feel that each error costs them hundreds. For that reason, error-reduction is the real source of electronic procurement process savings.
They also cut most of the rest of the work that clerks do. Most low dollar transactions no longer need clerks. Clerks came from purchasing, order entry, accounts receivable, receiving, and accounts payable. The end-to-end process is almost all automated. The idea is to focus on more strategic work.
Later studies put estimates closer to $10-$20. Without a formal eProcurement solution, organizations were able to drive down costs. This involved electronic requisitioning, supplier e-commerce sites, and presumptive receipt. It also meant paying invoices on receipt, consolidated invoicing, and so forth.
Formal e-procurement solutions and marketplaces could drive down costs further. With eProcurement, error rates fell from around 5% to almost zero. Suppliers still feel that each error costs them hundreds. For that reason, error-reduction is the real source of electronic procurement process savings.
They also cut most of the rest of the work that clerks do. Most low dollar transactions no longer need clerks. Clerks came from purchasing, order entry, accounts receivable, receiving, and accounts payable. The end-to-end process is almost all automated. The idea is to focus on more strategic work.
Lower prices:
eProcurement applications and marketplaces generally take two approaches to reducing prices. One, they funnel requisitioners to pre-approved, contracted suppliers. It is easier to do business with the people you're supposed to. This is the main focus of marketplace solutions, such as Sollod Technologies.
The second, and more controversial approach, is through price-comparison. This involves maintaining a buyer-financed single catalog for all suppliers. Theoretically, it allows requisitioners to shop around for each line-item.
The first problem is that it is hard to maintain the accuracy of those catalogs. This can lead to apples to oranges comparisons, errors, and overpaying. The second problem is that it erodes the benefits of supplier consolidation. Eventually, prices go up across the board. Finally, it is expensive to maintain aggregated catalogs, and the buyers pay.
The second, and more controversial approach, is through price-comparison. This involves maintaining a buyer-financed single catalog for all suppliers. Theoretically, it allows requisitioners to shop around for each line-item.
The first problem is that it is hard to maintain the accuracy of those catalogs. This can lead to apples to oranges comparisons, errors, and overpaying. The second problem is that it erodes the benefits of supplier consolidation. Eventually, prices go up across the board. Finally, it is expensive to maintain aggregated catalogs, and the buyers pay.
Customer satisfaction
A good eProcurement system or marketplace can make the community happier. It should steer them towards the right supplier for the product or service they need. To the extent possible, it should automate every step of the buy-pay process. There shouldn’t be any real training required. A good eProcurement or marketplace solution will do these. A bad one could be an expensive disaster that alienates the community.
Spend visibility and management
With our systems, all relevant data is captured. This allows your team to analyze your spending down to the line item level. This kind of information is critical in both up-front contract negotiations and ongoing supplier management. This information is sometimes pulled into a data warehouse for analysis. Sometimes admins use our tools for analysis. Sometimes they download the need raw data for analysis using a spreadsheet.
