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E-procurement systems impact the prices of goods and
services in three ways:
Increased preferred
vendor purchases: E-procurement fosters purchasing from preferred vendors, who in turn offer volume discounts and
contract pricing. A typical e-procurement system can boost preferred vendor transactions by
25%, returning substantial savings assuming a weighted average preferred-vendor discount of
7%.
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Preferred vendor
consolidation:
As volume shifts to preferred vendors, low-volume vendors will eventually be eliminated from the supplier network,
driving more purchases to preferred vendors and enabling them to increase consumer
discounts.
Spot discounts:
Because of the dynamic nature of on-line pricing, vendors can offer limited-time spot discounts on excess inventory. Even a
one-percent reduction in purchasing expenses can yield significant savings for large organizations.
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Reduced labor time/reduced transaction
costs
By far, the greatest e-procurement savings result from the
combination of less time required for the total purchasing cycle and the subsequent reduced
transaction costs. Together, these decreased transactional factors translate into significant cost savings.
The table below
shows the
approximate time it takes to complete each step in a single corporate purchasing cycle, comparing manual or electronic data
interchange (EDI) purchases to e-procurement.
This Table demonstrates nearly fivefold reduction
in time and nearly 80% reduction in cost directly attributable to e-procurement.
|
Process Step |
Manual/EDI
(Minutes)
|
eProcurement (Minutes) |
|
Product
Selection
|
3
|
20
|
|
Availability/Price
Check |
10
|
1 |
|
Requisition Creation |
11 |
2 |
|
Requisition Approval
|
21 |
3 |
|
PO Generation |
11
|
0 |
|
PO Approval
|
3 |
0 |
|
Send PO to Vendor |
14 |
0 |
|
PO Confirmation
|
4 |
0 |
|
Status Check
|
11 |
1 |
|
Receive Shipment |
12 |
2 |
|
Match Invoice, Receipt, etc |
8 |
5 |
|
Process Exceptions |
8 |
3 |
|
Payment Approval
|
4 |
3 |
|
Payment Generation |
8 |
5 |
|
Process Returns |
5 |
3 |
|
Total
Minutes/Purchasing Cycle |
150 |
31 |
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Cost/Cycle Time (Avg. $0.50/minute) $75
$15.50 Per Purchase, Savings NEARLY $60!
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E-procurement Offers Tremendous
Opportunity to Save Both
Now project your own potential e-procurement benefit by multiplying the Per
Purchase Savings rate by the number of purchase orders your own organization
processes in a single year. Depending on the size of your enterprise,
e-procurement savings could amount to millions of dollars annually. For
suppliers, e-procurement stands to yield significant reductions in inventory
holding times and safety stock levels, and an overall reduction in the
purchasing cycle—the time it takes from ordering an item to receiving it. |
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