- 2 - Understanding the benefits of e-Procurement Andy Gueritz, Jan 2001 © 2001 Sixhills Consulting Ltd & Author Sources of inefficiencies in traditional procurement processes A comprehensive list of sources of inefficiencies is impossible to draw up in general terms since it will necessarily vary from organisation to organisation. In general terms, the most common and important sources of inefficiencies include:  Ordering unapproved or non-essential items and poor compliance with corporate contracts, leading to unnecessary administrative overhead and payment costs;  Failure to order through approved suppliers, reducing the ability to negotiate lowest prices and resulting in overall cost creep;  High error rates and long purchase cycle times caused by the many stage nature of existing procurement processes, involving staff in lengthy reconciliations and other non-value-adding activities;  Unnecessarily complicated and time wasting logistics and fulfilment procedures involved in taking delivery of goods and services to delivering them to end users; especially the need for the ‘three-way match’ to tie together purchase orders, invoices and delivered goods. E-Procurement enables organisations to create efficient workflows and processes that eliminate these inefficiencies without disrupting their primary business activities. Economic benefits of e-Procurement According to industry benchmarks e-Procurement can lead to benefits in five key areas:  Lower transaction costs – reduced from $107 to $30 per order  Shorter order cycle time – reduced from over a week to two days  Higher compliance levels – increased from 70 per cent to 95 per cent  Lower inventories – reduced by 20 - 50 per cent  Lower prices – reduced by 5 - 10 per cent IllustrativeIllustrativeBenefits Promised Through E-ProcurementTransactionCostCycleTimeComplianceInventoryCost ofGoodsTraditional /Manual$107 per order requisition7.3 days70%100%100%E-Procurement$30 per order requisition2 days95%20% to 50% reduction5% to 10% reductionIllustrativeIllustrativeBenefits Promised Through E-ProcurementTransactionCostCycleTimeComplianceInventoryCost ofGoodsTraditional /Manual$107 per order requisition7.3 days70%100%100%E-Procurement$30 per order requisition2 days95%20% to 50% reduction5% to 10% reduction
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