- 3 - Understanding the benefits of e-Procurement Andy Gueritz, Jan 2001 © 2001 Sixhills Consulting Ltd & Author To understand how these benefits are realised, it is necessary to visualise the overall buying process as three distinct cycles:  Sourcing: The sourcing cycle involves negotiating prices for the products and services required. Our experience shows that consistent savings of between 10 per cent and 20 per cent of current costs can achieved in large organisations through rigorous application of the Aggressive Sourcing methodology;  Procurement: The actual process through which orders are raised and fulfilled. Most e-Procurement efforts today focus on reducing transaction costs, order cycle times, inventories and non-compliant buying by introducing the use of electronic catalogues and order management systems;  Payments: This includes the back office functions of collecting invoices and arranging payment. Our research shows that for a large company spending billions of dollars on indirect goods and services, some 50 per cent of invoices received are for sums of $100 or less. At an average invoice processing cost of around $10 per invoice, the administration costs of paying an invoice alone amount to about 10 per cent of the invoice value. How do the Procurement and Sourcing cycles work together? Procurement? At first glance the most striking savings that e-Procurement can realise are transactions costs in the Procurement cycle – individual order costs can be cut by over 70 per cent (from $107 to $30). However, the overall impact of such savings can be small. In a recent client study, transactions costs in the Procurement cycle were reduced by $35 million on a total spend of $2.5 billion. The cost of implementing the Electronic Procurement – Catalogue BasedThree CyclesElectronicOrder PlacementEngineer/End-UserOnline Selectionand Track & TraceDelivery Invoice and PaymentAutomatic ApprovalRouting (Optional)Supplier FulfilmentReceipt ConfirmationPreferredsuppliersElectronic CatalogueSourcing teamDefinition Quality Requirements and Standards Purchase Management•Control•MonitoringTransparency of Price BasisEnhancement ofpotential supplier baseConsequent NegotiationsElectronicOrder RequestGlobal Agreement DatabaseElectronic ProcurementSourcingPaymentsLink toe-marketsIssue PaymentProcess PaymentOK-to-payReconcileInvoiceElectronic Procurement – Catalogue BasedThree CyclesElectronicOrder PlacementEngineer/End-UserOnline Selectionand Track & TraceDelivery Invoice and PaymentAutomatic ApprovalRouting (Optional)Supplier FulfilmentReceipt ConfirmationPreferredsuppliersElectronic CatalogueSourcing teamDefinition Quality Requirements and Standards Purchase Management•Control•MonitoringTransparency of Price BasisEnhancement ofpotential supplier baseConsequent NegotiationsElectronicOrder RequestGlobal Agreement DatabaseElectronic ProcurementSourcingPaymentsLink toe-marketsIssue PaymentProcess PaymentOK-to-payReconcileInvoice
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