- 4 - Understanding the benefits of e-Procurement Andy Gueritz, Jan 2001 © 2001 Sixhills Consulting Ltd & Author changes necessary is relatively high (compared to implementing a sourcing function), but the (moderate) cost savings are likely to be sustained over time. Sourcing? The cost savings from improving the activities in the Sourcing cycle alone may be very great but, crucially, these savings are only likely to be realised in the short term. Unless the entire procurement process, and associated organisational behaviour, is changed in a systemic way which addresses compliance and the other problems mentioned above, these Sourcing savings can be rapidly eroded over time. Sourcing and Procurement combined To achieve maximum cost savings, an organisation must reorganise the Sourcing cycle and Procurement cycle holistically; technology helps us today by offering the solution in the form of e-Procurement systems. When addressed holistically, the impact of combined change can deliver substantial cost savings that are sustainable over time. In the client situation mentioned above, we established that the total sustainable savings by introducing such an e-Procurement system could exceed $280 million annually, or eight times the reduction in transaction costs alone. 351555502502,2302,5252,470TotalPurchasedExpenseTransactionCostCurrentSystemCostTotalProcurementCostE-ProcurementSystemCostsReducedInventoryCostReductionofTransactionCostSavingsfromPurchasedGoodsFinalSpendClient ExampleClient ExampleAnnualised Savings Potential$ Million7:1 ratio between savings from purchased goods vs. process cost savings351555502502,2302,5252,470TotalPurchasedExpenseTransactionCostCurrentSystemCostTotalProcurementCostE-ProcurementSystemCostsReducedInventoryCostReductionofTransactionCostSavingsfromPurchasedGoodsFinalSpendClient ExampleClient ExampleAnnualised Savings Potential$ Million7:1 ratio between savings from purchased goods vs. process cost savingsImpact of Timing on SavingsExpense as Percentage of Original BaselineSavingsImplementation costsSavingsImplementation costsYear 1Year 2Year 3E-procurement only savingsSourcing only savingsSourcing and e-procurement savings Sourcing and e-procurement costs E-procurement costsSourcing costs 100%60%10%50%40%20%90%80%70%30%TimeImpact of Timing on SavingsExpense as Percentage of Original BaselineSavingsImplementation costsSavingsImplementation costsYear 1Year 2Year 3E-procurement only savingsSourcing only savingsSourcing and e-procurement savings Sourcing and e-procurement costs E-procurement costsSourcing costs 100%60%10%50%40%20%90%80%70%30%Time
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