InformationWeek
Defining The Business Value Of Technology
July 26, 1999
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But more important, Estberg says, the new application gave the remaining purchasing employees more time to spend on strategic tasks, rather than the repetition of processing rudimentary order forms. The staff was able to spend more time last year negotiating new contracts with vendors, enabling the company to save $50,000 this way in the first year.
Estberg estimates his company will earn back its investment in CompanyStore in 1.8 years. He also notes the new ordering system provides his company more financial insight because it has much more complete information on spending at Visio. Under the old process, Estberg estimates, one-third to one-half of all day-to-day expenses were from "rogue spending"--purchase orders that didn't go through proper approval and processing channels. As a result, purchasing reports were inexact because a great portion of orders were not categorized.
Now most employees use the Concur application because it's so much easier than even an unauthorized manual purchase. And the accounting department can much more precisely analyze spending trends in the company.
While the ROIs for online procurement systems look extremely promising, Granda Research's Byles says the technology also carries a range of costs in software licenses and implementation and, more significant, in ongoing maintenance of catalog inventories. Furthermore, the Forrester report shows that most companies now conduct online procurement with only a few suppliers. Once companies start buying from more than 50 suppliers, "content issues will mushroom," the report says.
Giga's Rugullies says companies should be wary of online procurement software vendors' estimates of ROI, since their calculations don't assess the deployment and maintenance pitfalls particular to each company.
Companies must also manage any resistance to change from purchasing department employees and the rank-and-file. But IS managers report that while this is one of their greatest concerns going into the implementations, the systems are proving easy on users' time and patience, so employees are usually eager adopters.
Technical Challenges
Nevertheless, most companies find cost savings from online procurement systems easily compensate for any revenue drain that these software products may create. "No matter how you add it up," says Schlumberger's Diamant-Berger, "it's a tremendous return on investment."
Reduced Payroll
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The bottom-line benefits of online procurement systems go hand in hand with less quantifiable operational improvements. Mark Estberg, a senior manager of business applications at Visio Corp., a Seattle vendor of technical drawing tools, says the CompanyStore online procurement systems his company uses from Concur helped reduce the number of purchasing department employees by half.
Another benefit that's hard to measure is faster procurement. Redshaw says FedEx's online procurement system accelerates the speed of business by making it that much quicker to get materials and services into the hands of employees, which then allows them to get projects done faster.
One of the technical sticking points that could slow the growth of online procurement is file transfer formats, which aren't standardized and can pose a particular burden to vendors, who might have to convert their catalogs into multiple formats to work with the various online procurement systems. Also, a company could be burned if its online procurement vendor uses a format that falls out of favor and becomes incompatible with a future standard.
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