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That there is potential for savings to be made from e-procurement is beyond dispute. The business case for e-procurement is based on yearly reductions in purchase prices and savings from lower process costs. However, the business case is only the start of estimating potential savings versus the costs incurred in their realization.
It is continuous measurement of the effectiveness of the key performance measures that is vital to the successful management and delivery of benefits realization. Thus measurement, especially in difficult trading conditions, is likely to be a prerequisite for project approval and the only way to demonstrate success and identify problems early enough to manage them effectively.
Measurement drives behavior and is a key element in making a successful program and is just as relevant to projects that are already underway. Consistency, discipline, and accuracy must be applied to obtain meaningful results.
Measurement provides new and reliable input into sourcing negotiations and presents an accurate picture of procurement as a basis for improved management, whatever the organization's starting point.
In order to calculate recurring benefits, key savings drivers need to be identified and measured against. The key drivers for e-procurement include transactional, payment, management information and price benefits.
These drivers are interdependent, each enabling the others' delivery. The interaction between them is important, implying that the achievement of tangible benefit in the form of price improvement is reinforced at each successive negotiation by the improving interaction of the drivers.
The result is that e-procurement enhances subsequent negotiations with a supplier by yielding increases in business, and efficiencies in the transacting of that business.
Classification of benefits
The principle metrics that will demonstrate a return on investment (ROI) in e-procurement are:
* hard benefits (directly measurable) that are required to deliver enhanced shareholder value and thus gain approval, such as price savings and process cost reduction;
* soft benefits (indirect benefits) whose direct effect on cash flow may be difficult to quantify accurately (i.e. individual time freed up through more efficient processes), but may well be indicative of progress; and
* intangibles, which are beneficial but are not directly measurable in financial terms. It is important not to misclassify "soft" but measurable benefits as intangible, just because measurement may be more difficult. Intangibles include:
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