Measuring E-Procurement benefits
The potential for savings to be made from e-procurement is beyond dispute. However, how do you measure savings accruing from e-procurement?
If you cannot measure it you cannot manage it. Measurement drives behavior and is a key element in making a successful program. To achieve tangible results with any Software solution you need consistency, discipline, and accuracy be applied.
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.
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;
- Intangibles, which are beneficial but are not directly measurable in financial terms.
PS: Be careful not confuse "soft" but measurable benefits with intangible, just because measurement may be more difficult.
Example of Intangibles include:
- Cultural change: End-user attitude shift, Ease of implementing worldclass internal processes;
- E-platform: e-procurement as a step towards value-adding structures;
- Financial approval for all spending: ability to ensure that all spending meets organization standards;
- High visibility of supplier performance: "live" feedback from end-user to buyers
E-procurement enables the purchase-topay process online. Electronic processing leads to great time savings and efficiency due to:
- Automated processes that incorporate best practices and eliminate unnecessary activities
- E-enabled relationship with suppliers, speeding procurement cycle times and ultimately impacting on supplier performance.
- Greater data accuracy, which minimizes ordering inaccuracies and provides the essential foundation for better management through measurement and analysis.
In many most organizaitions, compliance and unbudgeted spending is a significant issue – not because employees deliberately purchase outside of preferred arrangements, but at times it could belack of awareness. E-procurement addresses this through tools such as catalogs and standard order processing and approval processes. Compliance will be achieved due to:
- Simple and quick requisition process including pre-sourced catalogs
- A simple and quick strategic sourcing process with standard procurement processes and tools, as well as easily accessible information
- Enforcing e-procurement as the only purchasing mechanism used