The supply chain is going online, with lightning speed and dramatic results. That’s the finding of a recent Deloitte Consulting study, “Leveraging the e-Business Marketplace: Business-to-Business e-Procurement Trends, Opportunities, and Challenges,” which surveyed 200 global corporations to assess their adoption of e-business technology and strategies. Companies are jumping into electronic purchasing and supplier networking,e-procurement, for short,and they’re quickly finding that the investment pays off.

The survey found that:

F More than 90 percent of the companies surveyed said e-procurement is in their business plan, and a surprising 30 percent have already implemented this new capability to some degree.

F E-procurement has a dramatic return on investment, with an average ROI of more than 300 percent.

F Among businesses using e-procurement, a strong majority (85 percent) said they are highly satisfied with the results. On average, firms considering or already using e-procurement expected annual savings of 9 percent in their external spending, which would have a significant impact on their profits.

F Companies report that key suppliers are well prepared to support Internet-based procurement. Respondents indicated that nearly 70 percent of their suppliers are prepared to collaborate through e-Business.

F Few real barriers to e-Procurement implementation exist, however, 68 percent of respondents reported that competing initiatives could slow or limit the adoption of e-Procurement in the near-term. A surprisingly small percentage of companies reported implementation concerns regarding the use of this emerging technology.

Redefine and Redesign

E-procurement, if it is to do its magic, has to be more than just the automation of an existing process. Companies have to redesign their workflow and redefine the traditional procurement department. The latter will become much more strategic; companies are going to be much more concerned about the specifications of the items they’ll be buying, and the strength of the supplier.

When e-procurement is done right, the payoff comes from several directions. Companies save by focusing on a few key suppliers rather then fragmenting their buying power across the market. Suppliers can also offer better deals because of their own savings from lower processing costs. A lot of suppliers will offer incremental discounts if you do business electronically with them, and supplier service levels will improve dramatically. Companies on the buying side can devote more resources to strategic decision-making instead of wasting time processing orders, a job that adds little value. And there’s less “maverick spend”,fewer employees go outside of the system to buy supplies.

The survey suggests that companies interested in pursuing a path toward Internet-enabled, business-to-business procurement may want to explore the following actions:

1 Ensure that e-Business procurement is viewed as a critical business imperative capable of creating competitive advantages, as well as delivering bottom-line savings, improved cycle times, increased control of corporate spending, and vastly stronger supplier partnerships. E-Procurement should not be viewed as a purchasing-led or systems-led initiative, but as the new way of transacting business and partnering with your suppliers.

2 Review your company’s e-Business strategy to ensure that business-to-business exchanges are included in the corporate vision. This strategy should encompass all aspects of e-Business, including buying, selling, customer relationships, and vendor partnerships. It should also include alternative scenarios (e.g., a new, Internet-only competition), especially given the speed of change in the e-Business world.

3 Examine what others in your industry value chain are doing in the area of e-Procurement. Consider the leverage points in your supply base for creating value using the Internet. Explore opportunities for partnering with key suppliers to create new value for your customers.

4 Ensure that your e-Procurement initiative is focused on delivering a total business solution. Review the proposed users of your solution and plan coverage wide enough for the entire organization. Be careful of getting caught in an extended pilot phase, as the most meaningful insights come from wide use of this new capability.

5 Map your major categories of external spending to the various e-Business procurement approaches, including online auctions, supplier malls, and Internet-based catalogs. Realize that different approaches will be needed to deliver the greatest benefit to the organization depending on the product, service, and market being addressed.

6 Evaluate the tools available on the market and determine the infrastructure requirements for implementing an e-Procurement solution. Consider the opportunity to pilot a solution for one or two categories and/or divisions.

7 Assess the organizational impact of doing business over the web. Understand that changes in business processes, authorizations, and payment methods may be needed to ensure a successful implementation. Also, do not underestimate the importance of training and communications in your rollout.

As “Leveraging the e-Business Marketplace” notes, e-Business is poised for staggering growth, and the business-to-business portion of it will dwarf the business-to-consumer side. Beyond its sheer size, e-Business is set to transform the way all companies operate by making it easy, for the first time, to integrate supply chains and fuse the management of materials, information, and funds from supplier to the ultimate consumer. Businesses that can harness the power of this new technology will have the opportunity to redraw the competitive landscape.

David Thompson is an e-Business partner with Deloitte & Touche. He can be reached via [email protected]. An executive summary of “Leveraging the e-Business Marketplace” is available at www.dc.com/services/e-business/procurement.asp.