Web purchasing could cut costs up to 70%

NEW YORK: Companies using the Web to buy goods and services could cut

purchasing time and costs by more than 70 per cent, according to industry

analyst firm, Aberdeen Group. In a report published on Monday, Aberdeen

estimated that an average mid-size organization can expect to save almost $2

million per year, or roughly 70 per cent of its total procurement costs, by

using the Internet to buy goods rather than sticking to traditional methods such

as fax and phone.

"Companies who move their purchasing online dramatically reduce costs,

shorten purchasing cycles and drive improvements to the bottom line," the

report said. Aberdeen, which predicts the e-procurement market is set to

generate more than $9 billion in sales by 2003, said it surveyed users of

purchasing software in 1998 and 2000.

In 1998, Aberdeen found that only large businesses had begun to use the

software, but the 2000 survey showed that a much wider range of companies had

adopted the software to buy products online. "The good news is the same

kind of benefits that large organizations saw two years ago which are now being

seen by companies of all sizes," said Aberdeen analyst Christa Degnan.

"And small companies in particular can see the same benefits by going

with hosted applications," Degnan said, referring to businesses that choose

to rent purchasing software over the Web rather than buy it. Software vendors

such as Commerce One Inc., Ariba Inc., Oracle Corp., PurchasePro Inc. and SAP AG

are among those that stand to benefit from the growth in online purchasing.

Citing the example of a purchase order, Degnan said it cost companies, on

average, around $107 in 2000 to generate a purchase order manually. But

automating that process over the Web cut the cost to just $33, Degnan said.

But procurement software does not come cheap. On average, companies surveyed

for Aberdeen's 2000 survey said they spent $1.26 million buying and installing

procurement software. Those renting it over the Internet reported an average

cost of $840,000. "There has been some hesitation because of the

cost," Degnan said. "But if they go ahead and do it companies can be

assured of the benefits."

(C) Reuters Limited 2001.