Study: B2B Firms To Profit From Internet Purchasing

Countering a flurry of reports that predicted sluggish returns for companies participating in e-marketplaces, a study released Monday by the AberdeenGroup found that online purchasing can provide real benefits to the business-to-business (B2B) firms that embrace it.

“Enterprises using e-procurement technologies are recognizing enhancedsupply chain visibility and management, greater process efficiencies andimproved cost control,” said Aberdeen director of supply chain managementresearch Tim Minahan.

Specifically, the Boston, Massachusetts-based research group said companiesthat have moved towards automated acquisition and management of goods andservices can expect to slash transaction costs by 73 percent.

Sourcing Savings

Moreover, thestudy predicted that B2B firms utilizing the Internet to buy goods will incura 70 to 80 percent reduction in purchase order processing cycles anda 5 to 10 percent drop in prices paid.

Based on these estimates, Aberdeen said an average mid-size organizationwill see a savings of almost US$2 million per year through the use ofe-procurement technologies.

Aberdeen also said U.S. businesses can realize similar benefits byimplementing e-sourcing strategies, including a 25 to 30 percentdecrease in sourcing periods, a 5 to 20 percent reduction in pricespaid, and 10 to 15 percent faster time-to-market cycles.

Assessing these estimates, the study said that U.S. businesses couldrecognize $690 billion in savings by adopting e-sourcing technologies.

Dampened Forecasts

Aberdeen’s findings come on the heels of several industry studies that havedampened earlier high-flying forecasts for B2B online marketplace adoption.

For instance, a report released in April by the National Association ofPurchasing Management (NAPM) and Forrester Research said 26.1 percent ofcompanies reported a cost savings fromtheir Internet activities for the first quarter, dipping from the 26.6percent that reported a cost savings the previous quarter.

Meanwhile, a separate study from Jupiter Media Metrix issued in March foundthat corporate purchasing agents plan tomake 20 percent of their purchases online in the next year. The mainstumbling block to faster growth cited by Jupiter was the absence ofpreferred suppliers that currently sell online.

Building Business

However, Aberdeen said many reports have ignored the most critical ways inwhich businesses can increase market streams.

“In an attempt to recover from their previous predictions for the growth ofInternet-based B2B transactions,certain industry prognosticators haverecently issued statements damninge-procurement,” said Minahan.

Minahan added: “The transaction focus of such predictions overlooked what is trulyimportant to businesses: process improvements and cost benefits.”

A study released last month by Jupiter also concluded that B2Bcompanies need to strengthen the quality of buyer-seller relationships, rather than reducing transaction costs in thecoming months, if they wish to experience significant market expansion.

Big Spending

As an increasing number of organizations begin to realize the potential ofmoving their business online, industry watchers predict that many firms willbegin spending big money on their online exchange initiatives.

A recent study from Forrester said that over the next five years, businesspurchasers will spend an estimated $5.4million to $22.9 million each to integrate into B2B e-marketplaces.

Similarly, a report released earlier this year by Jupiter predicted thatbusinesses worldwide would drastically increase their investments in B2Be-marketplaces from $2.6 billion in 2000 to $137.2 billion by 2005.

1 Comment

  • RE: Sourcing Savings

    For certain commodities, there can be many serious shortcomings that buyers, sellers,

    and online market makers invariably fail to consider. For example, there are many

    types of “direct” and “indirect” savings losses that buyers may encounter which can

    reduce the magnitude of identified savings. See, for example, “Realizing Savings

    from Online Reverse Auctions” at http://208.0.204.170/Clbm/research.html.

    Bob Emiliani

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