E-commerce is mostly associated with a company`s core business, where the Web becomes a new channel for selling its pivotal products or services. But a large area for e-business growth lies in the procurement of non-production goods or services - buying supplies or machine parts, paying maintenance or services contracts, settling travel and entertainment costs.
The Meta Group research company found that almost one-third of non-production procurement in the US is spent outside authorised corporate purchasing agreements. This "maverick" spending is marked by high costs for low value items.
Another global industry research found that over 60% of all procurement spending is assigned to indirect procurement, with up to 70% of a procurement process being paperwork. While exact local figures are not available, it is safe to assume that South African business is just as bad at controlling non-production costs as the rest of the world.
Paddy Gray, marketing manager of ECNet, concurs. She says South African companies typically spend between R150 and R250 to process an order. For every 100 invoices processed in the FMCG industry, an average 45 credit notes typically result.
"An online channel, with secure electronic catalogues and order management facilities, not only reduces human error, but also streamlines processes which in turn reduces costs," says Gray.
Filling the gap
In an Internet-based economy, paper-based payment processes will simply not be efficient enough. Gray predicts that enhanced procurement card systems will fill this gap.
A procurement card is a virtual card that can be integrated with a secure online purchasing service. Just as with credit cards, only the bank receives the card number in each transaction. The banks ensure the money will typically be in the seller`s account within 48 to 72 hours, while the buyer is only required to settle the purchase card account at the end of the month, according to Gray.
Internationally, Web-based procurement is fast winning business converts. Philips Electronics in the US recently decided to move all its purchases of non-production goods and services to the Web, while British Telecom in the UK is to create a business-to-business online marketplace for non-production goods.
Meanwhile, vendors are coming up with procurement solutions that promise to reduce maverick buying. ERP leader SAP AG has a Web-based workflow-driven solution, SAP B2B Procurement.
Locally, a stationery supplier has already seized the procurement opportunity. The stationery and office products division of printing house Ince allows its customers to order stationery and computer consumables online with ECNet handling the purchasing transaction. According to Alan Wilson, divisional sales director at Ince, the system was launched in October and is already being used by eight clients, some of which order over R40 000 worth of goods a month.
But this is just the beginning of the Web-procurement drive, which can result in massive savings for a company. The trick is to force its various operations to buy goods and services on contract -- through a single Web-based channel.
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