Creating Cost-Effective Procurement Systems Through New Web Technologies.

ACROSS America, businesses of all sizes are harnessing the power of the Internet to purchase products and services. Using new Web-based procurement systems, these companies are improving the efficiency of their existing purchasing department personnel and, at the same time, reducing their bottom line costs.

So why are less than 10 percent of businesses in the U.S. buying online?

"While the projected growth of e-commerce is exponential, many companies and organizations are still not taking advantage of the significant benefits and increase in bottom-line profits that can be achieved by using the Web for their purchasing," said One Rechtman, Chairman and CEO, Wareforce.com, an El Segundo based information technology (IT) systems company.

If you think automated procurement isn't relevant to your company, think again. New technologies make procurement more cost-effective and the people who perform those tasks more efficient. Having all the information a buyer needs to make an informed choice immediately available on his computer screen greatly reduces the time factor and allows him to accomplish more.

Using a paper-based purchasing system adds $125 - $180 per transaction, depending on labor and processing time. Web-based procurement, which automates purchasing, can reduce the costs by as much as 70 percent, savings which are usually passed on to the buyer.

"Ignoring the benefits of Web-based procurement could be a costly mistake," Rechtman said. "Beyond the savings achieved by locating the lowest-cost provider of a particular item, the overall reduction in labor and processing costs can be substantial, whether a business processes 10 orders a day or 10,000."

One reason is that software developers have written programs that do a lot of the legwork for you.

"Procurement of everything from basic software to sophisticated computer systems has traditionally involved an individual searching through countless vendor catalogs, CD-ROMs and databases," Rechtman said. "Comparing all the variables was time consuming and unwieldy. By using the Internet, we can assemble the data and compare product options and vendors with the click of a mouse."

Reverse Search Engines Automate Vendor Comparison

Most of us are familiar with the traditional means of electronic commerce, in which a business simply displays its catalog on a Web site and customers enter search terms to find what they're looking for. If the buyer wants to compare prices, he has to visit dozens of sites to get the best deal. By comparison, if the Web site uses reverse search engine technology, the customer enters the product being sought, as well as any specifications, and the engine locates it.

"For example, the reverse search engine we use on our customer Web pages can instantaneously compare prices of over 140,000 computer-related products from hundreds of different manufacturers and distributors," Rechtman said.

One of the most significant benefits of the new breed of reverse search engines is their ability to accelerate the entire purchasing cycle. Web-based procurement systems provide real-time information on the availability of specific items and then identify the most cost-effective delivery method. With conventional systems, when an order is placed, the vendor spends time taking and processing the order, then routing it to a warehouse. Those steps are eliminated with a Web-based system: the online order is routed directly to the supplier's distribution and fulfillment center and the item can be dispatched the same day.

21st Century Purchasing: All on the Web

Businesses and organizations have multiple options when adopting a Web-based procurement system.

"For larger entities, generally those with over 1,000 employees, a customized, internal Intranet system often is the best solution," Rechtman noted. "They provide added flexibility as well as made-to-order financial management tools."

One such customized system, developed for a major county government, centralizes vendors into a single database, making it possible for thousands of workers to locate, order, track and pay for items ranging from police cruisers to mouse pads. The system contains sophisticated levels of protection and security.

"While start-up costs for a customized enterprise solution could run as much as $1 million or more, the initial cash outlay can be quickly offset by operational savings," Rechtman said.

Typically, for entities with 1,000 or more employees, changeover to an e-commerce procurement system can recoup start-up costs in less than 18 months. The savings are achieved through reduced pricing as well as reduced storage and warehouse needs. For small and mid-sized businesses, an Internet-based procurement program typically can be established for under $500 utilizing the company's existing computer equipment.

Initially, many companies start using a Web-based system to purchase such small-ticket items as computer equipment add-ons or software upgrades. Once they gain a comfort level utilizing the system, they realize the capabilities are far more extensive. Rechtman points to a professional firm with 100 employees that recently used e-commerce to identify and acquire a complete new information technology system.

Because smaller businesses generally cannot afford in-house personnel to manage their IT systems, many firms rely on outside consultants to determine their needs and ultimately, procure, install and maintain their systems. Many of these services can now be performed online. Using such an approach, the professional firm Rechtman noted has saved more than $12,000 on their IT system and services.

Internet-based procurement systems already provide access to more than just products. Everything from extended warranties to computer training and help desk services can now be contracted over on-line systems.

Web-based procurement is only one aspect of e-commerce," Rechtman said. "Innovative and dynamic Internet applications help businesses greatly expand their sales volume and customer base, plus enhance the levels of service provided to existing customers as well. And, they are able to do this 24 hours-a-day, 7-days-a-week on a global basis."

"Indeed, if a company hasn't considered such standard applications as sales over the Internet or Web-based procurement, it's just a matter of time," he concluded. "With more e-solutions available than ever before, the time is right to take a good look at the many ways e-commerce can generate added revenue and reduce costs."

Jesse Slome is a freelance writer and communications professional.