Reasons e-Procurement Projects Fail to Achieve Their ROI

REASONS
e-PROCUREMENT
PROJECTS FAIL TO
ACHIEVE THEIR ROI(and ways to overcome them)
white paperIntroduction
In 2000, the B2B 'revolution' was in full swing. Today, the reality is sobering.
One company we interviewed invested $5 million in a Vertical Market only to see theorganization shut down without executing a single transaction. Another company paidconsultants for over 30,000 hours of work to implement an e-Procurement solution.Today, they have a handful of catalogs up and running with a compliance rate below 50%.
These experiences are not unique. According to Gartner Group:
After 12-24 months of deployment, few clients have moved beyond more than 1five to 10 suppliers of indirect goods
The following graphic represents a typical ROI projection used to justify the purchase ofan e-Procurement system in the recent past (see Figure 1).
In this example, the costs in Year One include e-Procurement software, integration,implementation, internal IT costs, and content development. The costs in the followingyears include software Traditional ROI Model -- Expected Results maintenance, content manage-ment, and on-going IT expenses.The return is from process Costs efficiencies, compliance savings,Expected$ spend consolidation, and Return maverick spend reduction.Break-even Most of the projects in Gartner's1 2 3 4 5 survey had ROI projectionsYears based on 'soft cost' or processFigure 1 efficiencies and the use ofmore suppliers and greater end user adoption than they have been able to achieve.Finally, the supplier catalogs that have been implemented represent lower spend volumes, undermining the ROI.
For this and other reasons, Gartner Group found that the timeframe for e-ProcurementROI may exceed four years (see Figure 2).
1E-Procurement Project ROI: One Last Time, by D. Hope-Ross, April 10, 2001, Gartner Group.ICG Commerce-Reasons e-Procurement Projects Fail to Achieve Their ROI 1This leaves many companies asking,Traditional ROI Model -- Actual Results "Is there a way to pursue an Costs e-Procurement strategy that
Expected achieves its goals and provides Return a strong return on investment in $ Actual a reasonable timeframe?"ReturnBreakkk-- Having been in the procurement fieldeven for over a decade, we have experienced1 2 3 4 5Years the challenges in this paper with overFigure 2 130 clients and we have studied thelessons learned from others. As a result, we have continuously adapted our approach toensure that our customers realize the true promise of e-Procurement.
We have proven that there is a way to drive a measurable and compelling return on e-Procurement investments in a short timeframe. However, it requires a different, more comprehensive approach.
Lack of Focus on Unit Cost Savings
A multinational clothing manufacturer recently canceled their e-Procurement project after 24 months and millions in fees due to their inability to obtain supplier content. When theimplementation ran over and money was tight, the lack of tangible results forced the CEO to cancel the project.
In this case, lack of focus on supplier content gives insight into the way the company andtheir consultants perceived the project.
"The project is about technology that will enable savings".
We believe this is flawed. The thought process should be:
"The project is about savings, enabled and sustained with technology".
SOLUTION: Focus the Project on Achieving Bottom Line Savings
Sourcing strategy and technology are two vital halves of the solution. A sourcing strategy isneeded to identify and pursue the unit cost savings that will drive the return. The technologyis needed to capture and sustain those savings over time. A company can identify enoughsavings while the implementation is underway to completely fund the project, possibly withinthe first year. For example, we saved a $1 billion manufacturer $800,000 in savings on a $4 million steel buy within the first four weeks, which funded the first several years of the project.
ICG Commerce-Reasons e-Procurement Projects Fail to Achieve Their ROI 2ICG Commerce provides two avenues for rapid unit cost savings. We aggregate the spend ofour customer base and negotiate deals with premiere suppliers in over 40 categories. These'pre-sourced' deals provide immediate savings. ICG Commerce also provides EnabledSourcing Servi... [download for more]