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 Aberdeen Group 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 enhanced supply chain visibility and management, greater process efficiencies and improved cost control," said Aberdeen director of supply chain management research Tim Minahan.

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

Sourcing Savings

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

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

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

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

Dampened Forecasts

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

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

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

Building Business

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

"In an attempt to recover from their previous predictions for the growth of Internet-based B2B transactions, certain industry prognosticators have recently issued statements damning e-procurement," said Minahan.

Minahan added: "The transaction focus of such predictions overlooked what is truly important to businesses: process improvements and cost benefits."

A study released last month by Jupiter also concluded that B2B companies need to strengthen the quality of buyer-seller relationships, rather than reducing transaction costs in the coming months, if they wish to experience significant market expansion.

Big Spending

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

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

Similarly, a report released earlier this year by Jupiter predicted that businesses worldwide would drastically increase their investments in B2B e-marketplaces from $2.6 billion in 2000 to $137.2 billion by 2005.