To maximize relationships with preferred suppliers, many European firms will develop private online hubs that will result in savings of 9.5 percent on sales costs in the coming years, according to a study released Thursday by Forrester Research.
A shift to Internet-based hubs on the continent will also give rise to a number of other benefits, the research firm concluded.
For instance, savings in inventory costs, combined with the improvements in design and production efficiency that the hubs will deliver, will generate a return on investment between 280 percent and 1,400 percent over five years, Forrester said.
According to Forrester research director Jaap Favier, European companies have generally shied away from utilizing e-marketplaces because "these many-to-many venues are too expensive and fail to offer the necessary functionality and confidentiality."
According to the firm, many of the drawbacks of these e-marketplaces can be eliminated by the use of private networks and hubs.
"European firms plan to use the Net to automate supplier contacts through the product life cycle," said Favier. "Private hubs will generate enormous savings, especially for large firms that are in capital-intensive industries and make complex, innovative products like computer companies."
How Closely Tied?
The private hubs will help businesses consolidate cross-company purchasing, Forrester said.
Companies in Europe that require depth and reach in the private hubs automating their processes can select from three different hub types, each offering a different level of collaboration:
real-time activity coordination
between firms and their suppliers to maximize cost savings.
"On the highest collaboration level, the borders between a firm's processes and its supplies will dissolve, enabling sharing of inventories, market intelligence, and product strategies," said Forrester.
Number Crunching
As part of its analysis of the cost savings that European firms can reach through using one (or more) of the three private hub models, Forrester detailed the financial benefits for each type. The research firm examined various types of procurement, supply chain, design and development processes in estimating the investments required and potential costs savings of each hub type.
For instance, Forrester predicted that Monitor Hubs, which require an initial investment of almost $5.9 million, can be operational in 40 working days and will result in annual savings of nearly $6 million, mostly in reduction of supply spending.
Hubba, Hubba
In contrast, while the upfront costs of a Manage Hub -- mostly on consulting and labor fees -- will be almost three times as high as those of a Monitor Hub, the study said that Manage Hubs will result in annual savings 12 times greater than Monitor Hubs for large global firms.
For their part, Optimize Hubs require the most significant investment, due to substantial operational costs to integrate suppliers and internal systems. Cost savings, however, of this model are almost twice as much as those of the Manage Hub.
To compile data for its report, "Save Big with a Private Hub," Forrester
interviewed 30 European executives about their online procurement plans
outside of e-marketplaces, as well as 20 industry experts and technology
vendors.
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