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Analysis of Internet Procurement

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Internet Procurement

Companies spend a significant amount of money on procurement. Internet procurement allows companies to reduce procurement costs by 10% -20%, as well as increases the customer base a company can reach. This paper explores the Internet Procurement industry and market potential.

What kind of money are we talking about in Internet Procurement?

Krach (CEO of Ariba) estimates that companies typically spend one-third to one-half of their money in the area of operating resources (procurement). He also estimates their savings using the Ariba system save somewhere between 10% and 20%.

Oracle estimates that organizations can spend up to 60 percent or more of their revenues acquiring goods and services. The savings potential is significant. For example, a $1 billion manufacturing company with total procurement spending of $570 million can spend up to $348 million on non-production goods and services. Reducing this spending by only 15 percent would mean savings of $52.2 million each year!

Market Growth Expectations

As of September 16, 1999, Investment banking firm Goldman, Sachs & Co. said it expects a five-year $1.5 trillion boom in business-to-business e-commerce in industries ranging from automobiles to medical equipment.

In a report on the sector, Goldman says that the retail sector, with sites like Yahoo! Inc and eBay Inc, has gotten most of the attention, but the business-oriented side "is poised for equally explosive growth."

Goldman, which has been one of the most active bankers in bringing Internet companies public, said it sees the $1.5 trillion total being reached by 2004, and it already estimates that businesses generated $39 billion from e-commerce appl...

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...s. Those who can sustain rapid growth over the next 4 years are those who will be the key players several years from now.

Most Internet-based facilitation software and services are sophisticated projects at this time, but by 2003, the growth rate of highly sophisticated systems will plateau and even begin to decline. Less sophisticated software and services will increase to approximately 50% market share by 2003. Clearly ease of use, simplicity, and seamless integration of software and services are key competitive dimensions in the Internet Procurement industry.

At present, the market for B2B solutions in revenue terms is dominated by the large enterprise. As the market develops and demand filters down to the smaller enterprise, software and service providers need to understand which kinds of companies are likely to implement solutions and when.
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