E-procurement will save UK small businesses up to £24bn per year, according to research commissioned for online procurement operation GroupTrade, which is aiming to aggregate the purchasing requirements of smaller companies when it launches later this summer.
The study, carried out by consultant London Economics, predicts that the small and medium-sized business sector can save the equivalent of 3% of UK GDP by taking advantage of cost cuts from e-procurement.
Larger companies look to benefit the most, with average savings of £600,000 for companies with 200-250 employees, the researchers conclude.
Some 30% of the savings from buying goods and services over the internet will come from the lower prices associated with bulk buying as millions of businesses can potentially group together to buy as a single trading unit.
But the rest of the cost reductions will come from savings in administration costs, as the orders cut sharply the time required for processing.
Overall savings for British businesses are likely to build up over the next three to four years, the report forecasts, with savings this year amounting to about £3bn, rising to £6.5bn in 2002.
Adair Turner, former director general of the Confederation of British Industry and now the chair of GroupTrade, said that compared with big companies, most smaller businesses were disadvantaged by the high search costs involved in procurement, and the lack of buying power from the small orders placed.
`GroupTrade has been founded on the belief that the internet can level that playing field,’ he said.
The report also highlights the enormous cost savings being realised by very large enterprises through e-procurement.
US industrial giant GE is making material cost savings of up to 20%, and has managed to cut order processing time from one week to one day.
The time it takes to process bids has been reduced by 50-60%, from up to 22 days down to less than 11.
Meanwhile, BT reported that it expects direct costs of goods and services to fall by 11%, saving it $1bn out of a $9bn purchasing bill. The company also expects its processing costs to fall by 90%, down from an average of $80 (£53) an order to $8.
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