What should retailers believe when hearing claims of huge ROI’s for e-procurement events?

September 17th, 2009

Many e-procurement companies claim to have provided outrageous ROI’s orreturns on investment as a result of savings generated by e-negotiation events.Are these accurate

There are literally dozens of calculations that go in to calculating a companies ROI onany type of purchase they make. In fact the entire procure to pay process has a number of steps that require analysis when a company reflects their net savings. A very simple example is that of switching costs if a new supplier is selected. There are several other cycle measuring terms that also describes this total process.

Life-Cycle Costing is a procurement technique which considers operating, maintenance, acquisition price, and other costs of ownership in the award of contracts to ensure that the item acquired will result in the lowest total ownership cost during the time the item’s function is required.

An oldie but goody is Total Cost of Ownership or (TCO) which is a financial estimate designed to help consumers and enterprise managers assess direct and indirect costs commonly related to software or hardware. It is a form of full cost accounting.

For the many terms or buzz words that describe net savings or ROI and there are dozens; probably the most accurate way to determine the real numbers are to ask prospective solution providers for a reference and then ask the retailers finance team how they measure results and for a couple of specific examples by category and how they flowed through the Profit and Loss statement.

We look forward to and appreciate your comments.

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