Create a business case for e-procurement in your organisation

Create a business case for e-procurement in your organisation

Top executives are rational people who will not be drunk on air-locks and unclear benefits; in other words, the applicant must demonstrate that e-procurement is not a cost but an investment with a clear and high return. In this article, we therefore share a simple guide on how to demonstrate the benefits of e-procurement to an organisation's bottom line, i.e. the money that implementing e-procurement actually brings to the company.

E-procurement theory vs reality

E-procurement promises a number of benefits - it reduces purchase prices through better transparency, brings savings through more efficient processes (faster approvals, fewer errors, automation of routine tasks) and strengthens compliance (minimizes corruption risks, ensures compliance with rules and procedural requirements).

These benefits have been well known for at least 25 years, yet many organizations are still hesitant to go deeper into electronic purchasing. Why? The reason is often that there is no clear way to actually measure these benefits, justify their value to management and prove that e-procurement is not just another IT project, but a strategic change with real business impact.

You'd think that when someone reads this, they'd immediately go into a managerial tailspin, looking for a way to raise money that is literally lying on the ground as quickly as possible. However, a sigh from the purchasing director of a construction company quickly brings us back to reality: the director didn't even let me finish: 'But we do have purchasing completely in ERP.' Yes, we do, but ERP is not e-procurement. ERP only covers certain processes like requirements, approvals, order creation, supplier information. But the rest is still done the old-fashioned way- emailing enquiries and comparing bids in excel, we don't have category management, we don't have any tool for effective negotiation, we have done supplier evaluation on our knee and nobody updates it. Not to mention the amount of time people spend manually transcribing data.

When I explain this to him, he looks at me sceptically: 'And how much will we save in real terms?' When I argue for non-price savings, like savings in time, in better control, in reduced errors, he says that's all well and good, but he needs to quantify it in money. And then the final caveat kills it: 'We're moving to a new ERP in two years anyway.' So we've got two more years of operating inefficiently. He won't say anything to that because it's not real money to him. He doesn't feel we're losing money now, he doesn't miss it.

Now the question is, what to do about it? If I don't come up with a better argument, I won't move on.

Benefits of better e-procurement

If e-procurement is to have any hope of being approved, we need to build a compelling business case that clearly demonstrates the impact on the organisation's bottom line. The key to a good business case is to focus on four interrelated factors-efficiency, effectiveness, innovation and compliance (see table).

Factor	Benefits	Reflection in the scoreboard
Efficiency	Same work in less time, with less effort and fewer mistakes	Lower personnel costs, reduced error rates and reduced costs of repair.
Performance	Better purchase quality, better prices and conditions	Lower unit costs, better cash flow, higher quality.
Innovation	More and better innovations thanks to purchasing know-how	Higher selling prices, lower costs, higher turnover due to faster time to market.
Compliance	Compliance, transparency and control	Increased turnover with customers who pay attention to supplier compliance, reduced fines for non-compliance with rules and laws, elimination of losses due to corruption, lower interest on loans for ESG compliant companies.

Efficiency: the same work in less time, with less effort and fewer mistakes

E-procurement increases efficiency by digitizing, standardizing and automating tasks that otherwise require manual processing and rewriting of already created data. For example, approving requirements, sending and comparing bids, creating purchase orders, tracking contract terms, evaluating suppliers - all of this is done faster and error-free.

Impact on purchasing: more work in less time, lower administrative costs, fewer man-hours spent on operational tasks and freeing up purchasing team capacity for strategic work.

Impact on the bottom line: lower personnel costs, reduced error rates and costs of correcting them.

Performance: better buying quality, better prices and conditions

E-procurement means systematic category management, better data for negotiations and decisions, tighter control over suppliers and purchasing processes. Companies with advanced purchasing systems achieve better prices and terms thanks to analytical tools, automated negotiations and increased competition among suppliers.

Impact on purchasing: better processes and treasures to work with, ability to do more activities and with more added value, more control over purchasing activities.

Impact on the bottom line: lower unit costs, better cash flow, higher quality.

Innovation: more and better innovations thanks to purchasing know-how

Advanced e-procurement tools make it easier to involve internal customers and suppliers in the purchasing process. With better data, we can more easily identify areas of high innovation potential, new technologies, more efficient materials, products and processes.

Impact on purchasing: faster, cheaper, better, i.e. more innovation, more savings, more value for money.

Impact on the bottom line: higher sales prices, lower costs, higher turnover due to faster time to market.

Compliance: transparency and control

E-procurement guarantees that processes are carried out in accordance with company rules and regulatory requirements, reducing the risk of fraud and corruption, unauthorized purchases, enforcing compliance with contractual terms, and increasing control and transparency of purchasing.

Impact on purchasing: standardisation, compliance, transparency and auditability.

Impact on the bottom line: increased turnover with customers who pay attention to supplier compliance, reduced fines for non-compliance with rules and laws, elimination of losses due to corruption, lower interest on loans for ESG-compliant companies.

Business case for deepening e-procurement

In the organization we studied, the purchasing manager created the following business case for top management:

It's time to take e-procurement to the next level! Tests carried out on real tenders clearly show that digitising procurement is not just a cosmetic feel-good improvement, but a major benefit for the bottom line. Automating catalogue purchasing and quotation management saves hundreds of hours per year that can be used for strategic tasks. Thoughtful tender management through criteria catalogues and e-auctions give us tangible savings over the current negotiation with suppliers and the risk of overlooking something in a tender. Targeted collaboration with suppliers on innovation means cost reductions in the millions! At present, we do not have the tools to work systematically with suppliers on innovation. At the same time, with software, we guarantee a higher level of compliance, watch for information leakage and eliminate unnecessary financial losses associated with inconsistent contract management and supplier performance. The total benefit of CZK 2.85 million per year on tenders executed alone is not a figure we can afford to ignore.

The table summarises four key benefits of e-procurement and our estimate of the savings if we start using the software systematically. Warning! Software is just a clever helper and advisor, we have to work for the savings as a company.

Factor	Description	Annual financial benefit by test (CZK)	Estimated potential according to the same logic (CZK)
Efficiency	Automation of catalogue purchasing and speed of enquiry management - saving 76% of time, a total of 30 hours per month at CZK 600 per hour.	216.000	600.000
Performance	Use of demo version and implementation of multi-colleague tender and e-auction, saving compared to the standard CZK 160,000 per tender.	160.000	8.500.000
Innovation	Alternative material and transport optimization in consultation with the supplier - saving 200,000 CZK per month.	2.400.000	32.000.000
Compliance	An audit of the contractual terms revealed poor payment terms - a saving of about CZK 70,000 in interest.	70.000	4.000.000
Total	Total annual benefit	2.846.000	45.100.000

The following paragraphs describe each test in detail. We have selected examples that correspond to our common tenders and activities. We further note that purchasing compliance is currently in a dire state and we need to get up to speed quickly on the requirements of internal audit and, most importantly, customers.

📌 Efficiency: automation and process speed

Based on the demo and test tender, by automating catalogue purchasing and speeding up the enquiry process, we will save 76% of the time the purchasing team spends on these tasks each month. Instead of laboriously searching for suppliers, manually placing orders, and manually comparing bids, the processes were digitized, saving 30 hours per month. At an internal rate of CZK 600 per hour, this means an annual saving of CZK 216,000. We expect further significant process savings for internal customers when we extend the software to all of them.

📌 Performance: better tendering and cost savings

The demo version of the e-procurement tool allowed for a multi-round tender and e-auction, which produced significantly better results than the standard procedure. Thanks to more transparent competition, higher price pressure and better competition between suppliers, a saving of CZK 160,000 per tender was achieved. We believe that we will achieve a similar result for all other tenders, while expecting the absolute savings to decrease rapidly over time. In the first few years we expect the retendering to deliver large savings.

📌 Innovation: alternative materials and more efficient transport

A test of cooperation with selected suppliers to optimise material inputs and logistics through the "Supplier Development" and "Functional Specifications" modules has yielded significant benefits. By identifying alternative materials with a better price/performance ratio and optimising transport, it was possible to reduce monthly costs by CZK 200,000. This means an annual benefit of CZK 2,400,000, which translates directly into a reduction in the company's overall operating costs. We should take the same approach to all other suppliers and try to optimize categories that we otherwise do not have time for.

📌 Compliance: Audit of contract terms and financial risk mitigation

A detailed review of contracts and an audit of payment terms via the "Contract Management" module revealed poorly set invoice due dates against the contract. By adjusting these terms and better control of payment flows, interest costs were reduced by CZK 70,000 per year. Thanks to e-procurement, we could carry out an in-depth audit of suppliers and contracts and detect further waste and risks.

📌 Next steps

To realise these benefits, there is no need to wait. We are therefore asking for budget approval from the management so that we can start using the software immediately. Deeper integration with the ERP to take advantage of all the benefits can be postponed to the second and third phase.

General rules for preparing an e-procurement business case

Finally, let us recall a few golden rules for the preparation of any investment proposal for top management. This is not rocket science, but many purchasing managers unnecessarily complicate their situation by not following these rules.

📌 Speak a language that managers understand

Top management is not interested in employee comfort or technical details, but in the impact on the business and especially the bottom line. Therefore, the business case must be based on concrete numbers: what tangible savings it will bring, what the impact on EBITDA will be and what the return on investment is. Back up your claims with relevant data and inflate them a bit. Others are doing the same, so don't put yourself at a disadvantage.

📌 Emphasise the strategic benefit

Many business cases focus solely on the benefits and forget to link the proposal to the companies strategic priorities. For example, if a company intends to go digital, the door is open. Similarly, in times of crisis, a company will hear about savings. And in times of growth, process efficiency and flexibility. If your argument focuses only on cost, it will be perceived as operational, not strategic.

📌 Use specific examples and comparisons

General statements will cause distrust and resistance. A comparison between today and tomorrow works far better: "Manual processing of bids takes an average of 70 minutes. With e-procurement, the software does it for us and even highlights which supplier is best on which line, which we use in the final negotiation.

📌 Stress the dangers of "business as usual"

One of the best ways to scare (and convince) management is to show what the company will look like if the change is not implemented: 'Without e-procurement we will lose at least X million CZK per year and we will still be behind our competitors who have already applied e-procurement. In addition, we put ourselves at risk with the audit of our customers, who require suppliers to have a sophisticated ESG system."

📌 Don't forget the quick wins

Management loves projects that deliver immediate and visible results in addition to long-term benefits. For example, "We can immediately digitize catalog purchasing, which will result in 200 hours of savings in the first quarter and minimize the card purchases we have struggled with in vain for years."

📌 Find internal allies

The purchasing department does not have to be the only supporter of e-procurement. By cleverly shielding the proposal with the support of the CFO (for savings), internal audit (for better compliance) or even IT (easy integration thanks to the cloud), we increase the chances of project approval by an order of magnitude.

📌 Design an ECP implementation plan

ECP is an acronym of three words that all managers love when it comes to implementation: Easy, Cheap, Popular. Don't bother with details like exact testing plan, training, implementation. Rather, reassure them that everything will go well and when they can look forward to the first results.

I wish you good luck in deepening e-procurement. And when you choose Promitea, you get a partner that has a great product, can implement it well and has gained unique purchasing know-how by working with great users on both the customer and supplier side.