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Part 2  Strategy and applications

E‑procurement cost savings

‘The   cost‑  saving  benefits  of 

e‑procurement are theoretical rather 

than actual since only reduced 

headcount in procurement can result  

in savings.’

Debate 7.1

Industry

Procurement costs as a percentage  

of cost of goods sold

Consumer electronics

 60–  70%

Mini and personal computers

 50–  70%

Consumer goods

 50–  70%

Automotive

 50–  60%

Pharmaceuticals

 25–  50%

Service industry

 10–  40%

Table 7.3

Procurement as a percentage of cost of goods sold for different industry 

sectors (estimates from Kluge, 1997)

The general approach to estimating procurement costs is straightforward. First, we calculate 

the average procurement cost per item, then we multiply by the average number of req‑

uisitions. A Tranmit (1999) report provides some illustrations – typical medium‑to‑large 

companies issue between 1,000 and 5,000 requisitions a month and are spending between 

£600,000 and £3 million annually on the procurement process, based on the £50 median cost 

per item. In exceptional cases, the number of requisitions was between 30,000 and 40,000 per 

month. In these cases, the annual cost of procurement could be between £18 million and 

£43 million!

To calculate cost savings from e‑procurement we perform the following calculation:

Savings = No. of requisitions * (Original cost - New cost)

For Cambridge Consultants (Case study 7.1) cost savings from orders placed with RS 

Components alone are as follows:

Savings = 1,300 * (£90 - £10) = £104,000

These are relative to a typical order value of £70, i.e. savings of £104,000 on purchase item 

costs of £91,000.