Leading Companies Reap Savings 13 Times Greater Than Investment in eProcurement, According to A.T. Kearney Study

Global 500 Companies Could Save $330 Billion Per Year By Adopting Techniques of Leaders in eSupply Management

PLANO, Texas (May 6, 2002) Companies transforming their supply management practices via eProcurement technology stand to realize savings 13 times greater than their investments in the technology and associated implementation and change management, according to a study of 147 large companies representing 22 industries on six continents by global management consulting firm A.T. Kearney, a subsidiary of global services leader EDS.

The 2002 Assessment of Excellence in Procurement (AEP), which identified practices used by eProcurement leaders, found that spending $1.5 billion on eProcurement would deliver savings of $19.1 billion. At that rate, A.T. Kearney estimates global 500 companies could save $330 billion annually by capturing eProcurement's full potential.

AEP 2002 is the first comprehensive global benchmarking study to focus on the impact of eSupply Management on large companies. A.T. Kearney supports using the term eSupply Management in place of the more widely used eProcurement because technology advances have greatly automated
the entire supply management process. eSupply Management now encompasses sourcing, category management and ordering, and includes linkages with suppliers for design and logistics collaboration.

The study defined leaders as companies that met or exceeded their eSupply Management objectives for a significant portion of their spend base (35 percent coverage of direct materials spend, 60 percent of indirect materials or 40 percent of total spend). Only eight percent of companies surveyed were classified as leaders. This number is in dramatic contrast to A.T. Kearney's 1999 AEP study, which identified roughly one quarter of companies participating as leaders.

"The AEP study shows that the leading companies dramatically improve their supply management results by changing the rules for how they source and buy and taking a bold, more proactive
approach," said A.T. Kearney Vice President John Blascovich, who helped lead the study. "They have broadened their thinking beyond transaction processing and have embraced the concept of eSupply Management as an opportunity to leverage technology for benefits, from the initial design through
manufacturing and delivery. The successful early adopters of the technology also have made it very difficult for other companies to catch up."

Companies that leverage eSupply Management have gained clear benefits, including:

• Reduced costs up to 10 percent for items acquired using eSourcing tools to support strategic sourcing programs;
• Reduced order cycle time 41 percent though e-catalogs and end user ordering;
• Reduced supply management head count up to 10 percent through eliminating or automating low-value activities.

The study found that even companies that successfully leverage procurement have only tapped into a fraction of eSupply Management's potential to create value, and there is considerably more that they could be doing. Although 96 percent of companies surveyed use eSupply Management tools, only 11
percent of their spend base was supported. As a group the companies reported using eSupply Management tools for 15 percent of their indirect materials spending, 14 percent of direct materials spending, eight percent of capital spending and 4 percent of services spending.

eSupply Management has been effective in helping meet cost-reduction goals in 50 percent of the companies studied. However less than one quarter of study respondents were able to use eSupply Management initiatives to meet revenue-based objectives, such as supplier capabilities, to create product innovation and marketing opportunities.

Just one in ten of the companies surveyed report extracting high value from their current eDesign Collaboration efforts. Within the next 12 months, however, nearly one third of companies expect to get high value from using design tools. Use of eTools for supplier collaboration on R&D is expected to increase by 171 percent in the next 12 months.

Although the study found the area of design is currently an untapped territory, "We see e-tools based around design collaboration as the next opportunity in supply management," said A.T. Kearney Vice President Lawrence Kohn. "Design collaboration tools can enable early identification of new
technologies and suppliers, reduce the lifecycle costs of end-products and shorten the time-to-market for new products, all contributing significantly to a company's top-line growth."

Companies find the most value in technology tools supporting basic sourcing and ordering functions. Among the tools companies said gave them the highest value were electronic order transmission (49 percent of companies said they gained high value), eNegotiations (44 percent of companies) and online catalogues (42 percent).

When asked to cite the main reasons eSupply Management efforts don't meet their objectives, companies said it was due to lack of integration with existing procurement information systems (79 percent of companies); inability of the new system to provide useful analytical information (68 percent); and implementation taking longer than planned (57 percent). Subsequent in depth interviews also revealed that companies often underestimated the significant change management
challenges presented by the adoption of new eSupply Management tools. A common situation was companies experiencing early success with an eProcurement pilot program but having difficulty implementing broad-based adoption of tools.

The study also revealed that as procurement matures into supply management, CEOs will place significant pressure on chief procurement officers (CPOs) to deliver clear competitive advantage as part of their function. CPOs – and the procurement organizations they lead – will have to become more strategic or will risk becoming functionally extinct. According to Blascovich, "Procurement organizations can be likened to IT organizations around 1985 – they can develop into a strategic force, become an internal utility or be left behind."

A.T. Kearney expects that eSupply Management leaders will continue to break new ground by using technology-enabled outsourcing to increase the range of strategic options available to their organizations. Procurement organizations unable to seize such strategic opportunities risk extinction as corporate management begins to see outsourcing as a leapfrog strategy to improve the organization's supply market competitiveness.

About A.T. Kearney
A.T. Kearney (www.atkearney.com) is one of the world's largest and fastest-growing management consulting firms. With a global presence that includes more than 60 offices in 37 countries, spanning major and emerging markets, A.T. Kearney provides strategic, operational, organizational and technology consulting and executive search services to the world's leading companies. A.T. Kearney is the high-value management consulting subsidiary of global services leader EDS.

About EDS
EDS, the leading global services company, provides strategy, implementation, business transformation and operational solutions for clients managing the business and technology
complexities of the digital economy. EDS brings together the world's best technologies to address critical client business imperatives. It helps clients eliminate boundaries, collaborate in new ways, establish their customers' trust and continuously seek improvement. EDS, with its management consulting subsidiary, A.T. Kearney, serves the world's leading companies and governments in 60 countries. EDS reported revenues of $21.5 billion in 2001. The company's stock is traded on the New
York Stock Exchange (NYSE: EDS) and the London Stock Exchange. Learn more at www.eds.com.

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