Cost Benefit of eMarketplace Hubs
August 30 2001
Many large firms will develop a private hub to consolidate cross-company procurement and optimise their relationships with preferred suppliers. This is according to a new report entitled 'Save Big With A Private Hub' recently released from Forrester Research.
Many large firms will develop a private hub to consolidate cross-company procurement and optimise their relationships with preferred suppliers. This is according to a new report entitled 'Save Big With A Private Hub' recently released from Forrester Research.
The research shows that the subsequent savings in inventory and the improvements in design and production efficiency could generate a return on the investment of between 280% and 1,400% over five years.
European firms that require the private hub depth and reach for their processes can choose among three hub types that offer varying levels of collaboration:
- Monitor hubs offer supply chain visibility and raise internal efficiency by inviting suppliers to post basic information.
- Manage hubs support real-time activity co-ordination between firms and their suppliers, which will alter individual and joint processes to maximize cost savings.
- Optimise hubs allow for seamless process flow across companies. On this highest collaboration level, the borders between a firm's processes and its suppliers will dissolve, enabling sharing of inventories, market intelligence, and product strategies.
Forrester's research analyses the potential cost savings for 20 innovative firms in 15 industries can reach by deploying any of the three private hub types. Based on these industry benchmarks, a Private Hub Benefit Model has been developed to allow firms to determine the financial benefits for each hub type and for each process -- procurement, supply chain, and design and development.
Forrester research director Jaap Favier explains, 'European firms plan to use the Net to automate all supplier contacts through the product life cycle. They refuse to use eMarketplaces because these many-to-many venues are too expensive and fail to offer the necessary functionality and confidentiality. Companies unwilling to wait until eMarketplaces mature must choose to either upgrade their EDI links to extranets or invest in a one-to-many venue -- what Forrester calls a private hub. Private hubs will generate enormous savings -- especially for large firms that are in capital-intensive industries and make complex, innovative products like computer companies.'
'The ROI varies by hub type,' Favier added. 'A monitor hub requires a minimal investment of Euro 6.6 million and can be up and running in 40 workdays. The annual savings will mount to Euro 6.7 million, mostly in reduction of supply spending, and an ROI of 289%. The upfront costs of a manage hub, mostly in consulting and labor, are almost three times as high as those of a monitor hub. But with savings as high as Euro 76 million a year, 12 times those of a monitor hub, the average Global 3,500 firm will enjoy a 1,415% ROI. While cost savings of the optimize hub are almost twice as high as those of the manage hub, the investments and operational costs to integrate suppliers and internal systems almost triple to Euro 61 million.'
For the report, Forrester interviewed 30 European executives about eMarketplaces earlier this summer, as well as 20 industry experts and technology vendors.
All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.
