eCommerce-eBusiness Cost-Benefit

eCommerce and eBusiness benefits are difficult to quantify for YOUR particular situation - we are dealing with relatively new technology with a limited history, and every situation is different.

eCommerce-eBusiness is closely related to EDI - a technology that has been in place for around 30 years. The major difference is that modern Internet-based technology provides the same benefits as EDI - but at a much lower cost.

This page uses industry average figures for companies operating traditional EDI systems. The figures are likely to be close to those for companies merging their operations with the Internet for the first time.

(For an in-depth analysis of EDI see:  http://www.tradanet.intnet.mu/roi.htm).

There are 3 sections on this page:

Like EDI, implementing eCommerce-eBusiness can provide strategic and operational benefits. 

  • Strategic benefits include strengthening relationships with customers and vendors, resulting in a greater advantage against the competition. 
  • Operational benefits include reducing both the time and personnel required to complete business processes, and reducing strain on other resources.

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Whether eCommerce-eBusiness can provide your business with strategic benefits is probably best answered by asking yourself the following questions:

  • Is the ability to meet customer and vendor demands and requirements a driving factor in your business, perhaps even more a factor than pricing?

  • Is the timing and accuracy of the delivery of goods and services critical to your customers and vendors?

  • Could a significantly faster delivery time to your customers and distributors be turned into a competitive advantage?

  • Will being "eCommerce enabled" allow your firm to penetrate new markets or find new suppliers?

  • Are customer loyalty and long term alliances a high priority for your firm?

  • Would eCommerce enabled systems systems favourably affect your payment terms and agreements with customers and suppliers?

If you answered "Yes" to any one of the above questions, then your company could probably benefit from eCommerce-eBusiness systems. (For an summary of industry averages see Real eBusiness benefits)

Strategic Benefits - Assume your firm increased its sales and number of customers and vendors by generating a 2.5% increase to the firm's annual bottom line. Calculate and enter the value of the increase here:

$___________

With an eCommerce-eBusiness system in place, you should save time and money processing and executing customer orders. Studies of EDI systems show that it takes up to five times as long to process a purchase order manually as it does electronically. With eCommerce-eBusiness in place, documents such as invoices are processed electronically and error-free, minimising processing time and the number of staff required. The following is a list of key operational areas that can benefit from eBusiness-eCommerce. (The estimates are based on EDI experience).

Reduced Administration Costs - EDI studies suggest that an automated system saves 2/3 of the costs involved in manually processing a customer order. 

Administration Cost Reductions - Calculate the cost of processing customer purchase orders each year then multiply that figure by 50%. Enter the amount here:

$___________

Personnel Reduction - A properly enabled eCommerce-eBusiness system will reduce labour time and cost in the following areas:

  • document preparation
  • error detection and correction
  • reconciliation
  • mail preparation
  • telephone calling
  • data entry
  • overtime
  • supervision expenses

EDI studies show as much as a 50% reduction in required staff.

Personnel Cost Reductions - Estimate the cost savings if you reduced sales order processing personnel costs by 25%. Enter the amount here:

$___________

Cycle Time Reduction - Cycle Time is the amount of time between a customer placing and order and receiving the goods. Reducing cycle times can:

  • increase competitive advantage
  • decrease carrying costs
  • decrease shrinkage costs
  • improve cash flow.

Studies show EDI is able to reduce order cycle times by 50%. 

Cycle Reduction Time - Assume you can reduce order cycle time by an average of 25%, which in turn helps to increase sales orders by 10%. Assuming a 5% profit margin, enter the profit increase resulting from the 10% increase in sales here:

$___________

Inventory Reduction - eCommerce-eBusiness systems can reduce inventory costs because of:

  • more accurate demand forecasts
  • reduced cycle time
  • more dependable supplier schedules.

To estimate the possible reduction of inventory, multiply the number of days by which order cycle-time can be reduced by the value of inventory on hand. For example, if you carried an eight-week supply of finished goods and were able to reduce cycle time by 25% from 30 days to 22.5 days, it may only be necessary to hold a six-week supply of finished goods. This would result in reduced costs including cost of goods, storage space, service, and insurance.

Inventory Reduction - If you reduced your inventory by 10% due to better demand forecasting, how much money could your company save in inventory carrying costs? Enter the amount here:

$___________

Cash Flow Improvements - Reduced operating expenses and improved accuracy when purchasing provide direct cash flow benefits. With eCommerce-eBusiness systems you should be able to:

  • negotiate better payment terms
  • take advantage of discounts
  • enter more long term contracts

Although this area is difficult to quantify, most accounting departments can attest to the numerous benefits of improved corporate cash flow.

Improved Cash Flow - How much cash could you bank if you were able to make cash savings. Enter the amount here:

$___________

Improved Order Fulfillment - EDI-based reporting provides managers with access to data and process-status information, which enables them to make more accurate and informed business decisions. EDI-based reporting can also improve the analysis of pricing changes and promotional ties. Most importantly, it can maximize product availability, despite shifting demand, by enabling faster analysis and recognition of demand trends. EDI-enabled manufacturing firms reported an average inventory reduction of 10%.

Improved Order Fulfillment - If you reduced stock outs and backorders by 10% due to better reporting and demand forecasting, what would the increased margin on an annual increase in sales volume be worth. Enter the amount here:

$___________

Summary of Benefits

Reduced Administration Costs

$___________

Personnel Reduction

$___________

Cycle Time Improvement

$___________

Inventory Reduction

$___________

Cash Flow Improvements

$___________

Improved Order Fulfillment

$___________

TOTAL EXPECTED BENEFITS

$___________

Identifying the types of costs associated with eCommerce-eBusiness are relatively straightforward. Quantifying the costs is not feasible until you have a clear understanding of the system objectives and have identified the best technology for the job. The types of costs you need to consider are:

  • Software Purchase price - Totally dependent on the selected solution - hence the range of menu options in our eBusiness sections of the site.
  • Ongoing Maintenance cost - allow for 15-18% of the initial cost annually.
  • Communication expenses - Dependent on the bandwidth your system will require, the number and nature of the connections.
  • eCommerce-eBusiness Personnel - Very dependent on whether you are running your computer systems in-house, and how far you integrate your systems using eCommerce-eBusiness techniques. A key to success is to have at least one person within your organisation taking charge of your eCommerce-eBusiness systems.

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Main Contact:
Noel Ferguson

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