e-Sourcing Opportunity

e-Sourcing Opportunity

According to the Aberdeen Group, e-Sourcing applications could save US businesses more than $690 billion per year. For example, consider a hypothetical electronic manufacturing company with $300 million in revenue, materials and sourcing costs that equal 50% of its revenue, and Earnings before Interest and Taxes (EBIT) of 40 million. With all other factors held constant---and assuming a 33% corporate tax rate—if e-Sourcing can reduce the company’s materials and sourcing costs by 5% (a conservative estimate), then that can translate into a $5 million increase in earnings. Making a further assumption of a 20-1 price to earnings (P/E) ratio, savings associated with e-Sourcing can increase shareholder value by $100 million.


Example Figures Assumptions & Calculations

Revenue $300,000,000


Materials & sourcing costs revenues $150,000,000 50% of Revenues


e-Sourcing Costs Reductions Savings $7,500,000 5% estimated


EBIT Improvement reductions $7,500,000 1:1 with cost reductions


Earnings Improvement rate $5,000,000 33% Tax


Increase in Shareholders Value $100,000,000 20:1 P/E ratio






In a wide variety of business environment’s e-Sourcing applications also:



• Promote component best practices
o E-Sourcing applications create and maintain a well-documented set of sourcing processes in the form of software templates.

• Extend collaboration on sourcing activities
o Web-based sourcing applications can be made accessible to all appropriate individuals across departments, business units, and company and geographic boundaries.


• Increase the efficiency of sourcing process
o Automating the sourcing process speeds up the individual tasks, reduces error rates and rework, eliminates the need of data entry, and improves process flows.


• Improve sourcing decisions
o The quality of a sourcing decision often depends on the completeness, accuracy and analysis of acquiring source information.