Cost reductions

A recent study in the USA highlighted the nature and scale of some of the benefits to be derived from Web technology and confirmed that in some cases impressive cost reductions can be realised.

The study focused on trading or interaction costs, i.e. the costs of selling, delivering and supporting products. Web technology, properly applied can lever these expenses downwards. It is the magnitude of the opportunity that may surprise:

Across the US economy as a whole trading costs equate to about 51% of total labour costs. With labour accounting for 70% of total cost it follows that trading costs amount to just over 35% of total cost. The Web can enable reductions in these costs by between 80% to 95% meaning that total costs can fall by as much as 28% to 33%. The savings result from close front-end links with Customers, back-end links capable of energising the whole supply chain and automation of back-office procedures.

Alan Greenspan commenting in June on the US economy noted that the evidence for such benefits was now compelling and remarked on fundamental and irreversible changes that had taken place. He went on to state that improved information (resulting from B2B applications) was reducing the risk inherent in running businesses and that in consequence less resources (people, inventory and plant) needed to be held in reserve to cover demand unpredictability and the inevitable mistakes in planning. These resources had become more productive and contributed to a general increase in productivity of more than 30% since 1995.

There is however a sting in the tail. If current experience is any guide the potential savings, even when maximised, are typically shared between the supplier and the customer. Still, those who get their act together most quickly stand to benefit from increased market share and sales.

Notwithstanding the above, the CEOs of those companies who have deployed B2B technology still cite significant improvements in Customer Service as the primary benefit.



	30% cost reductions through Web enablement?? A recent study in the USA highlighted the nature and scale of some of the benefits to be derived from Web technology and confirmed that in some cases impressive cost reductions can be realised. The study focused on trading or interaction costs, i.e. the costs of selling, delivering and supporting products. Web technology, properly applied can lever these expenses downwards. It is the magnitude of the opportunity that may surprise: Across the US economy as a whole trading costs equate to about 51% of total labour costs. With labour accounting for 70% of total cost it follows that trading costs amount to just over 35% of total cost. The Web can enable reductions in these costs by between 80% to 95% meaning that total costs can fall by as much as 28% to 33%. The savings result from close front-end links with Customers, back-end links capable of energising the whole supply chain and automation of back-office procedures. Alan Greenspan commenting in June on the US economy noted that the evidence for such benefits was now compelling and remarked on fundamental and irreversible changes that had taken place. He went on to state that improved information (resulting from B2B applications) was reducing the risk inherent in running businesses and that in consequence less resources (people, inventory and plant) needed to be held in reserve to cover demand unpredictability and the inevitable mistakes in planning. These resources had become more productive and contributed to a general increase in productivity of more than 30% since 1995. There is however a sting in the tail. If current experience is any guide the potential savings, even when maximised, are typically shared between the supplier and the customer. Still, those who get their act together most quickly stand to benefit from increased market share and sales. Notwithstanding the above, the CEOs of those companies who have deployed B2B technology still cite significant improvements in Customer Service as the primary benefit. CJF July 2000