Annual e-commerce cost savings will reach $1.25 trillion by 2002
[August 6th 1999]
According to Giga Information Group electronic commerce will provide total annual cost savings of $1.25 trillion in industrialized nations by 2002, with half occurring outside the United States. Using Internet technologies will reduce or eliminate many costs by improving core business processes.
According to research conducted by Giga Information Group, global businesses in industrial nations had e-commerce-driven cost savings of $17.6 billion in 1998, with the majority, $15.2 billion, occurring in the United States. The U.S. cost savings will reach more than $600 billion annually in 2002.
Traditionally, cost savings produce greater profit margins -- typically 60-80 percent, depending upon implementation costs -- than increases in sales revenue. As a result, Giga estimates that in 2002, U.S. businesses will see between $360 billion to $480 billion in profits from Internet-based cost savings alone. Businesses in other industrialized nations will see similar results.
"The Internet is more than just a new way to sell products and services, it's a way to efficiently run a business, resulting in significant cost savings that add to an organization's bottom line," said Andrew Bartels, a vice president following the e-commerce market for Giga Information Group. " Just as the telephone affected more than communications and jet airplanes affected more than travel, the Internet will continue to drive significant changes in business practices and processes, in addition to sales."
In addition to providing an efficient and effective sales channel, the Internet offers significant potential to improve business processes, including:
"Internet sales are just the tip of the iceberg of economic value that companies can derive from e-commerce," said Bartels. "Companies should consider e-commerce as more than a way to sell products or services, they should focus at least as much attention on the business efficiencies and cost-savings opportunities presented by the Internet and related technologies. "
- Order handling and processing -- Web sites can be used as the place where distributors and resellers submit orders, verify prices, check order status, ensure payment and make inquiries. In addition, these partners can lower their costs as well, creating a stronger relationship.
- Sell-side distribution --The Web can be a communications channel to distribute marketing messages, sales collateral, incentives, training materials and promotions more efficiently.
- Supply chain management and procurement -- By using extranets to send orders and Intranets to enable employees to generate orders, companies can see significant cost savings and increased productivity.
- Routine employee transaction -- Web sites can be used to facilitate human resources processes, such as benefits enrolment, job postings, promotions, etc. and employee business processes, such as travel arrangements, expense reporting and the purchase of supplies.
- Marketing -- The Internet is a powerful tool to effectively communicate a company's position and promote its products.
- Customer service -- Companies can use the Internet to build customer relationships.