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United Technologies is a large
US manufacturing company operating in several areas, including
elevators and aerospace. United is using electronic auctions
to buy from its suppliers component such as electronic circuit
boards. The company uses the Internet to request suppliers to
make bids for the supply of a component. Selected suppliers submit
bids during a predefined time interval, say one hour, and the
winner is the one that comes up with the lowest price. The bidding
process has been in operation since 1997 and is used with pre-qualified
suppliers for commodity products, including motors, wire, plastic
fabrications and electronic parts. Typically purchases of such
items account for about one quarter of the amount United Technologies
spends each year on all bought-in goods and services.
Over several years, United
has made savings of US$181 million through on-line auctions,
achieving 25% price reductions on average.
General Electric (GE) is another
example of an industrial company reporting benefits from use
of the Internet. GE expects savings from its efforts to total
US$1.6 billion pre-tax in 2001. Savings will come from conducting
nearly US$14 billion in web-based auctions and from digitising
GE work processes. In addition to these cost savings, GE expects
sales over the Internet to accelerate to more than US$15 billion
in 2001. GE has identified 20 to 30 per cent cost-out opportunities
by e-enabling its manufacturing operations.
GE expects e-business to contribute
10 cents in earnings-per-share growth in 2001. In 2001, GE also
expects to realise US$1 billion in operating margin as a result
of its e-business efforts.
The above demonstrate that
tangible benefits can be derived from application of e-business
technologies, but the key issue is identifying the areas where
benefits can be achieved. As with all investments this means
undertaking a cost-benefit analysis and preparing a business
case for investment. This matter is addressed in the publication
"E-business Strategy: Case
Studies, Benefits and Implementation". |