Week of August 7, 2000
  Snapshot from the Field

Deloitte & Touche Benchmarking Analysis:
Online Procurement Considerably Reduces
Supply Management Costs

A new Deloitte & Touche benchmarking analysis quantifies what many in the real estate industry already knew from individual experience: Online supply procurement is considerably cheaper than traditional methods.

The Deloitte & Touche analysis -based on what the study calls "data from leading real estate property management companies" -- was commissioned by SiteStuff.com, a commercial real estate e-marketplace. The study compared traditional telephone-, paper- and facsimile-based purchasing methods to online purchasing through SiteStuff.com.

The Deloitte & Touche analysis found that the "typical purchasing transaction cost" was US$51 for multifamily companies. For commercial property companies, the typical cost was $77. "With the SiteStuff model, online supply procurement costs could be as low as $22," says the Deloitte & Touche analysis.

Commented Rick Carlson, national managing partner for Deloitte & Touche Real Estate Services (www.us.deloitte.com/realest),

"Procurement via the Internet brings a multitude of benefits to the real estate industry -- and the study verifies that.

"Traditional real estate purchasing, which leaves buying decisions in the hands of local property managers, is decentralized and very labor-intensive. Internet-based procurement will allow the real estate industry to enjoy the benefits of centralized purchasing, and it will cut a lot of time and costs out of the process," Carlson noted.

'Order Streamlining' Offers
Greatest Savings, Study Says

The Deloitte & Touche study noted, "Real estate companies are likely to get best pricing through online purchasing," but added that "the most significant cost savings could emanate from streamlining the ordering process."

Online purchasing, the study commented, "will enable real estate companies to significantly reduce the number of supply vendors, making supply ordering much less onerous." For example, instead of processing thousands of paper invoices monthly, real estate companies that use online procurement will be able to electronically process just a few invoices each month. The Deloitte & Touche study also noted a host of features that should make online supply transactions more efficient and less expensive than traditional purchasing. Among those features were:

  • online product catalogs,
  • personalized shopping lists to automate routine purchasing,
  • online general ledger coding,
  • customized order reminders and
  • electronic tracking.
"The owners, operators and investors who fuel and operate the commercial real estate industry spend nearly $300 billion each year on the goods and services they need to support property operations," said SiteStuff Co-Founder Raj Shah. "Industry-wide fragmentation and inefficiencies in purchasing cost both real estate owners and investors hundreds of millions of dollars each year in profitability."

After a long gestation process, Austin, Texas-based SiteStuff (www.sitestuff.com) is making a major splash in real estate e-biz. SiteStuff now has more than 2 billion sq. ft. (186 million sq. m.) of commercial real estate space online, according to company officials. SiteStuff partners include the commercial real estate e-business alliance of CB Richard Ellis, Jones Lang LaSalle, and Trammell Crow Co. -- the latter which selected SiteStuff as its primary Web-based procurement solution.

Greater Benefits, More Informed Decisions
Looming on Horizon, Study Suggests

The Deloitte & Touche study pointed toward far greater future benefits from online procurement, as corporate real estate (CRE) arms put their full range of purchasing processes online and Internet companies expand their offerings.

As McKessonHBOC Vice President, Real Estate Frank Robinson noted at the recent International Development Research Council's (IDRC) New York World Congress, "Nothing in the history of business has had the impact of the Internet.

We're only at the beginning of how we conduct corporate real estate in this Internet Age. We're all struggling to understand. And he who hesitates is roadkill." (The full report of IDRC's New York World Congress - "Real Estate and the Web: IDRC Probes the Big Questions" -- is included in the new hard-copy September issue of Site Selection magazine, which mailed on Aug. 15.)

The Deloitte & Touche study noted, "As Internet procurement becomes more pervasive, real estate companies will benefit from increased control over the procurement process, better compliance with standardized purchasing practices, centralized reporting and expanded access to industry benchmark data."

Commented Carlson, "The study shows that Internet-based purchasing will allow real estate companies to assemble the information needed to purchase more strategically. Portfolio-wide reporting and benchmarking data will allow real estate companies to make decisions based on more comprehensive data."



©2000 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.