In these ferociously competitive, cost-conscious days, anything that can save a company large sums of money is bound to make executives sit up and take notice. Electronic procurement holds out such a promise and is enticing ever-more businesses to move their purchasing online.

The benefits come not only through direct cost savings but also through the improved efficiency of companies rethinking how they operate. They can shrink dramatically the number of suppliers with whom they deal, slash administration costs and gain a much clearer picture of their overall buying strategy.

The advent of electronic marketplaces or business-to-business (B2B) exchanges promises to take this process even further. E-marketplaces have been springing up in all sectors, whether to link the purchasing activities of big players in industries such as cars, retail and electronics, or to provide neutral web-based forums for smaller companies to do business with each other.

The scope, complexity and sheer speed of the B2B phenomenon, including e-marketplaces, have bewildered many executives. But e-procurement can be implemented fairly easily. Companies can start with non-core items - known as non-production related, indirect or MRO (maintenance, repair and operations) purchases - and gradually transfer what they have learned to other parts of the business.

"E-procurement stops undisciplined expenditure," says James Warner, a partner dealing with supply chain management at PricewaterhouseCoopers (PwC), the international consultancy. "It's about getting a grip on compliance."

A big company may spend more than 30 per cent of its revenues on indirect goods and services, which include office and IT supplies, travel and entertainment. Much of this may be carried out locally or divisionally, bypassing central guidelines. Any savings a company makes on such spending will go straight to the bottom line. A 10 per cent reduction in purchase costs can easily lead to a 50 per cent rise in profit margin, says PwC.

Ultimately, companies will benefit most if their e-procurement system is linked into the whole business process chain. But this is easier said than done, though the internet is pushing industry and commerce in this direction. Companies have to overcome cultural, organisational and technological inhibitions before they can adopt total e-business solutions.

E-procurement offers them an attractive way in, with American software concerns such as Ariba, Commerce One and i2 specialising in this area. "The level of complexity of implementation of e-procurement is more easily controlled by an organisation," says Butler Group, the IT analysts, in the report E-Procurement: Purchasing for the Internet-Based Economy. "Any business that wants to test the water can implement e-procurement in the indirect purchasing space both quickly and at a reasonable cost."

Companies can get pilot e-procurement projects under way in a few months, says Richard Carrington, e-business development manager for Europe at PeopleSoft, the US business software group. "You can start small and evolve to where you want to get to. You don't need a big bang'. But you need to have a vision and a goal."

Knowing what you want to achieve is vital in any aspect of e-business, since the real benefits do not come just from automating existing operations but from rethinking and transforming them. The internet enables companies to communicate and interact with their suppliers, customers and employees to an extent never before possible.

Thus, e-procurement, in its fullest sense, does not mean just putting purchasing decisions online. It also means linking suppliers into the purchasing network and broadening the range of employees who can carry out transactions.

For companies embarking on e-procurement programmes, Butler Group identifies four main benefits:

o The ability to aggregate purchasing across multiple departments or divisions without removing individual control.

o A reduction in "rogue buying", either of goods that do not meet required standards or from outside the approved list of suppliers.

o The creation of a more reactive purchasing policy to find the best price/quality point across a wide range of suppliers.

o A sharper view of disparities which occur between pricing, quality and delivery.

"E-procurement brings purchasing into the new age of business, where working smarter and not harder is the order of the day," says the Butler report. "It gives greater control and flexibility, along with cost savings that are readily identifiable."

Sellers can also derive advantage. "With e-procurement, suppliers have the ability to become far more proactive in the way that they do business," adds the Butler report. They can be hooked into companies' stock systems to see when goods may be due for renewal instead of just showing their products in a catalogue and waiting to be approached by buyers.

As the advantages of e-procurement become more widely known, companies are increasingly signing up to the idea. According to Goldman Sachs, the US investment bank, 54 per cent of companies now purchase over the internet; six months ago, 46 per cent did. Most use e-procurement for office supplies and MRO items. Only 35 per cent employ it for direct or production-related goods. To capture direct spending - what Goldman Sachs calls the "crown jewel" of B2B - more complex technologies will be needed. The bank also found that 42 per cent of companies plan to join e-marketplaces.

Although e-procurement is still in its infancy, some companies have made impressive savings through radical streamlining of their buying activities. IBM has cut some $7bn on its purchases over the last five years, says David Netherton, responsible for e-procurement in Europe. It spends about $40bn a year on procurement.

On the MRO side, it deals with only ten suppliers in Europe for three-quarters of its purchasing business. Those suppliers deal with a host of sub-suppliers, freeing IBM from the task of buying from thousands of companies. Most companies still have far to go in e-procurement, although large concerns have proved increasingly aggressive in this area. "What we are seeing at the moment is only the tip of the iceberg," says Mr Warner of PwC.

While e-marketplaces offer an obvious route for standard MRO and other purchases, they will not always be suitable for high-specification goods where tight relationships between buyers and suppliers are vital.

In Mr Netherton's view, therefore, e-procurement will eventually be part of an end-to-end process involving design, manufacturing, marketing and selling, as well as purchasing and payment. For most companies that is still too far ahead to contemplate. But once they have tasted the benefits of even a partial move online, they are likely to be keen to stay the course.