Many large firms will develop a private hub to consolidate cross-company procurement and optimize their relationships with preferred suppliers, according to a new Report from Forrester Research B.V. (Nasdaq: FORR). The savings in inventory and the improvements in design and production efficiency will generate an ROI between 280% and 1,400% over five years.

“European firms plan to use the Net to automate all supplier contacts through the product life cycle. They refuse to use eMarketplaces because these many-to-many venues are too expensive and fail to offer the necessary functionality and confidentiality,” said Forrester Research Director Jaap Favier. “Companies unwilling to wait until eMarketplaces mature must choose to either upgrade their EDI links to extranets or invest in a one-to-many venue — what Forrester calls a private hub. Private hubs will generate enormous savings — especially for large firms that are in capital-intensive industries and make complex, innovative products like computer companies.”

European firms that require the private hub depth and reach for their processes can choose among three hub types that offer varying levels of collaboration. Monitor hubs offer supply chain visibility and raise internal efficiency by inviting suppliers to post basic information. Manage hubs support real-time activity coordination between firms and their suppliers, which will alter individual and joint processes to maximize cost savings. Finally, optimize hubs allow for seamless process flow across companies. On this highest collaboration level, the borders between a firm’s processes and its suppliers will dissolve, enabling sharing of inventories, market intelligence, and product strategies.

Forrester analyzed the potential cost savings 20 innovative Global 3,500 firms in 15 industries can reach by deploying any of the three private hub types. Based on these industry benchmarks, Forrester’s Private Hub Benefit Model allows firms to determine the financial benefits for each hub type and for each process — procurement, supply chain, and design and development.

“The ROI varies by hub type,” Favier added. “A monitor hub requires a minimal investment of €6.6 million and can be up and running in 40 workdays. The annual savings will mount to €6.7 million, mostly in reduction of supply spending, and an ROI of 289%. The upfront costs of a manage hub, mostly in consulting and labor, are almost three times as high as those of a monitor hub. But with savings as high as €76 million a year, 12 times those of a monitor hub, the average Global 3,500 firm will enjoy a 1,415% ROI. While cost savings of the optimize hub are almost twice as high as those of the manage hub, the investments and operational costs to integrate suppliers and internal systems almost triple to €61 million.”

For the Report “Save Big With A Private Hub,” Forrester interviewed 30 European executives to find out how firms will respond their disappointment in eMarketplaces, as well as 20 industry experts and technology vendors.