e-Buying Slows at Large Organizations

But ISM/Forrester Report on e-Business shows Internet remains a priority in purchasers' plans for year ahead

Tempe, AZ  April 19, 2002  Enthusiasm for online purchasing dipped slightly among large buying organizations during the first quarter as a sluggish economy slowed e-procurement efforts. However, the Internet remains important for high-volume purchasers in the long term, according to the latest Research Report On e-Business from the Institute for Supply Management (ISM) and Forrester Research.

In the quarterly survey of supply management executives from manufacturing and non-manufacturing organizations, ISM and Forrester found online purchases of both indirect and direct goods and services down during the first quarter versus the fourth quarter of 2001.

The number of all purchasing organizations reporting use of the Internet for buying indirect goods and services edged up to 78.1 percent from 77.5 percent, while the number of organizations using the Internet for purchasing direct goods and services dipped from 57.2 percent in the fourth quarter to 53.3percent this quarter.

The survey showed that the number of small organizations  those that buy less than $100 million per year  purchasing indirect materials online increased over the past two quarters from 67.1 percent to 73.4 percent. Overall, small organizations reported purchasing an average of 7.5 percent of their indirect materials online during the first quarter, versus 7.0 percent the previous quarter.

Interestingly, while the number of small organizations purchasing direct materials declined slightly over the two quarters, from 53.6 percent to 51. 8 percent, the average amount of direct materials purchased online increased from 4.7 percent to 5.8 percent.

By contrast, large organizations  those with annual spends exceeding $100 million  showed a decline in online purchasing activity across the board, with the number of such companies reporting online purchases of indirect goods and services falling from 88.1 percent to 87.7 percent, and of directs, from 61.3 percent to 56.5 percent. The average amount of indirect materials purchased online fell from 11.9 percent to 9.8 percent. For direct materials, the average fell from 7.2 percent to 4.8 percent.

Despite the decline in online purchasing activity among large organizations, the Internet remains important for big buyers. In the latest survey, fully 52.7 percent of large-volume purchasers said that the Internet would be very important or critical to the procurement plans over the next 12 months (down from 53.3 percent in the fourth quarter of last year). Enthusiasm for the Internet remains greater among big buyers than small buyers, with just 27.8 percent of the latter viewing the Internet as very important or critical to the purchasing plans in the year ahead.

In addition, the 72.2 percent of large buyers that reported using the Internet as part of an RFP process over the past quarter marked a significant increase over the Q4 2001 figure, 65.0 percent.

Commenting on the overall picture presented by the survey, Edith Kelly-Green, spokesperson for ISM and vice president and chief sourcing officer at FedEx, said that while the numbers are "somewhat mixed," she still sees a good deal of optimism reflected in the figures. "Companies are using the Internet wherever they see value to their organizations," Kelly-Green said. "In the most current survey, value was shown to be in the RFP process. In the end, value will drive the speed of adoption and the level of results."

W. Daniel Garretson, senior analyst at Forrester, agreed: "The Internet remains extremely important for large-volume buyers. But with a difficult economy and limited resources, these buyers have focused on activities, such as online [request for proposals], that provide immediate, tangible benefits."

In commentary accompanying the release of the survey, ISM and Forrester said organizations most often cited budgetary or resource constraints and the impact of the slowing business environment as obstacles to their Internet activities. Integration with legacy systems and supplier readiness also merited mention as significant concerns.

Full results of the latest Report on e-Business are available on the ISM Web site.

For the Report On e-Business, ISM and Forrester Research received survey replies from 350 supply management executives from both manufacturing and non-manufacturing organizations. The report addresses the results of all organizations, a comparison of manufacturing and non-manufacturing organizations and a comparison of organizations that procure more than $100 million on direct and indirect materials per year versus those that purchase less than $100 million per year.

The next release of the ISM/Forrester Research Report On e-Business is scheduled for mid-July.