e-Buying Up at Large Organizations

Smaller companies slower to adopt e-procurement, ISM/Forrester Report on e-Business shows

Tempe, AZ  January 21, 2002  Increasing numbers of large-volume buying organizations are cutting costs by using e-procurement solutions, according to the latest Report on e-Business from the Institute for Supply Management (ISM) and technology consultancy Forrester Research.

The study, covering the quarter ending December 2001, showed that the number of large-volume buying organizations (those that spend more than $100 million annually) reporting cost savings from using the Internet rose to 45 percent, up from 28 percent in the previous quarter. Just 19 percent of organizations spending less than $100 million reported cost savings from using the Internet, while 73 percent had seen no change in their costs.

For the fourth quarter of 2001, purchasers reported purchasing an average of 9.5 percent of their indirect materials and 6.2 percent of their direct materials over the Internet  an increase from last quarter's levels of 7.1 percent and 5.3 percent, respectively.

The report also revealed that 53 percent of large-volume-buying organizations view the Internet as either very important or critical to their plans over the next 12 months, while 9 percent rated the Internet as "not important" to their buying plans. Just 26 percent of smaller buying organizations felt the Internet was important or critical to their plans, while 19 percent of these purchasers said the Internet was not important to their overall purchasing plans for the year ahead.

"The Internet has become a necessity for large purchasers," said Bruce D. Temkin, group director at Forrester. "The discussion has moved away from if the Internet should be used to where and how it can save money."

The report, the fifth such study, also showed that organizations have increased their participation in online marketplaces: 26 percent of organizations bought goods or services via online marketplaces, up from 23 percent in the previous quarter. In addition, organizations have increased their use of online auctions to 23 percent from last quarter's 17 percent, according to the report. The increase was most dramatic for manufacturers, whose use of auctions increased from 21 percent to 29 percent.

For the Report On e-Business, ISM and Forrester Research received survey replies from 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.

ISM and Forrester are due to release the next Report On e-Business in mid-April.