e-Buying Up, But ...

NAPM/Forrester e-business report shows cost savings elusive

Tempe, AZ and Cambridge, MA  April 17, 2001  Nearly three-quarters of the companies in a recent survey are using the Internet for indirect purchase, while fewer than half are buying direct materials online and only a quarter say that the Internet is reducing their costs.

The NAPM/Forrester Research Report On eBusiness, conducted for the second quarter in a row by the National Association of Purchasing Management (NAPM) and technology consulting firm Forrester Research, highlighted the degree to which the Internet has affected purchasing practices at the 215 manufacturers and 192 non-manufacturing organizations that responded to the survey.

The report showed that 71 percent of organizations are using the Internet for indirect purchases, against 61 percent reported last quarter, while 46 percent are currently buying direct materials online. On average, these online buyers bought 9 percent of their total purchases over the Net. While purchasers increasingly buy online, more than half of the respondents believe that they are in the earliest stages of adopting online buying.

For comparison, an American Express study released in December 2000 showed that 40 percent of mid-sized companies in the United States were already purchasing online. This study indicated that these online purchasers had already shifted 14 percent of their purchases to an online channel, and they expected e-procurement activity to increase by nearly 20 percent in 2001. Additionally, among conventional purchasers, 37 percent said they are planning to make the jump to online purchasing in the next 12 months.

Referring to the NAPM/Forrester survey, Edith Kelly-Green, vice president, sourcing and procurement at FedEx, said: "More usage of the Net is not surprising, as organizations have begun understanding the full potential of managing their supply chains via the Internet. The increase in online purchases of indirect goods and services is indicative of how companies make the initial and early moves into the world of e-commerce. Increases in use were noted in spite of economic concerns and difficulties in internal and external integration."

Significantly, just 26.1 percent of the respondents to the NAPM/Forrester survey said their companies realized cost savings from using the Internet, down slightly from 26.6 percent last quarter, and only 6.3 percent of the responding companies indicated that the Internet has introduced major changes to their procurement processes, down from 7.7 percent last quarter. In the AmEx study from December, companies that were currently using online purchasing ranked the top benefits as faster order time (42 percent), convenience (36 percent), cost savings (15 percent) and speed/time savings (12 percent).

Respondents to the NAPM/Forrester survey indicated that obstacles to increased use of the Internet for purchasing included the general economic slowdown, internal and external integration issues, and a lack of data standards. Manufacturers are also often concerned with their suppliers' online capabilities and that they report significantly lower levels of online collaboration with their suppliers.

"Organizations are following different online buying paths," said Bruce D. Temkin, group director at Forrester. "Manufacturers appear to be having a problem with their suppliers, as the percentage of manufacturing companies using the Internet to collaborate with suppliers dropped to 40 percent from 54 percent last quarter. While larger buyers show the most momentum across many activities, a higher percentage of smaller buyers use the Internet for purchasing direct materials and finding new suppliers." The report also showed 80.7 percent of companies using the Internet to source new suppliers, up from 79.5 percent the previous quarter.

The NAPM/Forrester report also revealed that 88 percent of organizations see the Internet as important to their buying plans, a slight increase over 87 percent from January.

Other findings from the NAPM/Forrester report were:

  • Companies' use of online auctions remained low, with only 15 percent of organizations reporting that they had purchased goods or services through such an online event, down from 15.8 percent last quarter.

  • Companies did participate in online marketplaces in greater numbers, but overall usage of e-markets remains low: 22.7 percent of respondents used a marketplace, down from 19.1 percent.

  • However, 48.8 percent of the companies have integrated the Internet into their RFP processes, up from 47.9 percent last quarter.

For the survey, NAPM and Forrester Research received survey replies from purchasing executives from both manufacturing and non-manufacturing organizations. In all, 407 organizations responded.

To understand the difference in online behaviors of these organizations, the report analyzed three areas: the results of all organizations; the comparison of manufacturing and non-manufacturing organizations; and the comparison of organizations that procure more than $100 million per year (152 respondents, with median annual purchases of $375 million) and those that purchase less than $100 million per year (251; $17 million).

The NAPM/Forrester Research Report On eBusiness, developed in fall 2000, measures the adoption of Internet-based procurement. NAPM and Forrester Research developed the survey jointly and will issue the report every three months in a manner similar to the monthly NAPM Report On Business.

The next release of the NAPM/Forrester Research Report On eBusiness will be in mid-July 2001.