WASHINGTON, D.C. March 8, 2001 B2B Internet sales have been slow getting started, but companies today are laying the groundwork for upcoming e-commerce initiatives, portending dramatic changes in the ways that businesses buy from each other in the future, according to a new survey by the National Association of Manufacturers (NAM) and consulting firm Ernst & Young.
The survey, called the E-Commerce Trends Index, revealed a low level of participation in B2B e-commerce to date. The 578 responding companies averaged about 2 percent of 1999 sales over the Internet and fewer than one percent were in the advanced stages of e-commerce.
"Despite the intense hype surrounding e-commerce, right now it's still just a small fraction of most business and manufacturing operations," said NAM President Jerry Jasinowski in a statement that accompanies the announcement of the survey results on Thursday.
Nevertheless, nearly three-quarters of respondents reported they were developing e-commerce initiatives to grow their revenues, a statistic that Jasinowski characterized as "a harbinger of dramatic change down the road. As capital spending rebounds later this year, I would expect to see a significant increase in networking and B2B software investments."
Jasinowski added, "I think companies must put a priority on e-commerce, because it's the next stage of productivity growth, improving the implementation of Six Sigma and other lean manufacturing initiatives."
Bob Neubert, national director of manufacturing industries services for Ernst & Young, noted that most of the manufacturers surveyed are primarily focused on using the Internet to develop new customers (72 percent) and new business opportunities (70 percent). Far fewer are seeking to streamline operations (46 percent) or find new suppliers (30 percent), and fewer than one in 10 is connecting electronically to more than half of their suppliers.
"The focus on new business may be due to the initial promise of B2C e-commerce," Neubert said. "But the real potential of e-commerce for manufacturers lies in connecting with all constituents employees and suppliers as well as partners and customers and streamlining and improving those interactions and processes. Only 5 percent of respondents have the ability to view their suppliers' inventory levels, but those companies report inventory turn rates that are 44 percent higher. That's a considerable impact on cash flow and the bottom line."
The survey results also pointed to a "security gap": two-thirds of respondents only have firewall protection, and one-fourth has no security measures at all. Few have true e-commerce security such as data encryption (18 percent) or secure payment systems (9 percent). "Given the predominant focus on attracting new customers, it's surprising that so many of these manufacturers have not really addressed the security issue, which is a critical factor in establishing online trust," Neubert said. "Even if your company's focus is more e-business than e-commerce, you still have to have a safe environment and protect yourself and your customers and suppliers from electronic vulnerability."
The survey indicated that consumer products companies are farthest along in their e-commerce transformations, with more than one-third of them conducting Internet transactions. Consumer products companies, along with those in the electronics sector, are also the most likely to connect with customers over the Internet, at a rate of about 50 percent.
On the other hand, the energy/chemicals/natural resources sector was the most advanced in using the Internet to create an extended, networked environment both up and down the supply chain, with over 4 percent of companies in this sector meeting this qualification.
Other key findings of the index: most respondents anticipated a 5 percent to15 percent return on e-commerce investments, and the chief barriers to further progress were a lack of skilled professionals to implement e-commerce initiatives and security concerns.
The index was mailed to 11,500 companies, generating 578 responses, primarily from smaller companies. It is slated to be repeated semi-annually in conjunction with the Manufacturing Institute, the educational arm of the NAM.
"The real question facing business and policymakers is how do we nurture e-commerce without strangling it with over-regulation or taxation," Jasinowski said. "This index should be a helpful tool to monitor progress by sector and identify problem areas."