Purchasing Execs See Rise In E-ProcurementPurchasing Execs See Rise In E-Procurement

Purchasing executives within companies increased their use of the Internet in the fourth quarter of last year, with bigger businesses reporting the largest boost, a survey released Wednesday shows.

Research firms Forrester Research and the Institute for Supply Management found that purchasing of indirect materials was up an average of 2.9% to 9.4% from the third to the fourth quarter. Buying of direct materials rose 1.5% to 10.5% among manufacturing and nonmanufacturing companies.

The survey of 294 companies finds that the largest increase in direct-material buying was among respondents who spend more than $100 million annually on procurement. That figure jumped by 14% from the third to the fourth quarter. Indirect-material purchases rose highest among nonmanufacturers, to 12% from 9.4%, but the number of companies buying those materials online increased most among manufacturers, 84.4% from 80.6%.

Despite the increases, Internet adoption was hampered by the slow economy, concerns about return on investment, and the difficulty of integrating new Web-based applications with older enterprise resource planning systems and corporate software running on mainframes, says Edith Kelly-Green, ISM spokeswoman and VP and chief sourcing officer for FedEx Corp.

Forrester analyst Bruce Temkin says integration with other systems is a major concern among companies considering online buying from suppliers. However, integration technology has improved. Business software vendors are providing better application programming interfaces for connecting with other systems, and vendors are providing better tools, such as integration brokers. "I won't say integration is easy, but it is easier," Temkin says.

The survey found that large-volume buyers are the biggest Internet advocates, with 48.4% viewing it as very important or critical versus 23% of companies that buy less than $100 million from suppliers. Companies reporting that the Internet would be important to overall purchasing during the next 12 months dropped slightly, to 82.3% from 82.5%, with the biggest decrease reported by manufacturers and small-volume buyers--to 77.8% from 82.3% and 76.4% from 80.6%, respectively.

In all, 45.6% of large purchasers reported decreases in cost of ownership, as opposed to just 15.4% of small buyers. But most respondents overall, 64.3%, reported no change. Use of electronic marketplaces or private hubs dropped to 32.5% from 32.7%.

Other findings include:

• Online collaboration with suppliers, defined as sharing of critical information and production schedules, rose to 58.2% overall, up from 53.5%.

• 68.4% of the companies surveyed use the Internet as part of the request-for-proposal process, up from 64.3% in the previous quarter. Nonmanufacturers reported the largest increase, to 70.9% from 64.8%.

• Manufacturers reported a big jump in the use of Internet procurement tools, to 42.6% from 35.9%.

The quarterly Forrester and ISM report is based on data compiled through surveys sent to supply-management executives in 600 manufacturing and nonmanufacturing companies. The latest report is composed from survey responses of 294 organizations.