eBusiness Demands Online Procurement, According To Forrester Research
Today’s paper-based approval processes are sand in the gears of eBusiness. According to a new Report from Forrester Research, Inc. (Nasdaq: FORR), to streamline IT procurement, companies must assess their product and service needs and let these requirements guide their selection of purchasing partners. By 2002, most companies will be doing hands-free procurement through eMarketplaces.
“Entrenched relationships with resellers, concerns about system integration, and the lack of clear financial returns keeps five out of six IT purchasing managers offline,” said Simon Yates, analyst at Forrester. “By 2002, more than half expect to use purchasing systems integrated with online resellers, vendors, and business-to-business exchanges.”
IT purchasing today is facing enormous obstacles due to manual processes and duplicated buying efforts. Strategically focused eBusinesses will demand streamlined online systems that are able to handle large and complex orders quickly. Forrester believes that in order to overcome current obstacles, corporations must assess their technology buying profile, including service-level requirements and diverse product needs, before engaging in costly integration projects.
The cost of integration will keep most firms from creating online relationships with more than three vendors, leaving them to pursue one of four strategies depending on their needs. Companies that plan to buy from a few preferred vendors must rigidly enforce standards around the infrastructure to ensure that all buying is concentrated among these vendors, as well as find an online marketplace for occasional spot market purchases. Firms with a limited IT staff and extensive service needs should work with technically savvy value-added resellers (VARs) that can deliver services via the Web.
Forrester believes that companies with in-house technical skills and multiple vendor relationships will connect to emerging eMarketplaces that offer a full supply of IT products. Evaluating distributors for logistical expertise, including real-time access to inventory, incorporating business rules, and supporting back-office systems will enable them to contain integration costs. Firms that require a wide variety of services as well as best-of-breed products must connect with integrators familiar with their existing procurement systems. These customers need a procurement solution that allows them to find, order, receive, reconcile, maintain, and ultimately liquidate equipment through a single system.
“By 2002, online IT buying will become much more common because online procurement eliminates IT’s tedious manual process,” added Yates. “As companies focus more on eCommerce, firms will use rules-based online procurement applications instead of inefficient offline purchasing methods.”
While corporations ramp up their online purchasing through 2002, IT will be left with a shrinking stock of technology suppliers from which to buy products. Distributors will force direct vendors to carry other vendors’ products to compete. As prices are pushed down by eMarketplaces offering reverse auctions and best-price bidding, smaller VARs struggle to generate enough profit, forcing them to consolidate or sell out. As the IT market consolidates into several massive eMarketplaces, they create more liquidity for sellers and better prices for buyers.
For the Report “Buying Infrastructure Online,” Forrester interviewed 50 purchasing managers responsible for corporate IT procurement at leading firms to gauge the emerging online market for infrastructure. Only 16% of these interviewees currently buy any technology online, but these companies purchase an average of $6.4 million online in 1999.