According to survey findings from the latest ISM/Forrester Research Report On Technology In Supply Management, companies increasingly are using the Internet to purchase direct and indirect goods and services, and they are saving money as a result. For the second consecutive quarter, the percentage of direct materials purchased using the Internet surpassed that of indirect materials. Developed by The Institute for Supply Management™ (ISM) and Forrester Research, Inc. (Nasdaq: FORR), this study — formerly known as the Report On eBusiness — is a first-of-its-kind report that tracks online activity for both manufacturing and non-manufacturing organizations.
For the quarter ending September 2003, survey respondents spent an average of 13 percent of their total direct materials spend using the Internet in Q3 2003, up from 12 percent in Q2. Indirect materials spending grew from 11 percent in Q2 to 12 percent in Q3. Additionally, the percentage of companies that saved money resulting from their online purchasing climbed from 30 percent in Q2 to 35 percent in Q3.
Better savings opportunities caused large firms –organizations that spend more than $100 million on procurement per year, especially those that buy more than $500 million a year — to lead in Internet adoption. Why? The size and buying power of these companies help them contain costs and secure supplier participation.
“Continuing the past quarter’s trend, supply management professionals purchased slightly more direct goods and materials online than indirect goods,” said Edith Kelly-Green, spokesperson for ISM and former vice president and chief sourcing officer for FedEx. “We are still seeing internal and external system integration as a major drawback to eProcurement adoption. Comments received from several survey respondents did indicate that some progress in this regard was being made.”
“These survey results show that success in online purchasing is a matter of position, priorities, and persistence,” said Andrew Bartels, research analyst at Forrester. “Larger companies so far have been in a better position to afford the available solutions and gain supplier participation. Non-manufacturing companies have made eProcurement and Internet-based sourcing a higher priority than manufacturers have, which also use alternative channels like EDI networks. Above all, though, success stems from persistence over time in making the needed process changes, gaining employee and supplier participation, and linking online sourcing with enterprisewide eProcurement systems to create real bottom-line savings.”
Other Key Findings
- Only 25 percent of companies participated in online auctions, and 33 percent used eMarketplaces. Non-manufacturing companies are more advanced in their use of online marketplaces and companywide eProcurement tools. This group tends to consist of service companies that lack alternate channels for buying and have very specific direct purchasing needs.
- Supplier collaboration increased in Q3. Sixty-three percent of companies collaborated with suppliers online, up modestly from 61 percent in Q2. However, satisfaction with suppliers¿ online capabilities showed little improvement in Q3.
- Online RFP usage continues to rise. During Q3, 69 percent of companies used the Internet in their RFP process, up from 62 percent in Q2.
- Sourcing will be the key to unlocking value. Tools for automating the purchase process turn out a secondary source of business value compared to the savings from negotiating and gaining employee compliance with strategic sourcing deals.
About The Report On Technology In SupplyManagement
For the Report On Technology In Supply Management, ISM and Forrester Research received survey replies from 294 supply management executives from both manufacturing and non-manufacturing organizations. To understand the difference in online behaviors of these organizations, the Report analyzes 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 on direct and indirect materials per year with those that purchase less than $100 million per year. To track the adoption of different activities over time, ISM and Forrester created the eBusiness Adoption Momentum (eBAM) index. To find out more about the eBAM index and see the complete Report, go to www.ism.ws or www.forrester.com.
The ISM/Forrester Research Report On Technology In Supply Management, developed in fall 2000, measures the adoption of Internet-based procurement. ISM and Forrester Research developed the survey jointly and issue the Report every three months in a manner similar to the monthly ISM Report On Business®.
The Institute for Supply Management™, established in 1915, is the world’s leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies, and government. ISM has provided a rich history of economic data for over 67 years on the U.S. economy with its Manufacturing ISM Report On Business® and the PMI. Since June 1997, ISM has also been publishing the Non-Manufacturing ISM Report On Business®. Both surveys can be found at www.ism.ws
About Forrester Research, Inc.
Forrester is an independent technology research company that provides both pragmatic and forward-thinking advice about technology’s impact on business. Business, marketing, and IT professionals worldwide collaborate with Forrester to align their technology investments with their business goals. Forrester offers products and services in four major areas: Research, Data, Consulting, and Community. In February 2003, Forrester acquired Giga Information Group. Established in 1983, Forrester is headquartered in Cambridge, Mass. For additional information, visit www.forrester.com
Information concerning the quarterly release of the ISM/Forrester Research Report On Technology In Supply Management may be obtained via the ISM Web site at www.ism.ws and the Forrester Research Web site at www.forrester.com under “Press Releases” class=”newpage” target=”_blank”.
The next release of the ISM/Forrester Research Report On Technology In Supply Management will be in late January 2004.