Report: Internet Purchasing Not a Cost Saver

Despite the common perception that the Internet will play a critical role in corporate purchasing strategies, a report released Monday by the National Association of Purchasing Management (NAPM) and Forrester Research found that 26.1 percent of companies reported a cost savings from their Internet activities for the quarter ended on March 31st.

During the prior quarter, 26.6 percent reported a cost savings.

Still, the second quarterly "NAPM/Forrester Research Report On eBusiness" found that 88 percent of companies see the Internet as important to their buying plans.

The report also said that 6.5 percent of the 407 companies surveyed said they had made major changes to their procurement processes because of the Internet, a decrease from last quarter's level of 7.7 percent.

Buying Indirect

Although purchases of both indirect and direct goods increased substantially over the prior quarter, companies are primarily using the Internet to purchase goods used indirectly in their businesses, rather than goods used in manufacturing.

During the quarter, 70.9 percent of companies surveyed purchased some indirect goods online, an increase over the prior quarter's 61.3 percent.

By comparison, 45.7 percent of the organizations surveyed reported buying some direct materials online during the quarter, up from 39.3 percent during the previous quarter.

"More usage of the Net is not surprising, as organizations have begun understanding the full potential of managing their supply chains via the Internet," said Edith Kelly-Green, vice president of sourcing and procurement for FedEx.

Kelly-Green added: "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."

Lower Collaboration

Buyers reported less online collaboration with their suppliers during the quarter, with 42.8 collaborating with suppliers online, a drop from the 50.4 percent reported the previous quarter.

The biggest drop in online collaboration was between manufacturers and suppliers -- down from 53.8 percent to 39.7 percent -- and between organizations buying less than US$100 million a year and their supplies, a figure that dropped from 48.2 percent to 34.8 percent.

No Supplier Satisfaction

Manufacturers also reported greater dissatisfaction with their supplier's online capabilities. For the quarter, 3 percent rated their suppliers' online capabilities as either very good or excellent, down from 7.9 percent the previous quarter.

Additionally, 43.7 percent rated their suppliers' online capabilities as either very bad or poor, up from the 42.1 percent last quarter.

Overall, 7.6 percent of companies viewed their suppliers' online capabilities as very good or excellent, down from 9.4 percent the previous quarter.

The survey also found that 80.7 percent of organizations were using the Internet to identify new suppliers.

Slow Going

Organizations are slowly increasing their participation in e-marketplaces, Forrester said. During the quarter, 22.7 percent of organizations bought goods or services through e-marketplaces, an increase from 19.1 percent the previous quarter.

Large organizations, those purchasing more than $100 million a year, showed the biggest increase in e-marketplace participation, growing from 20.1 percent to 28.2 percent.