Report: B2B E-Commerce Gaining Strength

Nearly half of all large U.S. corporations are now using the Internet to cut down on their supply costs, according to a report released Wednesday by Forrester Research (Nasdaq: FORR) and the Institute for Supply Management (ISM).

The study found that 45 percent of companies that spend US$100 million or more per year on supplies used the Internet to save money in the fourth quarter of 2001, up sharply from 28 percent in the third quarter.

More companies are buying from online marketplaces, with 26 percent taking part in business-to-business hubs in the fourth quarter. And online auctions continue to gain favor with major companies. Use of auctions rose from 17 percent to 23 percent among all companies and shot up from 21 to 29 percent among those involved in manufacturing.

"The Internet has become a necessity for large purchasers," said Bruce D. Temkin, group director at Forrester. "The discussion has moved away from if the Internet should be used to where and how it can save money."

More to Come

Meanwhile, all but a few corporate executives see the Internet growing in importance. While 53 percent described the Internet as "very important" or "critical" to their purchasing and cost-saving plans during 2002, 87 percent said it was "important."

"Companies are acknowledging that e-commerce buying is here to stay and that there are major benefits to be had even though realization of those benefits may take longer than initially anticipated," said Edith Kelly-Green, a spokesperson for the ISM and a vice president at FedEx.

Barriers Remain

The pace of Internet adoption was hampered by the economic downturn, the report found, with a slowing business environment cited as one of the main reasons that companies are not using the Internet more often.

However, plenty of growth potential remains, the quarterly survey found. While more than half of the company executives surveyed said they were beyond the earliest stages of Internet development, just over 21 percent said their Internet adoption was more than 20 percent complete. Meanwhile, less than 10 percent of the businesses questioned said the Internet had changed their processes for procuring supplies.

Slow, But Go

Forrester has been preparing the eBusiness report with ISM -- the new name for the National Association of Purchasing Managers -- since 2000. The survey has traditionally found slow but steady increases in the adoption of B2B practices, with a mixture of skepticism and optimism about the Web's potential.

Some of the earlier barriers, such as integration and other technical difficulties have taken a back seat to overall spending slowdowns, however.

Forrester said businesses are now beginning to see results, with those that spend the most money the first to see the returns on their investments.

"The most pronounced change is that large-volume buying organizations reported a dramatic increase in cost savings and a significant jump in the importance of the Internet," the report said.