ISM/Forrester Research Report on eBusiness
October 2002

CONTACTS:

Kristen Kioa Mariko Zapf
ISM Forrester Research, Inc.
+1 800/888-6276, extension 3015 +1 617/613-6225
kkioa@ism.ws press@forrester.com

Executive Summary

Progress in the adoption of the use of the Internet for purchasing was a mixed bag over the past quarter. The percentage of organizations buying online and the fraction of materials bought was relatively constant when compared with Q2. However, survey results show more organizations are using enterprisewide procurement tools and are utilizing the Net more frequently for RFPs. Also, while the use of online auctions fell significantly, the number of firms collaborating with suppliers online rose.

Methodology

The ISM/Forrester Research Report on eBusiness measures the adoption of Internet-based procurement and tracks online activity for both manufacturing and non-manufacturing organizations.

The Report is based on data compiled from a survey sent to supply management executives in more than 600 manufacturing and non-manufacturing organizations belonging to the ISM Business Survey Committees. Membership on these committees is diversified by standard industrial classification (SIC), based on each organization's contribution to gross domestic product (GDP). All geographical areas are represented on the committees.

This Report is composed of the survey responses of 289 organizations. To understand the difference in online behaviors of these organizations, responses were analyzed along three classifications: 1) the results of all organizations; 2) a comparison of manufacturing and non-manufacturing organizations; and 3) a comparison of companies that procure more than $100 million per year and those that procure less than $100 million per year.

  All respondents Manufacturers Non-manufacturers Buy more than $100 million per year* Buy less than $100 million per year*
Number of respondents 289 140 149 119 161
Median annual purchases (millions) $75 $75 $75 $375 $17

*Nine respondents declined to provide overall purchasing and revenue data.

The adoption rate for new online activities is measured by the eBusiness Adoption Momentum (eBAM) index. The eBAM index ranges from +5.0 to -5.0 and evaluates the number of organizations engaged in online activity as well as the increasing or decreasing pace of change in their usage. The index points to the following pace of adoption:

3.1 to 5.0 Extremely positive
1.6 to 3.0 Significantly positive
0.6 to 1.5 Moderately positive
-0.5 to 0.5 Negligible
-1.5 to -0.6 Moderately negative
-3.0 to -1.6 Significantly negative
-5.0 to -3.1 Extremely negative

Overall Internet Adoption
  • Internet adoption surged among large buyers. One-fourth (25.5%) of large buyers reported being about halfway or further along the way toward fully adopting the Net, a big jump from last quarter's 18.8%. 16.8% of all respondents reported being about halfway or further along the way toward fully adopting the Net, approximately the same as reported in Q2 (17.1%). 17.6% report no progress at all toward adopting the Net or don't currently have plans to use it.

    How much progress have you made toward fully adopting the Internet in your purchasing activities?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Don't plan to use the Internet 4.2% 3.3% 5.0% 0.9% 6.8%
    None, but thinking about it 13.4% 19.8% 7.9% 11.3% 14.3%
    Some progress 65.5% 64.5% 66.4% 62.3% 68.7%
    About halfway adopted 11.1% 6.6% 15.0% 18.9% 5.4%
    Mostly adopted 3.4% 3.3% 3.6% 2.8% 3.4%
    Fully adopted 2.3% 2.5% 2.1% 3.8% 1.4%

  • Supplier connectivity limits eBusiness adoption. When asked about issues they were encountering that affected eBusiness initiatives, respondents continued to mention a lack of budget or resources as well as the need for standards and integration. However, firms also pointed to supplier issues including supplier readiness, the need to connect to multiple suppliers, and the need for face-to-face contact with suppliers as significant sources of concern.

  • More firms see the Internet as critical to overall purchasing plans. Looking ahead to the next 12 months, 82.5% of organizations said that the Internet will be important to overall purchasing plans, a negligible decrease over last quarter's level (83.1%). The fraction of companies that deem the Net as critical surged from 3.8% to 7.1% of companies, with all segments seeing similar leaps. The biggest increase was seen by large-volume buyers, with a criticality rating of 11.1% in Q3 compared with only 4.7% in Q2.

    Looking ahead over the next 12 months, how important is the use of the Internet in your overall purchasing/supply management plans?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Not important 17.5% 17.8% 17.2% 14.5% 19.4%
    Somewhat important 48.6% 54.1% 43.4% 39.3% 55.5%
    Very important 26.8% 21.5% 31.7% 35% 20.6%
    Critical 7.1% 6.7% 7.6% 11.1% 4.5%

  • Most purchasers saw little change in cost of ownership. 65% of respondents reported no change in the cost of ownership of products or services from their Internet activities over the past three months -- a slight increase from last quarter's 62.4%. The percentage of manufacturers reporting cost savings decreased significantly from 32.7% in Q2 to 24.5% in Q3 while the fraction of non-manufacturers reporting cost savings increased slightly from 27.1% to 28.8%.

    In the past three months, how have your online purchasing/supply management activities impacted the total cost of ownership of your products or services?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Increased 8.4% 5.9% 10.8% 8.7% 7.9%
    No change 65% 69.6% 60.4% 53% 72.8%
    Decreased 24.1% 21.5% 26.6% 33.9% 17.9%
    Significantly decreased 2.6% 3% 2.2% 4.3% 1.3%

  • The fraction of companies changing procurement procedures plunged. In all segments, the fraction of firms reporting major change to procurement procedures due to the adoption of the Internet fell dramatically. 6.9% of all organizations reported that the Internet has introduced major changes to their procurement processes over the past three months -- a substantial drop from last quarter's level of 11.1%. The biggest drop occurred for manufacturers, only 3.8% of whom reported significant or dramatic change in Q3 versus 9.4% in the Q2 survey.

    How has the Internet changed your internal procurement procedures?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    No/minor change 93.1% 96.2% 90.1% 87.8% 96.7%
    Significant/ dramatic change 6.9% 3.8% 9.9% 12.2% 3.3%

Online Buying Activities
  • The fraction of firms buying indirect materials online decreased slightly, but the percentage of goods purchased rose. 81.9% of respondents bought some indirect materials online during the past three months -- a slight decrease from last quarter's 84.2%. All segments saw a small decrease in the fraction of firms buying online, but non-manufacturers saw the largest decline (from 87.5% last quarter to 83% this quarter). The average amount spent online on indirect materials rose marginally from 8.7% to 9%. This increase was led by large buyers, which placed 11.6% of all indirect materials purchases online this quarter versus 10.1% last quarter.

    Did you purchase indirect goods/services over the Internet via any means?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Bought some indirect materials on the Internet 81.9% 80.6% 83% 90.5% 75.8%
    Average amount of indirect materials purchased online 9% 8.5% 9.4% 11.6% 7.2%

  • Use of the Internet for direct materials purchases was flat in Q3. 63.8% of firms bought direct materials online this quarter compared with 64.6% of respondents in Q2. The percentage of total direct materials purchases placed online was virtually unchanged at 6.5% in Q3 versus 6.6% in Q2. While most segments saw only marginal changes, large buyers saw a somewhat larger decrease in direct materials purchased online from 8.4% to 7% of total purchases.

    Did you purchase direct goods/services over the Internet via any means?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Bought some direct materials on the Internet 63.8% 59.4% 67.8% 71.4% 58.3%
    Average amount of direct materials purchased online 6.5% 4.8% 8.1% 7% 6.1%

  • Use of the Internet for auctions decreased among manufacturers and small buyers. 18.8% of all respondents indicated that they bought products or services through an online auction, a notable decrease from last quarter's level of 22.4%. Two segments reported the biggest decreases in the use of online auctions over Q2 -- manufacturers (from 29.6% to 22.1%) and small-volume buyers (from 15.8% to 9.3%). However, the eBAM index was constant in all segments, with the overall eBAM index remaining at a modest 0.2.

    Did you purchase goods/services through an online auction over the Internet?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Bought some materials through an online auction 18.8% 22.1% 15.7% 30.7% 9.3%
    eBAM index 0.2 0.3 0.2 0.5 0.1

  • The use of electronic marketplaces and private hubs jumped. All segments reported an increase in the use of electronic marketplaces and private hubs, with the overall percentage rising from 29.1% to 32.7%. Similarly, the overall eBAM index for online purchasing rose from 0.2 to 0.4.

    Did you purchase goods/services through an electronic marketplace or private hub that links buyers and sellers?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Bought some materials through an online marketplace 32.7% 33.8% 31.7% 39.5% 29.1%
    eBAM index 0.4 0.4 0.5 0.5 0.4

  • Use of the Internet for RFPs by large-volume buyers surged. 64.3% of respondents used the Internet as part of an RFP process, a significant increase from last quarter's level of 60.6%. This increase was reflected in all segments, but large buyers led -- the percentage of large buyers using the Net for RFPs increased to 69.8% from 62.5%. The eBAM index for RFP adoption remained a modest 0.6 -- unchanged from Q2.

    Did you use the Internet as part of an RFP process?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Used the Internet as part of an RFP process 64.3% 63.7% 64.8% 69.8% 60.8%
    eBAM index 0.6 0.6 0.6 0.8 0.5

  • Use of procurement tools that incorporate the Internet soared among large buyers. 35.9% of respondents used an enterprisewide procurement tool that incorporates the Internet in Q3, which was up from 30.9% in Q2. Usage by large-volume buyers and non-manufacturers increased significantly; the fraction of large-volume buyer usage increased to 53.6% (from 40.5% in Q2), and the fraction non-manufacturer usage increased to 40.7% (from 30.9%). The overall eBAM index for the use of enterprisewide procurement tools was unchanged at 0.5.

    Did you purchase goods/services using an enterprisewide procurement tool that incorporates the Internet?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Used the enterprisewide procurement tool 35.9% 30.8% 40.7% 53.6% 22.7%
    eBAM index 0.5 0.4 0.6 0.9 0.3

Supplier Relationships
  • Firms increased their use of the Net for collaboration with suppliers. For the first time, more than half of both manufacturers and non-manufacturers reported collaborating with suppliers online, pushing the overall level of collaboration to 53.5% of all firms in Q3 from 51.5% in Q2. The rise was concentrated in large buying organizations -- 63.5% reported collaborating in Q3 versus only 59.1% in Q2. The overall eBAM index for online collaboration fell slightly to 0.6 from 0.9.

    Did you collaborate with suppliers using Internet-based supply chain tools?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Used the Internet to collaborate with suppliers 53.5% 52.3% 54.6% 63.5% 46%
    eBAM index 0.6 0.7 0.6 1.0 0.4

  • Buyers' satisfaction with suppliers' online capabilities was relatively unchanged. The percentage of buying organizations reporting that their preferred suppliers' online capabilities were either very good or excellent fell slightly -- from 13.2% to 12.6% -- while those reporting poor or very bad supplier capabilities also fell modestly -- from 33.6% to 32.8%. More large-volume buyers are happy with supplier performance, with 14.5% of large organizations reporting that supplier capabilities were either very good or excellent, versus only 11.3% in Q2.

    How would you rate the online capabilities (including content and product selection tools) of your current preferred product or services suppliers?

      All respondents Manufacturers Non-manufacturers Buy more than $100 million per year Buy less than $100 million per year
    Very good/ excellent 12.6% 9.9% 15.2% 14.5% 11.4%
    Good 54.5% 55.4% 53.8% 50.9% 56.4%
    Very bad/poor 32.8% 34.7% 31.1% 34.5% 32.1%


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