E-Procurement Gaining Converts Among Mid-Sized Businesses

Mid-sized companies are rapidly turning to new online channels for purchasing and will continue to intensify their e-procurement activity over the next year, according to a study by Bruskin Research for American Express.

The study, “E-Procurement Trends at Mid-Sized Companies,” explores the similarities and differences between mid-sized companies using e-procurement, (called “online purchasers”) and those that do not, (“conventional purchasers”). It found that 40 percent of mid-sized companies in the US are purchasing online. These online purchasers have already shifted 14 percent of their purchases to an online channel, and they expect e-procurement activity to increase by nearly 20 percent next year. Among conventional purchasers, 37 percent said they are planning to make the jump to online purchasing in the next 12 months.

Companies that currently use online purchasing rank as the top benefits: faster order time (42 percent), convenience (36 percent), cost savings (15 percent), and speed/time savings (12 percent).

“Mid-sized companies are realizing that they can save time and hassle by buying online,” said Anre Williams, Vice President of the Middle Market for American Express Corporate Services. “Only a small percentage of mid-sized companies — fewer than 10 percent– cited easier price comparisons as a major reason for purchasing online, which should encourage business-to-business suppliers to embrace the online channel as well.”

Criteria for Choosing Vendors
Price 68% 74%
Quality 38% 43%
13% 6%
9% 6%
Source: Bruskin Research/American Express

According to the study, online purchasers are using multiple electronic channels, including one-to-one supplier connections (Electronic Data Interchange), suppliers’ Web sites, and procurement software with electronic catalogs. These electronic channels combined represent one-third of the purchasing methods used by online purchasers. Consequently, online purchasers reported that 25 percent of their purchases involved contact with a suppliers salespeople, significantly less than conventional purchasers (37 percent). Similarly, conventional purchasers do more of their ordering by fax, 25 percent, compared to 13 percent of online purchasers.

Stationery/office supplies (21 percent) represents the highest dollar expenditure category (not including raw materials or industrial equipment) at mid-sized companies that purchase online, followed by office equipment (18 percent) and software (5 percent). These responses were similar to those of conventional purchasers.

Both online purchasers and conventional companies have similar criteria when selecting a vendor: Price is the primary factor for consideration (68 percent and 74 percent, respectively), followed by quality (38 percent and 43 percent, respectively). Online purchasers were significantly more likely to cite order accuracy (13 percent versus 6 percent) and product availability (9 percent versus 6 percent) as major factors for selecting a vendor.

“The Internet offers instant access to information, so companies that are buying online really appreciate the benefits of getting the order information straight and immediately knowing a supplier’s inventory,” said Williams.

Of the conventional purchasers that said they have no future plans to purchase online (31 percent), the top reason provided (23 percent) was they are “satisfied with existing methods” or “have no need to change.” The second most common response (16 percent), however, was that they have no Internet connectivity.

The study, conducted by Bruskin Research, surveyed 500 purchasing decision-makers in mid-sized companies with revenue ranging from $5 million to $500 million. Modeled as a comparison, the survey included 250 respondents from companies that currently purchase goods and services online and 250 from companies that do not currently buy online.

A study by the Hurwitz Group found that less than one-third of Fortune 500 businesses order strategic goods from online suppliers. The Hurwitz study also found that most companies making purchases online are performing indirect purchases of maintenance, repair, and operational goods and services. Far fewer companies are using e-procurement to automate production or manufacturing processes and the purchase of direct goods those processes require.

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