Electronic Procurement Not Catching on with Fortune 500

Less than one-third of Fortune 500 businesses order strategic goods from online suppliers, according to a study by Hurwitz Group, which also found that many have no idea how well their electronic procurement systems have performed.

“The majority of those responding to the study did not know the actual number of purchases their company made from online suppliers,” said Fern Halper, VP of e-Business Strategies at Hurwitz Group, a Boston-based consulting and research company. “Despite the promise of tremendous benefits from e-Procurement — including perceived savings of up to 50 percent in purchasing costs — most companies are not measuring these anticipated benefits.”

Among the study’s findings:

  • 66 percent of companies studied are ordering less than half of their indirect goods online
  • Companies said maintaining current price and cost information for indirect goods and services is too difficult
  • Widespread adoption of e-procurement solutions is hampered by lack of executive buy-in; technical challenges related to implementation and lack of support from e-procurement vendors to get suppliers online
  • Most e-procurement systems being utilized lack support for complex procurement processes, including contract management and negotiation. Achieving end-to-end supply chain management is another significant challenge.

“Companies may work with thousands of suppliers, but in many cases, fewer than 100 suppliers were linked to their e-procurement systems,” said Bill Eisele, a Hurwitz Group e-Business analyst. “Let’s face it, there are some major supplier-enablement issues out there. Companies investing in e-procurement systems should make certain that their chosen vendor has a proven customer service record and guarantee supplier access.

The study found that most companies making purchases online are performing indirect purchases of maintenance, repair, and operational (MRO) 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.

“While companies perceive saving as high as 50 percent in purchasing costs from their e-procurement systems for both direct and indirect sourcing, they are primarily using these systems for indirect procurement,” said Halper. “Companies are not yet realizing these anticipated benefits. Additionally, companies are only beginning to quantify the benefit of their e-procurement solutions. It is really still early in the game to determine the true benefit of these systems.”

According to a study by ActivMedia Research, 50 percent of all Web businesses purchase online for their company. B2B Web firms are somewhat more likely to migrate purchasing functions online (54 percent vs. 43 percent). Larger companies may have an advantage because they require their vendors to be online for quality and just-in-time inventory control. Internet service and support businesses also have a tendency to engage in online purchasing because it is a function of the way they prefer to do business. ActivMedia suggests that B2C sites lag behind because their supply chain isn’t fully e-commerce enabled yet.

Among sites that purchase online today, approximately 21 percent of all company purchases are made online. By 2002, B2C Web sites plan to shift 43 percent of all company purchases to the Web while 40 percent of company purchases for the B2B sector will occur online.

“This research supports the claims of most analysts that B2B e-commerce activity will surpass the retail online sector in the next couple of years,” said ActivMedia Research’s VP of information services Chris Anne Wheeler. “The economies of scale show it makes solid business sense to shift purchasing online. As technology for electronic bill presentment and then subsequent payment comes into its own and the kinks in backstage integration are hammered out, the cost savings of online purchasing will be garnered by all Web businesses.”

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