Few Firms Using Net to Purchase Supplies, Study Says

Relatively few U.S. companies are using the Internet to purchase supplies, and those that are so far have seen little savings, according to a study released Monday by a trade organization.

The study undercuts--or at least renders premature--a common perception of the Internet as a major force of efficiency to help streamline the billion-dollar procurement markets between manufacturers and suppliers.

“Most organizations are just beginning to use the Internet for their procurement activities,” the study said. The survey was jointly conducted by the National Assn. of Purchasing Management, a 47,000-member trade group dating back to 1915, and Internet market research firm Forrester Research Inc.

Of the 368 companies surveyed, nearly half said they are in the earliest stages of using the Internet for procurement. And less than 7% reported being 40% of the way toward full adoption of Internet purchasing systems.

Even so, 87% of those surveyed said they see the Net as an important part of their purchasing plans over the next 12 months. Analysts said the survey indicates that the era of Internet streamlining is still on the horizon.

“Organizations aren’t yet buying a large portion of their goods online,” said Bruce Temkin, an analyst at Forrester. But, he said, “there’s significant momentum to use the Net for things like identifying new suppliers and collaborating with suppliers.”

The study reflects the nascent state of Internet deployment even at such corporate behemoths as the Big Three auto manufacturers. Last year, Ford Motor Co., General Motors Corp. and DaimlerChrysler joined forces to create Covisint, an online clearinghouse for parts and other supplies.

In the last three months of 2000, the network accounted for just $350 million in transactions, a tiny fraction of the $240 billion the three companies spend on parts and supplies each year.

But Dan Jankowski, a Covisint spokesman, said that this year the network’s total will be measured in multiple billions, and that “we’re talking about three to four years to have the bulk” of Detroit’s procurement business.

Chrysler said it has already seen cost savings from online procurement. In December, the company said it saved an estimated 17% on 500 parts it recently ordered through a series of 30 online bidding arrangements.

Jeff Leestma, a spokesman for Chrysler’s electronic business efforts, said online ordering also saves time. In one recent deal, the company selected a supplier of storage racks after a 30-minute online auction. “Had we not done it” online, he said, “it could have taken days or weeks to negotiate that deal.”

Other major companies also are reporting major savings. General Electric, for instance, expects to save as much as $500 million this year from the use of a new online marketplace that connects all of G.E.’s divisions to suppliers.

But the new study indicates that these success stories are so far exceptions to the rule. Only 26% of those surveyed said their online purchasing activities have helped them save money.

That may be because many companies are only beginning to experiment with online purchasing and at this stage are more focused on refining the process than on maximizing the payoff, said Holly Johnson, senior vice president of the association that produced the report.

“There will be a cost savings impact as a result of the Internet,” Johnson said. “It just hasn’t reached us yet.”

The National Assn. of Purchasing Management is based in Tempe, Ariz. The companies included in the study had median annual revenue of $250 million and median annual procurement budgets of about $75 million.

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Bloomberg News was used in compiling this report.