Direct material purchases over the net has increased, say Forrester

Forrester Research latest survey has found that the purchase of direct materials, which are the nuts-and-bolts components and...

Forrester Research latest survey has found that the purchase of direct materials - the nuts-and-bolts components and services that go into final manufactured products - has outstripped the pace of online buying of indirect goods such as office supplies.

In the second quarter of this year, companies participating in an e-procurement survey reported spending online an average of 11.7% of their total direct materials purchases, up 1.7% from the first quarter.

Online spending for indirect materials was flat at 11%, with an increase of 0.6% to 13.5% among non-manufacturing companies, offsetting a 1% drop to 8.4% among manufacturers.

Forrester conducted the quarterly survey in conjunction with the Institute for Supply Management, a non-profit supply management association which has more than 45,000 members.

The survey included 290 respondents, 144 of whom are manufacturers and 146 of whom are non-manufacturers. Of the respondents, 115 procure a total of more than $100m (£63m) per year, including all purchases made online and through other channels, and 171 buy less than that amount.

The findings are indicative of the increase in the number of available software tools companies can use for online procurement and a better level of comfort with buying materials important to manufacturing over the Internet, said Jennifer Chew, a Forrester senior analyst.

Ariba, SAP, Oracle and PeopleSoft are top tools suppliers in the e-procurement business.

"It's a lot less risky to buy stationery online than it is to buy materials online that are critical to the manufacturing process," Chew said.

Companies needed to wait and see how online procurement would work for indirect items first before buying more direct goods over the internet, she said.

But it also was a matter of tools suppliers providing software aimed at direct goods buying, which is more complicated and involves planning systems while indirect purchasing "is basically an end user sitting at their computer saying, 'I need a box of pencils'. ... It's a more intensive sourcing process for direct materials than it is for indirect materials," Chew said.

While a company might not have established standards for the type of pencils its employees use, it will have requirements for products that will be part of its final manufactured wares.

Successful tools suppliers are, therefore, shifting to a "total view of procurement", Chew said.

"It's not just execution now, but it's planning and forecasting and execution management."

The latest survey also found that 60.6% of companies had collaborated with suppliers online in the second quarter, an increase of 1.5% from the first quarter.

Of those companies, 93% either increased or maintained their level of collaboration in the past three months. Among non-manufacturers, 36.1% bought goods through online marketplaces in the quarter, for an increase of 4.4% over the previous quarter and 15.1% of non-manufacturers increased use of online marketplaces, while 1.5% reported decreased use.

Although the percentage of companies saying they used the internet for requests for proposals (RFPs) dropped 4% to 61.8%, 27.5% of companies said they used the internet more for RFPs in the quarter, which was 4.7% more than in the first quarter.

Of companies responding to the online survey, 41.9% used an enterprise-wide procurement tool in the second quarter for a 1.8% increase over the first quarter.

Among large companies, 12.5% said they used those tools significantly more than in the previous quarter, compared with 7.3% who reported doing so in the first quarter.

Nancy Weil writes for IDG News Service

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