Big Business Can Get Even Bigger Online

Large companies can leverage their buying power online

The Internet is gaining value as a way to conduct business with suppliers, according to a recent report that identifies steady growth for Internet purchasing.

A survey by Forrester Research and the Institute for Supply Management shows that the percentage of companies that consider the Internet critical for purchasing has doubled since 2001. “Purchasing via the Internet is strategically important [for nonmanufacturers] because of the limited availability of other channels for making purchases,” says Forrester analyst Andrew Bartels.

The survey found that 17 percent of companies that buy more than $100 million in goods per year considered the Internet critical for their purchasing plans in the next year, while just 7 percent of those spending less than $100 million per year said the same?a sign that large companies can use the Internet to leverage their buying power.

The percentages of manufacturers and nonmanufacturers that consider the Internet critical for purchasing has doubled in the past two years.

3.2% Q3 2001

7% Q3 2003

Manufacturers

5.8% Q3 2001

14% Q3 2003

Nonmanufacturers

And the Internet is especially important to big spenders.

2.6% Q3 2001

7% Q3 2003

small spenders (

6.6% Q3 2001

17% Q3 2003

Big spenders (> $100M per year)

Source: 2003 survey by Forrester Research and the Institute for Supply Management

Best Practices

Analyze. Start at the source. Collect and analyze your purchasing data to identify your top spending categories and suppliers. Use this information to negotiate better or bigger deals or to seek new partners that can meet your demands. Consider making the ability to conduct Internet-based transactions a condition of doing business.

Source. Pare your suppliers to a preferred list. Interact with suppliers that offer the best deals and communicate with you the way you want them to (via the Internet), and look for ways to collaborate. Consider reverse auctions, traditional online auctions and Internet marketplaces. Volume purchasing with a small, preferred group of suppliers can reduce costs.

Procure. Deploy e-procurement tools. Enterprise e-procurement software from the likes of Ariba, PeopleSoft and SAP, for instance, reduces the time and effort involved in purchasing by allowing employees to electronically search supplier catalogs and generate purchase orders. These tools also provide visibility into the process so that supply chain managers can ensure that employees are, in fact, buying from preferred suppliers.

Revisit. Cycle back to identify new spending categories. To maximize benefits, reapply this process across the supply chain. As a general rule of thumb, reexamine your purchasing data in a particular category every six months. As this process matures, the cycle may shorten to once per quarter.