This does not make mee feel buillish
"E-Commerce Report: Companies in No Hurry to Buy Over the Internet
March 5, 2001
By BOB TEDESCHI
Even those who were once most bullish on the new economy expected
businesses to hesitate in moving their corporate purchasing
operations online ˜ no matter how sweet the promises of cost
savings. But a new report suggests that companies are moving more
slowly than any but the true skeptics might have predicted.
The report, to be released today by Jupiter Research, the online
consulting arm of Jupiter Media Metrix, focuses on procurement
managers, some of the key people pulling the e-commerce levers
inside corporations.
It says that procurement managers "see so little advantage in
moving online" that nearly half of those surveyed expected to do
less than 20 percent of their procurement online for at least the
next two years.
The reasons for the hesitation are simple, Jupiter says. Most
companies' existing suppliers are not yet on the Web, so purchasing
agents see little reason to go there themselves. Moreover,
purchasing managers are reluctant to learn how to use the various
intranet and Internet sites peddling everything from manufacturing
supplies to printer cartridges, and they do not necessarily trust
those sites to deliver critically important goods on time and at
the right quality.
"For the purchasing agents, it's all about relationships,
consistency, quality and reliability," said John- Gabriel Henry, a
Jupiter analyst. "It sounds so obvious, but we've forgotten it."
Shelley Stewart Jr., who, as vice president for supply chain
management at the Raytheon Company, oversees the corporation's $7
billion of annual purchasing, said there was a lot of fear among
procurement managers about online purchasing sites ˜ "how real they
are and how long they'll be around."
Mr. Stewart said he was training Raytheon's procurement officers
to use the Exostar Web site, an online marketplace for buyers and
sellers in the military and aerospace industries. The site was
created last year by Raytheon, Lockheed Martin, Boeing and BAE
Systems.
In addition, Mr. Stewart's purchasing officers have conducted a
handful of auctions on Freemarkets .com, where suppliers bid for
the right to sell their goods to Raytheon. Finally, Mr. Stewart
said, the company is installing a so-called enterprise resource
management software system from SAP; purchasing managers will also
use that system to buy goods.
Mr. Stewart said he hoped to use the Web for at least pieces of 20
percent of the company's procurement by year's end. "The question
is, how do we change the culture to get people to switch to the new
way?" he said. "There's a tremendous amount of training on these
tools every day, and the importance of using them."
He cited some of the common skeptical questions he hears from his
procurement team: "What's my supplier going to think when I do a
reverse auction? What's going to happen to the relationships I
have? I don't quite understand when we should use it?"
In answering the skeptics, Mr. Stewart said, he points to the
savings the company can generate through auctions alone. Last year,
he said, in three auctions on the Freemarkets Web site involving
about $100 million worth of goods, Raytheon saved 25 percent over
what it would have spent offline.
Furthermore, he said, procurement officers are finding that while
suppliers are initially upset at being subjected to an auction,
most are appreciative after having gone through it. "They really
have to better understand their costs to even participate," he
said. "Of course, we get a lot more thanks when they win."
Although Mr. Stewart says his procurement managers are not
burdened by the number of options for buying goods online, the same
is not true at many other companies, said Tim Chapman, who leads
the operations practice for McKinsey & Company, a management
consulting firm.
"The most frequently asked question we hear is, `How do I exploit
all of these e-tools, including the marketplaces?' " Mr. Chapman
said.
The fact that most large corporations are also investors in online
exchanges complicates matters, he said, because their companies are
often financially rewarded when they use an exchange. "Now I have
to say, `If I want to buy lubricants, do I contract directly with
the suppliers myself, or do it through the industry marketplace? Or
guess what: there are a whole bunch of other marketplaces out
there. Do I go with one of them?' "
Meanwhile, as purchasing managers' jobs have grown more complex in
recent years, their skills have not necessarily kept pace.
"Services companies in particular are getting very familiar with
the mantra of `Get real talent in the purchasing department,' " Mr.
Chapman said.
Some executives do not agree with the contention of Mr. Henry at
Jupiter Research that procurement agents are simply not interested
in scouring the Web for new suppliers. "Maybe that's true in some
industries, but not the majority," said Robert L. Kassel, chief
executive of U.S. Home and Garden, a manufacturer of lawn and
garden supplies.
As industries consolidate and as profit margins are squeezed, "you
need to pass those reductions down the line to your suppliers," Mr.
Kassel said. "When that happens, all that traditional stuff about
supplier relationships goes out the window," he added.
U.S. Home and Garden, he said, does only a small percentage of
purchasing online. That is "primarily due to the fact that there
aren't a lot of raw materials available online," Mr. Kassel said.
"If they were," he added, "that percentage would be very high."
Other obstacles, he said, include the fact that corporate buyers
"are generally older, and old ways die hard."
Mr. Henry, the analyst, said the reasons more suppliers had not
eagerly jumped onto the Web involved the weaknesses of the online
marketplaces themselves, which often group together dozens of
similar vendors.
Mr. Chapman, of McKinsey, says sellers have often balked at
offering their goods online because it gives too much information
to buyers. "In the end, more and better data gives the buying
organizations an advantage in negotiations," he said.
But in some cases, suppliers say they are not online simply
because the buyers have no interest in their being there. "Nobody's
asked for it yet," said Kevin Machan, sales and marketing manager
for Tailored Label Products, which sells more than $10 million
worth of adhesives and equipment identification plates each year
from its operation in Menomonee Falls, Wis.
Mr. Machan said some of the company's roughly 200 corporate
customers had only recently installed enterprise resource planning
systems, which can handle everything from personnel and benefit
queries to customer service and procurement. "Because of the
investments they just made in that, they're not banging on the door
of the next generation technology just yet," Mr. Machan said.
Nonetheless, he said, "if they did want us to transact online,
we'd have to."
But Mr. Machan does not relish that possibility, because different
companies ˜ and the online exchanges where they often buy their
products ˜ have varying ways of arranging product data and posting
it online. "If I've got 15 customers that want to send me data in
15 different ways, that wouldn't be very efficient for me," he
said.
"Nobody can agree on where they want to go next" with e-commerce,
he said. "Until that time comes, a lot of people will take a
wait-and-see attitude ˜ which is exactly what we're doing."
nytimes.com
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