e-business adoption falling among manufacturing SMEs

While large manufacturers in the UK are still increasing use of web technologies to reduce costs in their supply chains and product distribution, among SMEs e-business adoption is actually in decline. And half of manufacturers are not intending to implement e-business this year. These are key among findings of research commissioned by Cap Gemini Ernst & Young, the fourth in its bi-annual survey of around 500 UK manufacturers. The reason: its report suggests that cost savings to date seem in general more or less related to company size, and are in some doubt. Although there is no data to link size to position or dominance in supply chains, it finds more than 20% of large firms using the Internet for supply chain interaction reporting a decrease in average purchasing price. But by contrast only 9% of SMEs say they have been able to turn e-investment into cost savings. Procurement cost savings, whether related to direct production materials or indirect non-production commodities, are, of course, but one of the business benefits. Others include improving on supplier relationships and better sales. On the former CGE&Y finds use of the identification for finding new suppliers popular, with 83 % reporting this activity (up from 77% six months ago). When it comes to collaboration with suppliers just 35% reported any current Internet activity. 19% are using the Internet for inviting tenders. As for sales, business to business online is more common than business to consumer, at 41% and 25% respectively. However, market researcher Benchmark’s massive e-business in manufacturing survey earlier this year (1,665 senior managers) found improved communications, both inter-departmental and external supply chain, cited by manufacturers across size and industry type as the most important benefit of e-business (43% now and 61% expected in the future). More efficient procurement and cutting costs in procurement were down at numbers five and six respectively in its ranking of key e-business benefits, well behind improved collaboration with customers and suppliers and so forth. Nevertheless, Benchmark finds 40% of firms possessing e-procurement software and placing orders online direct to suppliers’ ERP systems – although more are doing online catalogue shopping and EDI procurement. It also found the proportion of direct and indirect purchasing online among manufacturers doing it, more or less equal at an average of 13% and 11% respectively. Savings reported averaged at around 4.5% for both. CGE&Y says roughly one in three (35%) smaller manufacturers are using the web for procurement e-business, down from almost half (45%) in 2000. And almost half of these (47%) cited a lack of demand from customers as the reason for this decline – and hence the lack of savings. The firm says key barrier to further expansion of e-business technology and processes in lager companies is improvements in the technologies themselves. Only 15% of these cited a lack of demand from customers as holding them back. Indeed, almost two thirds (62%) expect to use the Internet for purchasing goods and services in the next 12 months. Other disincentives for ‘e’ investment cited include concerns over cost effectiveness, lack of web standards compliance, lack of broadband connectivity, slower adoption by others, cultural issues and security concerns. Others key issues it probably didn’t ask about include, frankly, general IT investment aversion where clear ROI isn’t demonstrated, e-business weariness and, importantly, concerns over back office integration (indeed failures with it). Again, these are certainly Benchmark’s observations. What is particularly interesting about CGE&Y’s survey is the high overall figures in both large and small manufacturing camps, albeit for fairly undefined e-supply chain activities. These tally well with a separate study for our sister publication Eureka, also by Benchmark, which shows some 60% of engineering organisations either already using (55%) or about to use (4%) e-catalogues for key and preferred suppliers. The clear implication is, investment or not, non e-ready suppliers will soon be out of the picture. Firms in the mechanical engineering sector reported the sharpest fall in prices in CGE&Y’s survey: more than a quarter (28%) saw a decrease in average purchase prices after implementing e-commerce practices. Only textiles reported a surprising net rise in average purchase prices after e-business implementation, indicating that it’s worth doing your business justification properly before you invest.