Manufacturers back peddle on some e-investment as reality and economy bite

Economic uncertainty, cost pressures and a shift in emphasis to survival mode, rather than growth strategy, are being blamed by UK manufacturers for a fall in e-commerce investments to levels well below those of comparable economies, especially the US. The latest biannual survey of manufacturers across industry sectors, sizes and regions, completed in September by Cap Gemini Ernst & Young (CGEY) and the Chartered Institute of Purchasing and Supply (CIPS), finds a mood of re-examination prevailing where web-based IT investments are concerned. Rapid return on investment, while still a key criterion, is no longer quite so paramount. The report finds, for example, 44% of manufacturers are using the Internet for purchasing, a modest rise from 39% in 2000. But only 3.5% are using it a lot, and jut 9% predict they will use it in the coming year, down from 34% two years ago. It would be wrong to talk in terms of a freeze on IT investment of this kind: there is still growth in e-commerce, but at lower levels and, following moves from early adopters, industry is more aware of what works and what doesn’t. Only those applications proven to deliver immediate business benefit are seeing anything like significant take-up – and those are e-procurement primarily of indirect non-production goods and services, supplier collaboration and finding suppliers using the web. CGEY fins many manufacturers saying they are using the current economic climate to wait and see what standards their suppliers and industry adopt to ensure technology compliance. There is also some suggestion of disenchantment with the technology: although the benefits from adopting e-commerce are recognised, with 15% of manufacturers reporting reduced raw material costs due to online purchasing (compared to 11% a year ago), numbers are falling on, for example, online direct production materials e-procurement. CGEY and CIPS record a rough 10% decline here in the last two years, down from 25% to 23% reporting current use and only 3% citing significant use. However, the picture changes with indirect commodity purchasing online, which rose as cost benefits remained attractive. Meanwhile, initiatives such as reverse auctions are increasingly being discarded as they are found to be too disruptive to working relationships between manufacturers and suppliers. Almost three quarters of firms don’t expect to begin using either online marketplaces or auctions in the next 12 months, also citing lack of technical compliance among suppliers. Either way, the figures for general e-procurement use are way down on those in the US where 82.5% of organisations claim the Internet will be important to purchasing in the next 12 months. And specifically in direct products and services the UK lags, with almost 60% of US manufacturers using the Internet for purchasing. Nevertheless, a surprisingly high near 40% of UK manufacturers that they have used the Internet for collaborating with suppliers. And the proportion indicating they use it a lot for this purpose is also high at 11% (up from 8% last year), while those not expecting to use it for the next 12 months is falling. Meanwhile, the greatest increase in online purchasing is among smaller businesses (albeit from a low base) thanks in part to the increasing adoption of broadband (there was a leap of 11% in the proportion of all smaller companies reporting some usage in the last six months). But large companies (those with more than 500 employees) still report the most frequent use. Use of the Internet as a research tool continues to grow, with 31% claiming to have “used the web a lot” to identify new suppliers (up from 21% a year ago). This increases to 84% the number that has used the web at least a little for this purpose. Use of the web for inviting tenders is also growing slowly. CGEY still claims to believe that collaboration replacing confrontation is a key driver “as companies seek to strengthen relationships in uncertain times.” And the report does show almost 40% of companies reporting that they had used the Internet specifically for collaboration, up from 35% in the spring – but compared with over 50% of manufacturers in the US. Commenting on the findings, vice president of Cap Gemini Ernst & Young John Crampton, says: “The web is helping to drive forward a major shift in business models and processes. Utilising proven technologies like the web to develop an adaptive architecture enables rapid response to changing market conditions, in a way that has previously not been possible. The inherent flexibility of this approach brings real competitive advantage.” Roy Ayliffe, director of professional practice at CIPS adds: “We strongly recommend that organisations incorporate processes such as e-sourcing and e-procurement. Correctly chosen e-purchasing solution options can be a relatively low risk ‘e’ strategy offering significant benefits.”