E-procurement up, but paper not dead

More and more companies are buying supplies over the Internet, but that doesn't mean they are abandoning paper. A wave of paper invoices and hand-signed checks follows in the wake of the buying clicks.
Written by Mike Cleary, Contributor

More and more companies are buying supplies over the Internet, but that doesn't mean they are abandoning paper. A wave of paper invoices and hand-signed checks follows in the wake of the buying clicks.

That's one finding of a new study of 500 mid-sized companies sponsored by American Express. It says that 40 percent of companies with $5 million to $499 million in annual sales already buy online.

"They're ahead of the curve," said Anre Williams, who oversees marketing corporate services to mid-sized companies.

In a telephone survey of 500 companies, Bruskin Research found more than 63 percent of those who don't plan to start buying online. Of these 37 percent said they would start within 12 months.

Existing online purchasers did about 14 percent of their buying over the Web, and expect that proportion to increase. It would go up almost 20 percent within 12 months and 44 percent over the next three years, respondents said.

Purchasers of all stripes, online and offline, said that faster order time and convenience are the two top benefits of buying over the Internet. However, online buyers cited those factors more than twice as much as conventional buyers. "It streamlines the choices for them," Williams said. Vendors should pay attention to that finding, Williams said. "It's not all about price."

Security is the biggest concern of online buyers, according to the survey.

Online buying also tended to shift transactions from paper checks to corporate plastic. Online purchasers used charge cards 7 percent of the time, more than twice as much as conventional purchasers, who used it 3 percent of the time. About 43 percent of online transactions were handled by credit cards or purchasing cards. That's just of corporate checks, which accounted for 44 percent of online transactions.

That means there is room for saving more time in online procurement, through credit cards or electronic data interchange, Williams said.

"We've seen explosive growth in interest in purchase cards by mid-sized companies," Williams said. While he declined to provide numbers, he said transaction volume has tripled on the cards, which are credit cards designed for corporate purchasing.

A recent survey conducted for Visa found the same trends, although generally higher levels of electronic procurement. It found that 67 percent of respondents engage in some form of e-procurement in 2000, up from 10 percent in 1999. Of the people who don't engage in e-commerce, 86 percent said they would in the future.

About 59 percent of mid-sized companies said they browse Web sites on the Internet for their procurement, more than small or large companies, it found. It also found that checks were the most common form of payment for electronic procurement, even though only 2 percent of respondents felt they were the most efficient.

Online purchasers also bought more office equipment than conventional buyers, according to the American Express study. Those purchases account for 18.2 percent of their spending, compared to 8.1 percent for conventional purchasers.

According to the study, electronic channels, including electronic data interchange, Web sites and Internet procurement software account for 33 percent of online purchasers' activity. However, both online and conventional purchasers buy mostly through other channels. Sales representatives, phone orders based on catalogs and fax orders account for 86 percent of purchasing for conventional purchasers and 60 percent for online purchasers.

Williams also believes that the companies who purchased online were more towards the upper end of the revenue range, although the study didn't specifically measure this point.

"There's a connection between the size of the company and Internet connectivity," he said.

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