Hampering the growth of e-commerce

For UK manufacturers, concerns regarding the return on investment are turning out to be the biggest impediment to the adoption of e-commerce.

The latest UK Manufacturing E-commerce Survey, released today by Cap Gemini Ernst & Young UK plc and CIPS, finds that, for UK manufacturers, concerns regarding the return on investment are turning out to be the biggest impediment to the adoption of e-commerce.

The report also highlighted a correlation between size of company and the take-up of e-commerce, with larger companies tending to use the Internet for purchasing more than smaller firms. The number of large companies using the Internet to buy goods either ‘a lot’ or ‘a little’ has almost doubled over the past three years whereas the proportion of smaller firms using the web has risen only modestly.

The survey shows that use of the Internet by manufacturers to purchase goods and services has continued to grow at a steady pace. Some 46% of manufacturers reported that they currently used the Internet to buy goods or services, up from 44% last autumn and 41% a year ago. Large companies reported the greatest cost savings. Almost one in four large companies indicated that they had made savings through online purchasing, compared to only 7% of smaller companies.

The most popular use of the Internet was for purchasing indirect goods and services (i.e. those not used directly in the production process), for which just over half (51%) of all companies reported some web use – up from 40% a year ago. Of these indirect goods and services, most common was use of the Internet for purchasing travel services, which was reported by 59% of companies, up from 53% a year ago and 40% two years ago.

Use of the Internet for purchasing direct goods (i.e. those used in the production process) also increased, though remained less popular than for indirect goods and services. One-in three companies reported use of the Internet for buying direct goods, up from one-in-four last autumn. Use of the Internet was greatest in the electronic/electrical goods sector, while metal goods and mechanical engineering sectors saw the lowest use.

The survey also highlighted that a substantial number of companies remain unconvinced by the benefits of e-commerce with 31% of firms not expecting to use the Internet for purchasing over the next year. Of those companies that remain sceptical, the main reason cited was a concern over the return on investment, followed by a lack of demand plus a desire to await technological developments.

John Crampton, Vice President, Cap Gemini Ernst & Young UK plc comments ‘The latest set of CGEY/CIPS survey results demonstrate the widening margin between large manufacturing firms embracing e-commerce technology and the slower take-up of the same technology by the Small to Medium size corporations component of the industry. The manufacturing sector as a whole continues to move in the right direction, with an increasing number of firms turning to web-based technology, particularly for the procurement of indirect goods. When times are tough, all companies are focussed on looking for that ‘last grain of rice’ in cost savings and efficiency andeProcurement has proved to be a key element in the strategy for achieving this. The challenge now for small and medium-sized manufacturing companies is to increase their commitment to e-commerce, in order to replicate the cost savings and other benefits that their larger counterparts in the industry already enjoy.’

Roy Ayliffe, Director of Professional Practice at The Chartered Institute of Purchasing and Supply (CIPS) commented: ‘This time around the results of the survey demonstrate only a modest increase in the use of the Internet to buy goods and services. Although it continues to be a step in the right direction what it does show is that companies are now seeing through the potential misinformation about the benefits of the Internet and are selecting solutions which offer real competitive advantage. This becomes even more important during a period of economic downturn.’

Note: The survey reflects responses from352 manufacturing companies that participate in the highly regarded CIPS/Reuters UK Purchasing Managers’ Index monthly survey. Data were collected in the second half of March 2003.