The e-sourcing trend continues to chug along, gathering steam one buyer at a time, according to PURCHASING magazine's recent Benchmark Survey on E-sourcing Strategy. The percent of survey respondents using various e-sourcing tools grew nearly across the board while follow-up interviews with respondents showed a desire to continue expansion of current projects while exploring new technologies. Training on e-sourcing tools also spiked this year, showing buying organizations are looking to expand the use of these tools to a broader group of users.

From a market perspective, new data from AMR Research shows that after hitting rock bottom in 2002, the procurement and sourcing technology market eked out 2% growth in 2003 fueled by the top-three ERP providers which accounted for 16% revenue growth and increasing demand for services such as low-cost country sourcing, compliance management, supplier management, analytics, benchmarking, and data management services. AMR says these trends have set the market up for 5% growth in 2004 and 8% market growth from 2003-2008.

Buyers today are putting an average of 12.4% of spend through e-sourcing tools, a significant increase from the 2.4% that went online a year ago. Survey respondents also said they plan to put more than 20% of spend online in the next year, a giant leap from the single-digit plans revealed in 2003's survey. One buyer at a major high-tech firm says his firm plans to "Grow e-sourcing from 15% of our spend to 40% in the next two years. We also plan to consolidate the indirect and direct procurement to one platform scalable across our supplier relationship management system."

Supplier directories and databases again proved to be the most popular online buying tool, as in past surveys. This year, 74% of buyers say they use some form of electronic supplier directory or database in their procurement. Use of supplier-hosted web storefronts grew in the past year as well, with more than half of buyers reporting they use such tools.

One of the most telling signs of this year's survey was the increased use of hosted e-procurement tools when compared to enterprise tools. In 2003, 14% of buyers said they use hosted solutions for e-sourcing of nonproduction goods and only 3% used hosted solutions for production spend. Those numbers increased to 22% using hosted tools for nonproduction buys in 2004 and 19% using hosted solutions for production spending.

The use of enterprise solutions for production spending grew in the past year from 13% to 18% but enterprise tools for nonproduction spend actually dropped from 24% to 21% in the past year.

Online reverse auctions continue to gain acceptance. In 2003, only 15% of buyers reported using e-auctions while the 2004 numbers show 27% of buyers use them and another 21% say they will use e-auctions in the future. Follow-up interviews with respondents show a greater openness to the technology and a deeper strategy around its use.

"We have found that our suppliers, even the incumbents, respect the integrity of this process," says one buyer from a food and packaging firm in the Northeast about e-auctions. "We believe that a well executed direct materials e-RFP followed by a reverse auction will give an excellent sense of what the market price is. We understand this as we have participated as a supplier as well. We don't use reverse auctions when the supply base is tight or the spend is small. We only use them when we are willing to change suppliers, and then we build switching costs into the RFP."

Among the specific tools mentioned by e-sourcing users, Ariba, FreeMarkets, Procuri, PeopleSoft and SAP were the most-often cited. But despite the increased acceptance, still more than half of all buyers say they will not use reverse auctions. AMR Research says lack of functionality from ERP providers is driving growth of point solutions as well. "Do not let your ERP vendor's lack of functionality slow up your supply management program. Use specialty vendors to generate savings and begin laying the groundwork for longer term ERP support, such as spending visibility and associated master data rationalization for suppliers, contracts, commodities, and parts."

The percent of buyers using e-RFIs remained the same as last year at 33% while e-RFQ use bumped up three points to 36% this year. Online sealed bids more than doubled in use this year, with 22% of buyers saying they use them. Algorithm-based optimization tools continue to be a blip on buyers' radar screens right now—it was one of the few tools that actually declined in use according to the survey, dropping from 10% in 2003 to 8% in 2004. However, 23% of survey respondents said they will use these tools in the future, a 10 point jump indicating buyers are interested in the technology, but not quite ready to dive into it.

Despite the decline in the number online of marketplaces in business today, more buyers report using marketplaces, bumping up from 33% to 38% this year.

One buyer at a Midwest trucking firm says his company buys MRO, services, IT and fuel through online marketplaces today.

Nearly three quarters of all buyers feel they are adequately skilled to make use of e-sourcing and online buying tools, a dramatic increase from the 45% that felt that way a year ago. And 41% of buyers say their organizations dedicate resources to training in these areas, a big jump up from the 18% that said they received training last year. These numbers show buyers becoming increasingly familiar with the tools and strategies around online buying, even in organizations where the tools are not yet in place.

Communication and process management tools are gaining popularity with buyers. Supplier portals continue to be of interest to buyers. More than two-thirds of buyers say they are either using (38%) or will use (31%) e-collaboration tools with suppliers, with nearly three out of four survey respondents saying they now use or will use supplier portals.

"We plan to develop and implement our own supplier web site for ordering and expediting production parts," says a sourcing engineer at a Midwest equipment maker.

Another sourcing professional at a Midwest food producer says the company plans to focus on supplier enablement and electronic catalogs for indirect suppliers to complement the ERP system in place now.

Electronic data interchange (EDI) continued its steady growth in 2004, with 41% of buyers reporting they use it today, up from 34% last year. Buyers are clearly discovering the benefits of data warehouses with almost three times as many respondents (28%) reporting use of spend data warehouses this year. And one out of every three buyers reportedly uses online sourcing project management tools.

Contract management tools are in use by one out of every five buyers today, with another 37% saying they plan to put them in place. The vice president of procurement at a financial services firm says his company is focusing on building web-based tools for contract and spend management, in addition to its e-sourcing and ERP tools.

Interest in outsourcing transaction processing increased in 2004, but remained relatively low with 16% of buyers saying they will outsource.