Online orders and the average share of e-procurement
Close to 40% of all firms active in the F&B industry in the EU-10 place orders to suppliers online. This figure is lower than the corresponding average for the 10 sectors studied this year by e-Business W@tch. However, the employment-weighted data show that this industry is in line with the average, thus reflecting the polarisation between small and large companies in this sector.
35 See also Section 4.2 of this Report.
Exhibit 3-18: Companies ordering supply goods online
Questionnaire reference E1 E3 E3 E7
Source: e-Business W@tch (Survey 2006)
Indeed, for large and medium F&B firms, the percentage of companies which reported online purchasing reaches 70% and 58% respectively, whereas if the sector’s micro enterprises are considered (with 9 employees or less), this percentage is 32%. Although a direct comparison with the 2005 survey data is not possible36, a dynamic trend even among the industry’s smaller companies can be recorded.
More than 90% of micro and small companies that place orders online said that these orders account for up to 25% of their total procurement (see Exhibit 3-18). In other sectors, such as ICT manufacturing, consumer electronics, shipbuilding and tourism, the relative share of e-procurement is somewhat higher.
In the F&B industry, only about 5% of firms (representing about 14% of this sector’s employment) reported the use of software solutions or internet-based services for e-procurement (see Exhibit 3-18). This shows that there is a considerable gap between the percentage of companies placing at least some orders online and those that use special software for so doing. It can be assumed that companies without such software place orders mainly through websites or extranets of suppliers, which do not require any special e-procurement system. The digital back-office integration of procurement related processes (all the way from ordering to the receipt of goods / services) is probably not in advanced state in these cases. In other cases, especially among larger firms, it may
36 Note that the underlying question in the e-Business Survey 2006 was changed compared to previous years. In 2006, companies where asked whether they "use the internet or other computer-mediated networks to place orders for goods or services online". In previous surveys, the question was whether they "use the internet or other computer-mediated networks to purchase goods or services online". Thus, a direct comparison of figures is not recommended.
happen that large companies use integrated applications (ERP, SCM) rather than specific solutions for e-procurement only.
Exhibit 3-19: Sourcing and procurement processes supported by specific ICT solutions
78 67
63 58 52 75
7 5
0 20 40 60 80 100
Finding suppliers in the market
Inviting suppliers to quote prices
Ordering goods/services
Running online auctions Food & beverages (EU-10) All 10 sectors (EU-10)
Base (100%): Companies using specific ICT solutions for e-procurement.
N (for sector, EU-10) = 71. Weighting: in % of firms. Questionnaire reference: E8 Source: e-Business W@tch (Survey 2006)
Those companies which have procurement systems in place tend to use them for several functions, mainly for finding suppliers in the market (78%), invite suppliers to quote prices (67%) and for placing orders (52%). These findings, however, should be cautiously read due to the small number of observations.
Location of suppliers
Most F&B companies report that they order online mainly from suppliers in their own country and to a lower extent, in their own region. Even among large companies, only 20% say that their procurement activities are truly international, i.e. they buy goods or services online mainly from international suppliers.
The national/regional focus of procurement activities demonstrates that e-business development has not eliminated barriers to international purchasing, such as transport costs and delivery times. Differences in taxation, accounting and the strict regulation about food are also constraints to the geographical enlargement of procurement activities. Moreover, in the F&B sector, multinational groups may leave a high degree of local autonomy to their national branches both for cost reasons and because it is still important to fulfil local requirements in terms of range of products and taste.
Conversely, the low percentage of companies buying electronically at local level may be attributed to the difficulty in finding suitable suppliers (packing firms, particularly the medium and large ones, are not often located in raw material production zones (while smaller companies keep closer links with their local partners). In some cases, raw materials may be purchased from other regions for cost reasons and/or because the local production is not sufficient.
Exhibit 3-20: Main location of suppliers in e-procurement
20 16
34 17
21
24
69 73
54 74 60
64
12 11 12 8 20
12
0 20 40 60 80 100
Total Food & beverages (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
All 10 sectors (EU-10)
Mainly regional Mainly national Mainly international
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 374 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in
% of enterprises from the size-band. Questionnaire reference: E5 Source: e-Business W@tch (Survey 2006)
Main type of supply goods ordered online
Interviewees were asked to indicate which type of supply goods is ordered online. The proposed categories include: maintenance, repair and operation goods (MRO), raw materials, intermediary goods and services. Among micro and small companies, raw materials were identified as the most important type of goods ordered online.
The needs for MRO goods in small companies are proportionally lower than among larger ones. For medium and large companies, instead, MRO goods prevail. This difference can be explained by the fact that, among larger firms, the purchasing of the most important raw materials (for instance, milk for dairy firms) and basic ingredients is often carried out at central level, through framework contracts that do not require the day-by-day placing of orders.
Exhibit 3-21: Main type of supply goods ordered online
MRO goods Raw materials Intermediary products Services Mixed / all
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 381 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in
% of enterprises from the size-band. Questionnaire reference: E4 Source: e-Business W@tch (Survey 2006)
As in previous years, e-Business W@tch asked companies which purchase online whether this has had an impact on the selection of suppliers, i.e. whether the number of suppliers has rather increased, decreased or remained the same due to their e-procurement strategy. A majority of companies from the F&B industry, as in most sectors, reported that e-procurement did not have an effect on the number of suppliers (about 80%). 15% said that the number has increased, probably because e-sourcing has helped to find new suppliers in the market. Only about 5% of firms said that they have consolidated their supplier base by means of e-procurement.
Exhibit 3-22: Impact of e-sourcing and e-procurement on the number of suppliers
15
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 364 Weighting: in % of firms. Questionnaire reference: E9
Source: e-Business W@tch (Survey 2006)
The apparently low impact of e-procurement on the number of suppliers is in line with the typically low volume of orders that are placed online. About 90% of those firms that place orders for supplies online said that these orders constitute "up to 25% of their total
orders" (see Exhibit 3-18). Moreover, suppliers of raw materials are numerous and fragmented in the F&B industry; thus, a concentration of suppliers is quite unlikely in this sector.