More distributors plan to spend about the same on information technology in 2002 as they did last year, compared to companies expecting to either increase or cut their spending dramatically.

That is the key finding of a recent survey conducted for ID probing planned investments this year. We asked what distributors expect to spend this year, what types of IT equipment they need most, and how much of a priority e-business is, given the economic downturn.

More distributors say they plan to decrease IT spending this year than those who budgeted increases. Thirty-four percent of the respondents plan less IT spending, and of those, nearly six in ten expect a decrease of 20 percent or more.

Nearly a quarter of distributors plan to spend more, and of those, more than two thirds plan only modest increases of up to 10 percent. The other 42 percent surveyed expect to spend about the same as in 2001. The survey, conducted by Cahners Research in October, received 96 responses.

For those distributors planning increases, 44 percent said it was mainly to make necessary hardware and/or software upgrades, while one quarter said it was to improve inventory forecasting and customer service order management. Another 13 percent said it was to make a major systems upgrade, such as to an enterprise system, while others said the increase was mainly to improve information sharing with their suppliers.

Asked about the importance of e-business in a recession, respondents split nearly evenly into three camps. Thirty-two percent still view it as important or very important, 37 percent view e-business as somewhat important, and 31 percent view it as unimportant or somewhat unimportant. Several indicate the priority of e-business is driven by their customers' demand for e-services.

The planned cutbacks and freeze in IT spending reported by survey participants follow a year when many distributors — 46 percent — said they spent more on IT. Of those that did, more than half beefed up their spending 10 percent or more. Less than one quarter of respondents spent less last year than during 2000.

When asked last spring, just over half of about 1,100 distributors surveyed for ID's 55th Annual Survey of Distributor Operations said they planned to spend the same amount on technology during the next 12 months, while 42 percent planned increases by an average of 24 percent. Only four percent then said they would cut IT spending.

Of course, many companies trimmed their IT spending dramatically during the second half of 2001 as the economy worsened. In a broad measure of IT spending in many business sectors across the U.S., AMR Research revised its projected 12 percent hike for 2001 to a three percent increase by the year's end.

Bruce Richardson, executive vice president of AMR, said corporate IT departments are selecting only those applications that demonstrate the fastest payback. He suggests companies develop their own method to gauge return on investment, guided by some general principles.

"The benchmarks to use are: can I respond much faster to changing customer demands, how fast can I replenish, and how fast are my inventory turns?" he said.

One distributorship that believes investing in e-business tools is worth it and plans to do more this year is E&R Industrial Sales, Inc., of Sterling Heights, Mich.

E&R's key goals include continuing to add suppliers' product content into a database so that the firm can track products on its enterprise systems, and to provide accurate product data to supplier exchanges like Covisint. The company also wants to help customers do more online order entry from its Web site, said Paul Thomas, director of marketing.

"We see the e-commerce part of it as a commitment we still have to make in order to help our sales force and help marketing, to make it easier for customers to do business with us," said Thomas. He expects E&R to spend the equivalent of perhaps 25 percent of its advertising and marketing budget on e-business tools.

"The economy is slow ... but these are good time for us to re-engineer the way we do business," he said. "This comes from the directors and president — we don't want to scale back."

Other distributors gave a variety of responses when asked about the importance of conducting e-business and what they see as its chief value.

Almost a third of the survey respondents say the chief value in implementing e-business is the ability to participate in e-marketplaces. For 30 percent, the top value was being able to conduct e-commerce with online catalogs.

Tools for inventory forecasting and customer service/order management were rated at the top by 28 percent of respondents. And another 14 percent gave the top ratings to sales reporting and analysis, while 12 percent identified Web-based tools for transacting business documents with suppliers as the main value. Improvements in internal communications such as virtual private networking, and automated data collection like bar coding were also cited as important.

As you might expect, the level of customers' interest and adoption of e-business still drives many distributors' investments.

Of those distributors who said e-business is unimportant during a recession, several said few customers are asking for it. "It hasn't really taken off in our markets," one distributor responded. "Personal service is important."

"We still believe in true customer service, face to face," another said.

Likewise, distributors who view e-business as important often cite end users' interest. "It's because of the nature of our business, offering customers convenience," one distributor said.

The perception that e-business tools help distributors control their own costs was also a key consideration.

In addition, end users' adoption of e-procurement easily topped the e-business trends that distributors are watching most closely, by 67 percent. The second most-watched trend is suppliers' adoption of e-catalogs and tools, followed by distributors' enterprise business systems upgrades.