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The Architecture of Web-Based Procurement

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Web-based buying and selling has developed rapidly into several major models, including electronic catalogs, independent portals, and vertical trading communities. In this chapter from his book, e-Procurement, Dale Neef examines the strengths and weaknesses of each model.
This chapter is from the book

Objective

Web-based procurement has developed rapidly into several major models, each of which has its relative strengths and weaknesses:

  • Corporate e-procurement systems usually have either a buy- or a sell-side focus and provide central procurement and desktop requisitioning ability.

  • Electronic catalogs can be managed by suppliers, buyers, or third parties.

  • The development of the independent, Internet-based portal has meant the movement away from the one-to-many model of e-procurement.

  • Electronic trading communities can focus on vertical and/or horizontal industry markets.

  • The need for broader supply chain and procurement services has meant the rapid rise of many ASPs and other third-party support organizations.

Although a few industry watchers were quick to assume that there would be a continuous and inevitable move away from the one-to-many model of e-procurement, the complexity of purchasing materials globally, the different approaches that ORM, MRO, and direct materials purchasing demand, and concerns over security and partnership reliability have all combined to sustain a good deal of interest in the company-sponsored model. Alternatively, particularly for the more straightforward purchasing of ORM materials, impersonal many-to-many model auctions and exchanges provide small and medium-sized companies with an opportunity to forgo complex and costly negotiations with individual vendors, and to use an online exchange, for a subscription fee, to buy goods at bid-down prices.

SELL-SIDE ONE-TO-MANY: THE STOREFRONT MODEL OR SHOPPING MALL

In order to begin to develop a company strategy for this fast-evolving marketplace, it is important to first understand the nuances of the leading models. They take several forms.

First, they have either a buy-side focus (designed predominantly to serve the needs of the buying organization) or a sell-side focus (sponsored by and most beneficial to suppliers). They are then divided according to whether they have a one-to-many focus or a many-to-many focus. For each of these combinations, there are then several variations in approach. To begin, let's start with the most basic one-to-many model.

In the sell-side one-to-many model (shown in Figure 6.1), sellers create their own Internet sites that allow any number of buyers to browse and purchase their products online, with real-time, contract-specific buying. The responsibility for creating and maintaining the catalogs lies with the sellers, and they use an open Web site, or portal, on the Internet to promote what is essentially an online store for their products. Increasingly, they also make their catalogs available to intermediaries (e-markets) either through Internet links or through actual contracts for listing as "preferred suppliers". These e-markets, which we will discuss in a moment, then provide specialized online focus to particular horizontal and vertical industry markets. In many ways, this model is more e-commerce than e-procurement (a method for selling rather than purchasing), except these storefront or shopping mall portals now provide significant opportunity for buyers to purchase goods online from all over the world.

Figure 6.1 Sell-side one-to-many model.

The obvious advantage for sellers is that they can create and maintain their own catalogs. The disadvantage to the system is that, because the storefront is a common portal, it has in the past been very difficult to integrate well with the buyers' back-end financial systems. This makes life very difficult for the buyers, because nothing is automated from their point of view—they still have to locate the supplier's Web site, log on, and enter orders manually through the catalog Web forms, which, simply because of volume, do not normally retain the buyer's template or company purchasing information. Each buyer must therefore rekey all the relevant profile information—company name, address, telephone numbers, account codes—each time. Obviously, for a company with hundreds of suppliers, this means visiting hundreds of Web sites and continuously rekeying information. To make matters more difficult, the buyer then has to simultaneously update his or her own internal ERP system. Although this approach has obvious advantages over the pure paper-based catalog, it is not, by any practical definition, e-procurement, and for companies with more than a few suppliers (imagine doing this with 50,000 suppliers), the approach hardly seems viable.

As these e-markets have become more popular, however, significant progress has been made—using new XML-based standards (see Chapter 7)—toward making it possible for buyers' ERP systems to accept some types of straightforward documents, such as purchase orders or receipts. But because the procurement process involves many other types of interaction—discounts, contract terms, buying, shipping and receiving arrangements—until greater levels of interoperability are available and more consistent communications protocol standards are agreed upon, much of the process will remain little more than an electronically enhanced paper-based system.

Many would also argue that although this type of Internet-based procurement makes it easier for employees to buy ORM materials, that same ease of use could easily invite abuse, with employees circumventing company purchasing policies and freely purchasing from any online vendor. At a time when maverick buying is seen as an area of cost concern, this type of setup seems only really appropriate for small buyers and one-off purchases.

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