Planning
10. Purchasing and supply
strategy, electronic marketplaces
and e-procurement
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Program
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Investing in e-procurement solutions
Electronic market places and electronic procurement
Possible IT strategies for purchasing
Different purchasing solutions for different purchasing
objectives
Reverse auctions
Agent technology and the Internet
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Investing in e-procurement solutions
How should a company respond to an initiative to set up an electronic
market place with similar companies?
Initial questions related to investing in an electronic market place
1. To what extent does electronic purchasing support current purchasing and
supplier strategies?
2. To what extent will electronic purchasing contribute to the realisation of a
sustainable competitive advantage?
3. What are the technological implications of the initiative for the enterprise and
how dependent will the company become on its IT provider?
4. Which investments are necessary and how long will it take to earn them
back and what are the chances of success?
5. Which electronic solutions can be imagined in the field of purchasing and
which are the most suitable for the enterprise?
6. How can one obtain a view on these questions and what is the first step one
needs to make?
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Electronic market places and electronic
procurement
Electronic marketplace: a place on the internet where actual
transactions can take place between buyers and sellers.
Variants:
 Website: a place where a buyer finds a single seller or vice
versa (1-1)
 Buyer-centric portal: a market place set up by several sellers
with the objective offering the potential buyer an integrated
product line (n-1)
 Seller-centric portal: a place where a seller finds several
buyers at the same time (1-n)
 Electronic market exchange: a market place where several
sellers and buyers are present at the same time (n-m)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Electronic market places and electronic
procurement
1-1
Web site
n-1
Buyer-centric portal
(shopping mall)
1-n
n-m
Seller-centric portal
Electronic Market Exchange
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Electronic market places and electronic
procurement
A distinction can be made between Vertical and
horizontal market places
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Vertical: aims to encourage, facilitate and realize transactions
between parties that belong to the same value chain (E.g.
www.wwrx. com, www.covisint.com, www.transora.com).
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Horizontal (i.e. e-Hubs): electronic version of buying consortia
focussing on facilitating transactions between parties which
operate in different value chains (E.g. www.MRO.com and
www.AtYourOffice.com).
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Electronic market places and electronic
procurement
Business to business matrix as presented by Kaplan and Sawhney (2000:99)
Systematic
sourcing
Spot
buying
MRO hubs
Catalog Hubs
www.ariba.com
www.grainger.com
www.mro.com
www.chemconnect.com
www.scsiquest.com
www.plasticsnet.com
Yield managers
Exchanges
www.employease.com
www.capacityweb.com
www.e-steel.com
www.paperexchange.com
www.imx.com
Operating
inputs
Manufacturing
inputs
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
MRO hubs: horizontal marketplaces
Yield managers: horizontal marketplaces
Exchanges: vertical marketplaces
Catalogue hubs: vertical marketplaces
Possible IT strategies for purchasing
Some examples
 Purchase of a separate (‘front office’) application that is
integrated into the ‘back office’ systems already present…
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Extension of the available back office (Enterprise Resource
Planning) system to include an E-procurement function, which stops
integration from being an issue…
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Use a front office application that is available within the market
place (e.g. Ariba, Netscape or CommerceOne)…
These applications can be acquired in various ways…
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Possible IT strategies for purchasing
Various ways to acquire e-tools:
 Purchase and implement E-Procurement software…
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Hosting of E-Procurement application by the ASP on
behalf of the user: the user puts his or her product catalogues on the
ASP system, which takes care of the technical management.
Content management and development are in the hands of the
user….
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Making use of an application including its content. The
user not only makes use of the technical platform of the ASP but
also of its product and supplier catalogues …
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Different purchasing solutions for different
purchasing objectives
Most companies need to apply a variety of electronic purchasing solutions
High
Leverage products
Virtual
auctions
Impact on
financial
results
EProcurement
solutions
Strategic products
‘Competitive bidding’
Electronic
data
interchange
‘Performance based
partnership’
Corporate Purchasing
Super Site
Bottleneck products
Routine products
Supplier
specific
E-solutions
‘Systems contracting + EProcurement solutions’
‘Secure supply + search for
alternatives’
Low
Supply risk
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
High
Purchasing product portfolio
Different purchasing solutions for different
purchasing objectives
Consultants and suppliers of E-solutions claim great
advantages:
1.
2.
3.
E-market places: Increased market transparency and the
improved competitive bidding lead to lower purchasing prices
(direct goods: 1-15%, indirect goods 15-30%)
By using E-catalogue systems, more purchasing transactions
can be contracted which can reduce the percentage of maverick
buying
Transaction costs can be reduced by using integrated ordering,
logistics and payment systems
BUT,......
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Different purchasing solutions for different
purchasing objectives
..... some warnings (1)
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broader supply market orientation and greater competition can lead
to lower prices, however this only applies for enterprises that have
had an unprofessional purchasing policy in the past. Advantages
gained in this way will be temporary.
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Surveys show that top managers are more positive about EProcurement and E-market places than purchasing managers. The
latter resist the opportunistic attitude and short term advantage.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Different purchasing solutions for different
purchasing objectives
..... some warnings (2)
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Reducing maverick buying is a good resolution, but it’s hard to
realize due to all sorts of political considerations and sensitivities in
the field of purchasing with enterprises….
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Transaction cost are mostly related to personnel and system costs,
which are very inflexible in most European countries…
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Reverse auctions
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E-auctions have developed into the most popular e-procurement
solution. They are, however, not without criticism.
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They come in different forms:
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Open RFI/RFQ: potential suppliers are requested to qualify before the
actual auction. Or, prior to the actual auction, the buyer may want some
initial offer from the supplier to test his competitiveness.
 Reverse auction: the buyer sets an initial target price which suppliers
need to meet. If this price level is not reached the contract will not be
awarded. During the auction suppliers may be able to follow the actual
bids made.
 Forward auction: the seller sets the target sales price. Several buyers
need to provide bids to the auctioneer. The seller may decide on the
same parameters as in the case of a reversed auction.
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Reversed auction is most popular among buyers
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Reverse auctions
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Example of a reverse auction
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INSERT HERE FIGURE 10.5
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Reverse auctions
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Auctions are useful when the following criteria are met:
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High volume, standard products that can be supplied by many suppliers
Buyer has no specific preference for one supplier
Supply market can be characterised as a buyers market
Buyer should be sufficiently interesting for suppliers
Benefits for the buyer
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Auction generates competition among suppliers
Considerable savings in terms of money and time are possible (savings have
been reported ranging from 5% to 40%)
 The process is well documented
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Some barriers..
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All parties need to be carefully briefed beforehand
Buyers and suppliers need to be trained
Buyer should prepare all documentation and communicate this timely in advance
Buyers should execute auctions with the highest professional standards,
based upon fair play. If not, it will harm the relationship with their suppliers.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Agent technology and the Internet
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A software agent is a piece of software that can operate
more or less independently, is capable of learning
(intelligent agents) and sometimes can move across the
Internet (mobile agents)
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Agents are presently used to locate websites that offer
the best price for a given product…
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Software agents are expected to play an important role
within E-procurement in the near future…
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)