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Electronic Commerce Classes of Solutions: How Are They Evolving

Author(s):

Patti Hegland
Patti Hegland, Vice President, American Management Systems, Inc. (AMS), Fairfax, VA 22031, 703/227-6988, patti_hegland@mail.amsinc.com
Gregg Mossburg
Gregg Mossburg, Principal, American Management Systems, Inc. (AMS), Fairfax, VA 22031, 703/227-5575, gregg_mossburg@mail.amsinc.com

84th Annual International Conference Proceedings - 1999 

Abstract. At last year's NAPM conference in Dallas, TX, AMS presented Electronic Commerce (EC) Classes of Solutions for Purchasing which provided an overview, based on AMS's 3 'Classes of Solutions', of the different ways in which procurement organizations can implement an automated purchasing system that leverages an electronic catalog. While still applicable today to many organizations currently evaluating the different solutions on the market, we felt it would be valuable to update our model based on technical advancements, implementation experiences, and new visions of the 'next generation enterprise' that have all evolved over the last 12 months. Copies of both presentations (last year's Electronic Commerce (EC) Classes of Solutions for Purchasing and this year's Electronic Commerce Classes of Solutions - How are They Evolving?) are available to all presentation attendees.

While many organizations continue to grapple with the issue of which electronic catalog model is right for them (buyer managed, third-party managed, or supplier managed), the scope of the automated procurement market continues to expand. Our goal in AMS's Procurement Solutions Group is to help our clients 'stay ahead of curve' by communicating not only what decisions they must make today with regard to automating their procurement operations, but what is happening in the software/technology/standards areas that will impact them in the future. Based on our experience in working with organizations interested in automating their procurement operations, four major areas of interest have emerged over the last 6-12 months:

  • Beyond Catalogs - Auctions and Bidding for Goods
  • Putting It All Together - The Procurement Triangle
  • Putting a Stake in the Ground - Keeping Pace with Technology and Standards
  • Playing Well With Others - Involving Your Suppliers in Your eCommerce Initiative

Beyond Catalogs - Auctions and Bidding for Goods. Leveraging a Web-based electronic catalog to reduce the cost of purchasing goods (usually high volume/low dollar value - like MRO) has been the primary focus of automated procurement software vendors and early adopter procurement organizations over the last year. However, two lesser known Web-based models have recently begun to make inroads:

  • Auction Model - Many buyers compete for the right to buy from one supplier
  • Bidding Model - Many suppliers bid against one another in real-time

While Forrester Research reports that the Web-based electronic catalog model accounts for approximately 60% of the business-to-business market today, both the Auction and Bidding models show promise in particular purchasing environments. The procurement organization of tomorrow will have an automated system with the capability to employ the model appropriate for the commodity being purchased.

Putting It All Together - The Procurement Triangle. While Web-based electronic procurement software vendors made major inroads in 1998 with the promise of reducing the cost of the process of purchasing goods by leveraging electronic catalogs, organizations are realizing that there may be more to it than that. By combining a Web-based electronic catalog with an automated contract management system, procurement organizations can not only electronically execute the product ordering process, but also electronically establish and manage the strategic contracts that make the items available (e.g., terms and conditions, duration, discounts, delivery commitments, vendor performance). Adding a data warehouse for robust reporting purposes and procurement organizations have an integrated system with which they can reliably track purchasing trends and negotiate better 'deals' in the future. The bottom line is that organizations should focus on both reducing the cost of the process of purchasing goods through Web-based ordering and workflow as well as reducing the cost of goods purchased through automated contract management.

Putting a Stake in the Ground - Keeping Pace with Technology and Standards. As difficult as it may be to keep up with the variety of automated procurement software vendors, it is equally as difficult to keep pace with the different technologies and standards on which their products are based or support. There sometimes is a tendency to get bogged down during a procurement system implementation effort (regardless if it is internal or third-party software is used) because of a desire to support the new technology or capability that is 'right around the corner' and is sure to be released next quarter. The solution, in our minds, is to pick a software product and integration partner (they may be one in the same or two different companies) that provides you with two things:

  • demonstrable 'value-add' today; and,
  • technical and procurement 'know-how' that allow you to adapt to and grow with today's dynamic Web-based procurement market.

In other words, 'put a stake in the ground' and move towards implementing functionality that will provide some return on your investment quickly, but make sure that in the process you do not limit your ability to take advantage of yet undeveloped technologies and standards.

Playing Well With Others - Involving Your Suppliers in Your eCommerce Initiative. As procurement organizations continue to realize the benefits of establishing 'tighter' electronic links with their supply base (e.g., reduced cycle times, lower prices, lower error rates), greater emphasis will be placed on including suppliers in the early planning stages of procurement systems that extend beyond the traditional enterprise. Depending on the model that best fits your organization, supplier participation can take many forms including:

  • Lower prices in exchange for higher volumes of business.
  • Custom-formatted copies of a supplier's electronic catalog for use in the buyer-managed catalog of a procurement system.
  • Direct, secure access to a supplier's business systems (e.g., catalog, fulfillment, shipping).

Regardless of the degree of supplier participation, involving suppliers from the outset is critical to enhancing the value of an enterprise-wide automated procurement solution.


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