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Realistic Models for e-Procurement: Discounting the "e-Hype"-Factor

Author(s):

Dr. habil. Ulli Arnold
Dr. habil. Ulli Arnold, Professor of Business-to-Business Marketing and Supply Management, University of Stuttgart, Germany 70174, +49/711/121-3161, ulli.arnold@po.uni-stuttgart.de
Eberhard E. Scheuing, Ph.D., C.P.M., A.P.P.
Eberhard E. Scheuing, Ph.D., C.P.M., A.P.P., NAPM Professor of Purchasing and Supply Leadership, St. John's University, New York 11439, 718/990-6161, ebscheuing@aol.com

86th Annual International Conference Proceedings - 2001 

Abstract. In recent years, e-business became the bandwagon to jump on. Until just a few months ago, stock prices for e-companies and their press releases suggested that e-business had become the new business paradigm. But with the advent of the new millennium, a new realism set in that deflated the earlier e-hype. This paper offers three realistic models for executing e-procurement. It presents a framework for electronic purchasing which analyzes the chances and risks of e-procurement and shows different approaches for buying in the electronic age.

Defining e-Procurement. Figure 1 shows the "e-scenario" as a whole. Electronic business is composed of several concepts. e-procurement involves the use of web-based information and communication technologies in procurement efforts. e-sales represents its counterpart on the marketing side of a company. Together, they form electronic commerce.

Figure 1: The e-scenario (Graphic not available in text-only format of this document.)

In the near future, m-business will arise. The "m" stands for mobile and includes e-business. Mobile business is electronic business with wireless access from any location. For all applications, regardless of whether they are in the "m" or "e" mode, sales or supply, the existence of powerful electronic marketplaces is extremely important. We present a framework for electronic marketplaces that helps purchasers assess the quality of e-markets and the service levels offered by different providers.

A Framework for e-Procurement. e-commerce and e-business require the existence of electronic markets. In contrast to traditional markets, virtual e-markets do not form on their own. They must be conceptualized, built, and managed by market operators. These operators can be independent application service providers or combinations of sellers or buyers. The role of the operator as well as the business model is extremely important for buyers because the market operator gains access to powerful market data. By purchasing more and more goods via e-procurement, companies rely heavily on e-markets and their operators.

Figure 2 shows the framework for e-markets in an overview. (Graphic not available in text-only format of this document.)

We identify three major types of marketplace business models: the technological solutions model, the value added model, and the content model.

Business model 1: Technological solutions. Service providers in this marketplace model offer mostly technical solutions. Their job is to deliver hardware and basic transaction software. Examples are AT&T in the U.S. and Deutsche Telekom in Germany. These companies own host computers and technical networks which provide the foundation of e-business. They may also offer storefront software or basic exchange software which is necessary to create e-stores and e-marketplaces (see Figure 3).

Figure 3: AT&T as an example for technological solutions (Graphic not available in text-only format of this document.)

Such services are essential for e-procurement activities but are quite limited due to their emphasis on technology. So this business model is not sufficient for successful e-procurement.

Business model 2: Value added services. Other providers are entering the e-market business from the value added side. They are usually service firms, such as logistics providers or banks. In the e-business field, logistical services will play an increasingly important role because they handle the transporting and warehousing of goods for suppliers and/or buyers.

Figure 4 shows an example of value added services provided by e-marketplaces. Deutsche Bank as the leading bank in Germany offers payment services as part of its global-e-strategy.

Figure 4: Deutsche Bank as an example for value added services (Graphic not available in text-only format of this document.)

Other major value added services are tracking and tracing in the logistics field. All major companies in this area, including UPS, FedEx, DHL, and Deutsche Post World Net, offer this kind of service to enable continuous monitoring of shipments on their way from suppliers to customers via the internet.

Business model 3: Content providers. The most important part of e-marketplaces is content. Content means buyer and supplier information like quantity and quality of the products offered, catalogs, supplier data, etc. Without high-quality content, marketplaces are not very useful for buyers. This content is provided by the marketplace operator or strategic partners.

Vertical marketplaces are focused on one industry, for instance chemicals. Examples are the ChemConnect and Covisint sites where key players in an industry (chemical companies at ChemConnect and automotive firms at Covisint) join forces in forming an e-market. In contrast, horizontal exchanges are marketplaces for goods and services which are relevant across industries, for instance MRO materials.

Figure 5 shows the Siemens Procurement and Logistics Services (SPLS) marketplace solution which is open to all companies in the electronics sector. Other companies, especially small and medium sized enterprises, which decide to join "click2procure" site can profit from Siemens' buying power and terms.

Figure 5: Siemens' click2procure as an example for content providers (Graphic not available in text-only format of this document.)

Strategic marketplace solutions for buyers. Besides examining the respective benefits of the three business models we discussed, buyers have to choose carefully the specific e-markets they join. These markets and their operators will play a critical role for purchasing in the future. In the appendix, we provide an overview of marketplaces available at this time. Without doubt, this menu of exchanges will change dramatically as the "e-hype" factor fades in business and results become the deciding factor. It is supply management's job to separate the wheat from the chaff in choosing strategic marketplace partners.


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