E-Procurement - Going for Buy-side or Marketplace Solutions?

E-Procurement: Going for Buy-side or Marketplace Solutions? The urgency to participate in E-Procurement is currently the fastest growing area of E-Business. For most E-Procurement activities is companies, the question is not so much whether it is time to start an dictated by the industry’s E-Procurement system, but rather whether to develop a buy-side or use a Internet maturity, but marketplace solution. positions should be taken now to have an option for the future. Large businesses face a difficult choice, not unlike the typical outsourcing dilemma. Their market/buying power and internal capabilities might direct them toward buy-side solutions, while future E-Procurement technology standardisation, and new market models, can make marketplace solutions more attractive. The urgency to participate in E-Procurement activities is dictated by the industry’s Internet maturity, but positions should be taken now to have an option for the future. A framework for understanding E-Procurement E-Procurement is a web-based (i.e. Internet/Intranet/Extranet) procurement process. Depending on the software applications, the entire procurement process, or parts of it, can become web-based. Different levels of application are possible: from collection of information (products, prices, etc.) through interaction between supplier & buyer (ordering, tracking & tracing, invoicing etc.) to integration of the supply chains of supplier & buyer, and to participation in new business models and markets (auctions, exchanges, etc.). The four levels of E-Business innovation provide a simple framework for understanding how the Web enables various types of innovation in the E-Procurement process. The framework also provides a segmentation of the current market of E-Procurement software solutions. Figure 1: E-Procurement solutions enable innovation at all levels and can transform the traditional procurement business model Procurement Innovation solutions New business How to revolutionise Solutions for set-up models & markets 4 Business Model Transformation business models and shift value creation? of E-Marketplaces (auctions, exchanges) What are new E-Procurement Integration: platform 3 Product/Service Innovation offerings, unique to the Web? solutions integrated with ERP for the extended enterprise Sell-side and buy- Interaction between How to sell products 2 Channel Innovation and process orders over the Web? side solutions used as “stand alone” buyers and sellers over the Web How to reach online Catalogue Collection of in-depth 1 Marketing Innovation user and provide customised in-depth conversion solutions information (online shops with product product information? description) Source: Arthur D. Little 1 E-Procurement: Going for Buy-side or Marketplace Solutions? Level 1 – Collection of in-depth information A company’s web-based procurement process is limited to the collection of information on products, supplier base prices, etc., and the Internet is used as a buyer-driven pull system. Catalogue conversion procurement solutions (e.g. from Aspect Development, Harbinger, ECCubed) enable data conversion from suppliers, making it available to buyers over the Internet with the most functional user interface, minimal maintenance efforts, and greatest updating flexibility. The innovation resides here in the richness of the information that can transit through the Web compared to EDI systems. Level 2 – Interaction channels initiated by suppliers or buyers Interaction between suppliers and buyers such as ordering, tracking and tracing, or paying over the Web, is possible through applications developed on either the supplier’s or the buyer’s side. Sell-side procurement solutions (e.g. from Netscape, Ironside, Spaceworks) leave catalogue management to the sellers and are thus more appropriate for products with complex pricing or configuration requirements specific to each seller. Buy- side procurement applications (e.g. from Ariba, CommerceOne, Intelisys) give buyers the control over catalogue content and design. Sellers are requested to update the catalogues designed and managed by the buying company so as to facilitate the activities of its buyers. Compared to standard EDI systems, the innovation of these solutions is in the creation of a more user- friendly, broader two-way communication channel for interaction. They also enable dramatically lower procurement process costs. Level 3 – Platform for extending the enterprise (integration) Most E-Procurement solutions can be integrated into the buyer’s legacy or back-end ERP environments to enable extended supply chain management. Although this has always been theoretically possible with EDI systems, the greater user-friendliness, flexibility, ubiquity and speed of E-Procurement can facilitate its realisation significantly.