Electronic Procurement, the Extranet and You

By Dennis P. Geller, Ph.D. and Bradley L. Hecht of

Electronic procurement is one of the major business-to-business growth markets on the Internet. As opposed to previous generations of procurement, which have of course been "electronic" for many years, E-procurement refers specifically to procurement that is based, at least in part, on the use of internet or intranet technology. The final direction will eventually involve all parties - users, approvers, suppliers - working from standard browsers, but not all vendors have moved away from products that require specialized desktop software.

The whys of electronic procurement are obvious. Organizations look to E-procurement to reduce administrative costs and improve turnaround, and to help them exercise control over inventory and spending. E-procurement systems also provide new sources of supply and can lead to lower prices for the goods being procured. It is no surprise that, according to a survey conducted by Purchasing magazine, 90% of purchasing professionals expect to be buying online by the year 2002. The market for E-procurement tools is estimated to grow from under $200 million in 1998 to $8.5 billion by 2003.

But the whereas of electronic procurement may not be quite so obvious, because E-procurement needs to be thought about in a way that is different from most other applications. For most applications, while there may be inputs coming from outside the company or data sent to the outside, the core of the application - the way we think of where it is -- lies well within the enterprise. With E-procurement the focus is on the transaction, which lies between two different organizations.

If E-procurement were simply about two different players - a buyer and a seller - it would not be quite so interesting, or so difficult. But each player is really the center of a star: the buyer deals with many sellers, and the seller deals with many buyers; see Figure 1. So the question of where E-procurement happens is neither trivial nor obvious.

Different Solutions

An E-procurement system can be located at the seller, at the buyer, or in between. Figure 2 shows the first case. In this sell-side model the buyer is like a shopper on Main Street, who visits the various vendors of interest to look at the offerings and prices. The seller mounts software that enables each buyer to browse and purchase. This is, clearly, a sell-side model.

The obverse case is, obviously, the one shown in Figure 3. Here the sellers have to bring their wares to the buyers, like Travelling Salesmen of the early 20th century. This is a buy-side model.

In the final case, in Figure 4, third parties set up department stores to connect buyers and sellers. This is called the Marketplace model; it has also been called the portal model - or, when it serves a vertical market, the vortal model.

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The Authors

Dennis P Geller, Ph.D., is a Research Director with TechnologyEvaluation.COM's E-Commerce Practice. Dr. Geller's research activities span all of electronic commerce.

Bradley L. Hecht is Executive Vice President of TechnologyEvaluation.COM. In that role, Mr. Hecht manages TechnologyEvaluation.COM's global research process and methodology as well as its E-Commerce and Technical Infrastructure practices.

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