Academic journal article SAM Advanced Management Journal

Internet Procurement by Corporate Purchasing Agents: Is It All Hype?

Academic journal article SAM Advanced Management Journal

Internet Procurement by Corporate Purchasing Agents: Is It All Hype?

Article excerpt

Purchasing on the Internet

Two dominant purchasing transaction themes characterize purchasing via the Internet. One has been labeled business-to-consumer (B2C) transactions. The purchasing or rather buying behavior occurs when a consumer wants to order a product or service from a business organization. The second theme is labeled business-to-business (B2B) transactions. Here, purchasing takes place between business organizations, most likely between a purchasing department and a vendor's sales department. B2C has received extensive popular press coverage as well as pragmatic and empirical research notoriety. B2B transactions have also received popular press and pragmatic notoriety, but empirical research has just begun to explore this Internet phenomenon. Since B2B transactions are expected to increase, it seems logical to study the behaviors of purchasing agents as they become more involved in this Internet-related purchasing situation. Our purpose in this exploratory study is to add detail to the current characteristics of B2B purcha sing transactions in order to understand or raise other significant trends or factors associated with this Internet phenomenon.

Business-to-Business Purchasing Transactions

The primary impact of the Internet revolution on purchasing is to break the time- and location-bound aspects of traditional "gravitational commerce." Purchasing agents can place orders, gather information, and communicate with different organizations from any place at any time (Sheth & Sisodina, 1999). With the Internet, purchasing departments and purchasing agents can more readily engage in direct communications (or what would be called purchasing and selling without the salesforce), order taking, and technical support. The Internet. permits immediate and virtually free (to the user) two-way communications with as many or as few others as needed. In addition to text information (e-mail), it now permits audio (voice-mail) and video (video-mail) communications as well.

With Internet use exploding, the ability of companies to conduct B2B purchasing electronically could grow significantly in the years ahead. According to Forrester Research Inc., B2B commerce accounted for 78% of the dollar value of cybertransactions in 1998 and resulted in exchanging an estimated $17 billion in goods and services (Reinhardt, 1998). Forrester Research also prophesizes that B2B commerce revenues will reach $2.7 trillion by 2004, with more than 74% of those revenues coming from new e-marketplaces and B2B portals (Segal, 2000).

Internet-purchasing companies have benefited from reduced prices for goods and services, shorter order and fulfillment cycles, lower administrative costs, increased control and over-off contract purchases, and improved inventory practices (Brack, 2000). For example, an Aberdeen Group study reported that on average it costs $107 to process a paper-based MRO purchase order with an average cycle time of 7.3 days from order to fulfillment (Brack, 2000). An Internet purchase order costs an average of $30 to process and reduces the cycle time to two days. A report by Grainger Consulting Services found that six Fortune 500 companies cut their process costs through Web-based procurement by 22% below traditional costs (Ostrander, 1998). GE Lighting reported a 50% reduction in procurement cycle time, a 30% reduction in processing costs, and a 20% reduction in materials costs through on-line procurement (Chronister, 1997).

However, even after all the benefits and cost reductions have been explained, some companies remain unconvinced that Internet purchasing transactions will save money, and many of these companies are afraid of the expense or lack of expertise to set up these Internet transactions (Brack, 2000).

Basic Research Questions

Most of the e-procurement information continues to be reported only in the popular press or consultant-based or marketing research firm reports. …

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