Outsourcing Decision

Outsourcing Decision: Procurement Service Provider

Marketplace operators typically maintain platforms that offer a variety of modularly-tailored services in a personalized manner. When these services are used by a single company to run a buy-side, sell-side, or auction / tendering solution, we speak of procurement service providers. Procurement service providers maintain e-procurement systems for the situational (e.g., online auction) or permanent (e.g., hosted buy-side) usage of their customers.

Functions of an E-Procurement solution can also be operated distributed on the systems of the buyer or seller and partly on that of an external service provider. So could e.g. a company that itself operates a buy-side, using transmission services by an external service provider. In this type of intermediary, we speak of service providers. It shows the possible constellations in which transactions between buyers, sellers and their service providers can be handled. distribution of tasks
E-Procurement solutions have some basic features that will be introduced in the following section.

A typical distribution of these basic functions will first be shown on the classic models of buy-side and sell-side:

In a buy-side solution, the system logic (purchasing software) is on the buyer side. The content as well as current updates of the product catalog are either recorded by the purchaser himself or (ideally) provided by the supplier in electronic form. The conditions triggered by the purchaser
transactions must be processed by the seller. Transmission functions are therefore required in each case on both sides.

Also, the rights of a buyer, from login to subscription limits and cost center assignment, are kept redundant on the various systems, resulting in maintenance issues. If the sell-side solutions support reporting functions, a different structure and format is provided by each supplier for evaluations and statistics. The merging of this data in the procuring company usually
has to be done manually.

One approach to reduce the variety of systems involved is the use of a service provider by those involved. A marketplace operator can offer its platform to several parties of varying depth and severity through modular structure, multi-client capability and personalization.

Basic functions in e-procurement

The following section introduces a categorization scheme for the basic features of e-procurement solutions. The solutions available on the market differ, on the one hand, from the offer and the precise design of these basic functions, and, on the other hand, from their arrangement and distribution among the parties involved in the transaction chain.

supplier selection

Passive sourcing refers to the possibility of contacting suppliers on the website of a purchasing organization. Potential suppliers can find out about requirements and organizational structures, apply online for consideration in future inquiries, or submit offers for open positions advertised on the website.

Directory services support your own, spontaneous supplier search and the initiation and agreement of new business relationships. Mostly they are databases that companies with their range of services can register via the Internet (eg wlw.de) or information from public register information (eg profil.ch or swissguide.ch). Electronic marketplaces also offer such services.
Framework contracts and instruments for consolidating individual needs in decentralized organizations and in groups are designed to mobilize untapped pooling and synergy potential. So-called Maverick buying, the circumvention of prescribed sources, should be prevented.

Online tenders are suitable as a method for selecting suppliers for the procurement of complex products or services as well as for exploring the current market price. Selected suppliers are invited to place an offer for an inquiry on an internet platform. This instrument can be operated both by the purchasing company and provided by an independent service provider.

Dynamic pricing method

By means of online auctions (reverse auctions), selected suppliers should submit their offers for a specified demand via the Internet within an auction period. Many services today offer procedures that include a
Allow consideration and weighting of criteria beyond the price (quality rating, delivery and payment conditions). In order to ensure a smooth flow of an online purchase auction, both the procuring company and its suppliers must be introduced to the use of this instrument. The aim of this procedure is to use the competition, shorten the negotiation process and increase market transparency.

Shopping Services

To enable smaller organizations to achieve similar purchasing conditions as large companies, new intermediaries are focusing on bundling demand and achieving more attractive conditions for their customers through accumulated purchasing (pooling). These service providers usually offer web-based support for the purchasing process as well as reporting functions.

As a rule, these companies act as mediators. In some cases, a direct supplier relationship with them arises. Shopping services can also be found as services within corporate or cooperative networks (see Case Study Migros, p. In addition to the reduction of the purchase price, this also concerns process and logistics optimization as well as service excellence towards the end customer (for example in the spare parts business, see case study SaurerGroup, p. 193).

Content management of product data

In the context of electronic procurement, content management includes the preparation and maintenance of product information for their use in an electronic product catalog. The special requirement lies in the user-friendly description of the assortment. The articles depicted in the supplier’s ERP system are often described too abstractly and, moreover, seldom sensibly arranged from the customer’s point of view. Relevant distinguishing features and attributes are encrypted in the article designations, so that the basis for a structured search is missing. The quality and form of data available for printed catalogs must also be revised for electronic use.