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178 CHAPTER 5 • PuRCHAsing And suPPly sTRATEgy
approach. Typical of these companies’ motives are those put forward by Shell Services
International, part of the petrochemical giant:
‘Procurement is an obvious first step in e-commerce. First, buying through the web is
so slick and cheap compared to doing it almost any other way. Second, it allows you to
aggregate, spend and ask: Why am I spending this money, or shouldn’t I be getting a bigger
discount? Third, it encourages new services like credit, insurance and accreditation to be
built around it.’
Generally, the benefits of e-procurement are taken to include the following:

● It promotes efficiency improvements (the way people work) in purchasing processes.
● It improves commercial arrangements with suppliers.
● It reduces the transaction costs of doing business for suppliers.
● It opens up the marketplace to increased competition and therefore keeps prices
competitive.
● It improves a business’s ability to manage their supply chain more efficiently.
The cost savings from purchased goods may be the most visible advantages of
e- procurement, but some managers say that it is just the tip of the iceberg. It can also
be far more efficient because purchasing staff are no longer chasing purchase orders
and performing routine administrative tasks. Much of the advantage and time savings
comes from more effective transactions. Purchasing staff can negotiate with vendors
faster and more effectively. Online auctions can compress negotiations from months
to one or two hours, or even minutes.

Electronic marketplaces
E-procurement has grown, largely because of the development over the last ten years of
electronic marketplaces offering services to both buyers and sellers. They are informa-
tion systems that allow buyers and sellers to exchange information about prices and
product and service offerings, and the firm operating the electronic marketplace acts as
an intermediary. These firms can be categorised as consortium, private or third party.

● A private e-marketplace is where buyers or sellers conduct business in the market only
with its partners and suppliers by previous arrangement.
● The consortium e-marketplace is where several large businesses combine to create an
e-marketplace controlled by the consortium.
● A third-party e-marketplace is where an independent party creates an unbiased,
market-driven e-marketplace for buyers and sellers in an industry.
The internet is also an important source of purchasing information, even if the pur-
chase is actually made by using more traditional methods. Also, even because many
businesses have gained advantages by using e-procurement, it does not mean that
everything should be bought electronically. When businesses purchase very large
amounts of strategically important products or services, they will negotiate multimil-
lion-euro deals, which involve months of discussion, arranging for deliveries up to a
year ahead. In such environments, e-procurement adds little value. Deciding whether
to invest in e-procurement applications (which can be expensive) depends, say some
authorities, on what is being bought. For example, simple office supplies such as pens,
paper clips and copier paper may be appropriate for e-procurement, but complex,

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