An Evaluative Model for E-procurement Channel Adoption

With the popularity of commercial use of the Internet and WWW, business-to-business (B2B) ecommerce and e-procurement are moving corporate purchasing to the Web. Basically, there are two types of B2B e-commerce business models. Extranets connect the buyer and its suppliers with a closed network. In contrast, electronic markets create open networks for buyer and supplier interactions. Extensive IS and economic research has studied the benefits and costs of interorganizational information systems (IOS), and has examined the changes in buyer-supplier relationships caused by implementation of IOS. For example, Bakos and Brynjolfsson (1993) have argued that IT will turn buyer-supplier relationships into partnerships. Yet recently, we have observed a new trend towards the use of electronic markets as an alternative channel for buyers to search for and exchange supplies with a large supplier base. What are the motivations for buyers to move from extranets to electronic markets? Why is this value-maximizing for the firms? This paper models this choice and indicates that the buyer’s decision about an eprocurement approach depends on: (1) desired gains from lower search costs and operation costs enabled by an electronic market; (2) the importance of information sharing between its suppliers; (3) the competition present in the supplier market; and (4) the desired levels of supplier relationship-specific investments.