- 1 - Marketplaces: Contract Procurement and the Role of Advocacy Ed Chen, Sept 2000 © 2001 Sixhills Consulting Ltd & Author Marketplaces: Contract Procurement and the Role of Advocacy The B2B online market represents a tremendous opportunity — $1.8 trillion in 2003 according to Forrester. Not surprisingly, competition is intensifying in many segments. In markets that are evolving the fastest, various models have emerged. However, they only address spot functionality within the procurement value chain. Creating solutions for contract purchasing — and implementing the specific functionality required to do so — will become essential for capturing value in many industries. In turn, online marketplaces will find it difficult to remain neutral as increasing demands for functionality are better met through advocacy. Across industries, contenders are vying for influence over which business models will succeed (e.g. advocacy v neutrality). Even within an industry, some players offer multiple marketplace models such as auctions, reverse auctions and basic RFP/RFQ (i.e. CheMatch, Covalex). Successful e-marketplaces will facilitate functionality across all seven components of the procurement value chain. Four of these areas — order management, inventory logistics, payment and customer service — are particularly crucial for both spot and contract purchasing. Current exchanges address only a portion of these core procurement elements. However, the next generation of marketplaces will incorporate additional spot functionality. Contracting is the dominant form of transaction in many industries. Up to 60 percent of the volume in some industrial and commodity markets is under long-term contracts with pre-negotiated prices, according to Morgan Stanley Dean Witter. And many firms cite contracts as their primary means Procurement Process • Identify vendors • Develop RFP templates • Send out RFP to vendors • Analyse bids • Conduct negotiations • Sign contract • Determine preferred vendors • Identify necessity of ordering • Fill out requisition – gain approval • Generate order • Transmit order to vendor • Receive confirmation • Track order • Arrange delivery • Arrange for inspection, authentication • Trace lost/ delayed items • Route items to internal customer • Confirm receipt • Update inventory • Receive invoice • Verify invoice with GL/AP • Authorize payment • Transmit payment • Receive payment confirmation • Integrate payment with financial system • Conduct data gathering • Research industry environment • Conduct benchmarking • Develop product specifications • Determine goods required and budget • Set policy (who can order, budget) • Create spending reports • Review reports and assess compliance with budget and policy • Follow-up with non-compliant business units Needs Assessment Vendor Management Inventory Logistics Order Management Payment Measuring/Monitoring Customer Service •Detect problem orders •Commun icate with vendors •Return item •Receive replace- ment
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