Buy-Side One-to-Many Model

In the buy-side one-to-many model (shown in Figure 6.2), the buyer maintains in-house the catalogs and databases of multiple suppliers’ goods and services, and is responsible for tying all transactions into the company’s purchasing and financial systems. Although the vendors (sellers) provide catalogue information on products, services, prices, availability, and so on, the buyer, as host, is responsible for keeping that information up to date. Most systems will then tie the purchase order to an electronic invoice, providing for simultaneous settlement through electronic funds transfer, and through the ERP system, will automate the workflow and approval processes. All of this is integrated into the desktop-based requisition system.

It has the advantage of ease of use, and because many of the large ERP vendors are adding this functionality to their product suites, can theoretically provide easier and closer ties to internal ERP systems.

The obvious advantages of the buyer-managed arrangement are that it allows the purchasing department to control the products and services available on the catalogs and can tie systems—such as procurement cards—directly to employees, setting quantity limits, pricing ceilings, and other criteria. This has been, until recently, the favored model when attempting to bring the self-service desktop model to employees.

The buyer-managed model requires, by its nature, a good deal of buyer-vendor negotiation and collaboration, because the buyer has taken on the responsibility for maintaining current descriptions of products, availability, lead times for delivery, and prices. In fact, despite the current popularity of the online exchanges and subscription-based third-party e-markets, this buyer-managed model still has many proponents. It is a model that has worked well in the past for very large customers and for groups of customers and suppliers that have a long-term relationship or a natural affinity to a certain buyer-seller market.

Within this buy-side model, there are two different areas of focus: buy-side desktop requisitioning and buy-side Internet-based central procurement.

Buy-Side Desktop Requisitioning

This set of software resides both on a company’s intranet and on users’ desktop PCs, and allows employees to purchase items directly from their desks using preapproved catalogs. Although employees are given the freedom to purchase goods when they need them, managerial control remains with purchasing professionals, and there is a full audit trail. Guidelines, discounts, prices, contracts, and approval levels are controlled by procurement management.

A typical example is Visio, a developer of engineering and drawing software, who selected Concur Procurement, Concur Technologies’ Internet-based desktop requisitioning software, as the platform for an indirect materials e-procurement initiative. The system provides employees with the ability to order materials and track their delivery directly from their desktop PCs, with an electronic approval tree and well-defined order limits. Visio reports that it saved some $500,000 in the first year, with an ROI of less than four months.

Supporters of these desktop requisitioning systems cite the value of “off-loading” the purchase of day-to-day indirect ORM items from busy specialists in the purchasing department, and claim that desktop requisitioning greatly reduces maverick buying, forcing employees to purchase indirect goods using prearranged purchase agreements, and providing for a much more accurate record and audit trail of indirect spending.

Buy-Side Central Procurement

Increasingly powerful in terms of their performance measurement and decision support capabilities, the major buy-side applications allow purchasing professionals (central purchasing) to set parameters, develop contracts, analyze supplier performance, measure transaction costs, and understand total true cost of procurement. Although intended for indirect purchasing, increasingly, buy-side applications are being adapted for bulk or standardized purchase of direct goods.

The greatest drawback to these buyer-managed systems (excluding those who outsource to ASPs) remains the laborious task of catalog and system maintenance. Buyer-managed catalogs allow you to store catalog data on your own premises, with electronic updates periodically sent across the Internet by the supplier. But there is significant effort required in the initial aggregation and rationalization process. In fact, the process is ongoing, and because many large firms deal with hundreds or even thousands of suppliers in different countries, there may be thousands of items that each have multiple specifications. Different suppliers have different terms for similar products, and various suppliers will provide images in different formats, with inconsistent product ID numbers. Accordingly, for those companies who don’t necessarily see catalog and systems maintenance as a core competency, outsourcing of these tasks seems an appealing option.

It is also possible, of course, to outsource the design and maintenance of product catalogs to teams of information engineers who can organize and standardize your product catalogs for you. Companies such as Requisite Technology provide both a service and a software suite (which includes a powerful data search engine) that will help standardize the wide variety of product information of multiple suppliers, and includes the ability to scan paper catalogs.

Even if you decide to outsource these content maintenance and aggregation activities, your systems will need to provide for at least three different methods of maintenance access in order to provide for flexibility of policy in the future. The system will need to provide for Web-based maintenance so that suppliers can update their own catalogs, so that you can update the catalogs yourself, or so that you can pay a third party to maintain the catalogs for you. It is important to remember that ASPs vary widely in terms of their support for these catalog maintenance technologies.