A Study On Procurement Strategy In B2B Electronic Market

As the fast development of Business-to-Business e-commerce, Internet-based electronic markets play a particularly important role in B2B e-commerce. Electronic markets provide an attractive procurement venue for many industries. They reduce search and negotiation costs for all parties by utilizing new communication technologies that support low-cost connectivity on both the supply side and the demand side. There is a growing literature that focuses on the theory and practice of electronic market but little mentioned the interaction between the tradition and electronic market for procurement. This thesis examines the competition that arises between the two procurement mechanisms and seeks to develop a better understanding of the factors affect the buyer's procurement decision. While electronic markets affect several parameters of procurement (security, privacy, settlement ect.) this thesis focuses on the impact of both transaction cost and supply chain coordination on buyers and suppliers. The thesis is organized as follows: in the first part, the development and characteristics of electronic market are introduced. Then the advantages and disadvantages of both traditional procurement and electronic market procurement strategy are analyzed theoretically. Finally by means of mathematical models and simulation analysis, the following procurement strategies are compared based on their costs and revenue: open-market which is expected to lower the procurement price through expanding the potential supplier base; strategic partnership which is based on a long-term relationship with a single supplier and electronic market procurement which is a short-term strategy conducted in electronic market..E-procurement solutions help buyers to reach a large number of potential suppliers and negotiate better contract pricing. In addition, automating direct procurement reduces the cycle time, making the manufacturer more responsive to the market. Thus more and more studies begin to focus on e-procurement strategy. The main innovation of this thesis is that it does not assume a single procurement strategy, but rather compares the three possible strategies a buyer can follow under different conditions. It explores the factor that affect the buyer and the supplier's decision as well as the factors that determine the interplay between the traditional procurement strategy and electronic market strategy. The thesis also proves that the owners of e-markets may earn revenues by imposing various charges on market participants while the charges could also serve as a coordination mechanism for the supply chain. The theoretical foundation of this thesis includes transaction cost theory, coordination theory, auction theory, operation theory and game theory.