- 2 - Marketplaces: Contract Procurement and the Role of Advocacy Ed Chen, Sept 2000 © 2001 Sixhills Consulting Ltd & Author of managing eCommerce risk, according to Forrester. These needs are best met by enhanced functionality around contract procurement. Contract functionality will emerge as a part of a bundled procurement offering. Complex products that compete along multiple dimensions and products that have service agreements require contracting to ensure a specific, comprehensive and clear agreement. Until the derivatives market becomes comprehensive enough to cover the product price risks for mid-to-small markets and businesses, buyers and sellers will want contract protection from price fluctuations. Contracting allows fixed pricing, a series of price changes, or even hybrid agreements with fixed and variable components. Declining cycle time expectations require timely delivery of critical production inputs. Contract terms that can be included to address this need are delivery schedules and late penalties. Lack of company reputation in many neutral exchanges creates an additional layer of default risk for which marketplaces rarely insure. Contracts allow for the stipulation of contingencies and provide a stronger basis for legal recourse. Finally, relationship-specific investments — such as those involved with systems integrations — require the long-term commitments that contracts can solidify. Three areas of the procurement value chain — needs assessment, vendor management and measuring/monitoring — are particularly important for contract purchasing. Most e-marketplaces largely ignore the significance of this space. And those that attempt RFP/RFQ processes are extremely limited in offering value beyond request submission (e.g. analysis). Enhanced functionality should be provided in all three areas critical to contract procurement. Activities such as data gathering and benchmarking can be automated. Electronic questionnaires could be sent to conduct preliminary interviews. Analysis tools could aid decision-making by presenting formatted data in summaries and hybrid scenarios. Three-way negotiations could take place online, facilitating multiple constituency management. Finally, compliance can be monitored with rules engines that submit email follow-up to non-compliant units. In order to capitalize on the benefits of increased functionality, e-marketplaces will find it difficult to remain neutral. Some neutral marketplaces will evolve towards a buy-side orientation. In the process, they will move from providing high-level industry information to determining user requirements, developing specification, benchmarking and analysing bids. Functionality will grow from trade facilitation to formulating recommendations. E-marketplaces will evolve from intermediators to procurement service providers. On the sell-side, formerly neutral marketplaces will advance from the same high-level information publishing to create
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