Information Technology in B2B E-procurement: Open vs. Proprietary Systems

This article presents an economic model of a monopoly retailer with supply and demand uncertainties that enables the study of incentives for B2B e-procurement technology investments that permit inventory coordination and operating cost control. In this context, we focus on the information technology (IT) adoption behavior of firms, emphasizing the trade-offs they make between managing supply procurement uncertainties and procurement costs. We distinguish among three kinds of B2B e-procurement technology platforms: traditional interorganizational systems (IOSs), open B2B platforms (especially electronic markets), and hybrid solutions. We find that larger firms tend to adopt costlier, but rely upon more certain procurement technologies, such as proprietary EDI. Smaller firms tend to adopt less costly procurement technologies that entail greater supply uncertainties, such as open B2B procurement platforms.