E-Sourcing: Buyer's Efficient Structure for Purchasing Preparation Process

E-sourcing, or buying using online reverse auctions, is playing an ever increasing role in a firm's global sourcing strategy, partly due to an ever increasing pressure on cost competitiveness. Using queuing techniques, this paper develops a stylized model that captures fundamental trade-offs in a firm's purchasing preparation process (PPP) as characterized by internal and external communication complexity, frequency of use, and cost of delay. This allows us to compare two widely adopted structures for e-sourcing: the centralized structure versus the decentralized structure. Conditions under which the centralized structure is favored over the decentralized structure and vice versa are identified, followed by managerial implications and case evidence.

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