Location has typically been important to the establishment of routines, efforts to standardize, and automation. It is easier and less costly for major buyers to set up purchasing procedures with suppliers who are nearby, if not local, particularly when the purchasing process requires lengthy face-to-face negotiation over issues such as price, quality, and specification. Recent examples of major business-to-business purchasing off Web sites, however, have tended to negate this conventional wisdom.
Caterpillar made its first attempt at serious on-line purchasing on 24 June 1997, when it invited preapproved suppliers to bid on a USD 2.4 million order for hydraulic fittings--simple plastic parts which cost less than a dollar but which can bring a USD 2 million bulldozer to a standstill when they go wrong. Twenty-three suppliers elected to make bids in an on-line process on Caterpillar's Web site. The first bids came in high, but by lunchtime only nine were still left revising offers. By the time the session closed at the end of the day, the low bid was USD 22 cents. The previous low price paid on the component by Caterpillar had been USD 30 cents . Caterpillar now attains an average saving of 6 percent through its Web site supplier bidding system.
General Electric was one of the first major firms to exploit the Web's potential in purchasing. In 1996, the firm purchased USD 1 billion worth of goods from 1,400 suppliers over the Internet. As a result, the company reports that the bidding process has been cut from 21 days to 10, and that the cost of goods has declined between 5 and 20 percent. Previously, GE had no foreign suppliers. Now, 15 percent of the company's suppliers are from outside North America. The company also now encourages suppliers to put their Web pages on GE's site, and this has been found to effectively attract other business.
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