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If electronic commerce (EC) trends continue as they have, and ultimately greater and greater numbers of buyers and sellers never physically meet in an EC/virtual marketplace, how will the rules of 21st century contracts change? Will they need to?
Why Supply Chain Management needs to re(visit) Electronic Marketplaces?
There are two very important flaws in the Electronic Marketplaces (EM) due to which traditional supply chain (Mola & Russo, 2016) experts need to re-visit the model of EM and then model an efficient contract-driven process flow. The most important value (Kumar, Tiffany, & Vaidya, 2016) imposed by EM's is the competitive bidding among suppliers (Ross, 2016), leading to the lowest possible prices offered to buyers. This leads to a price war among suppliers, theoretically leading to price matching the marginal cost of a product. Other factors such as quality, timely delivery and product customization are important factors, although not considered, in contract design. Therefore, conservative players may opt-out of EM. Second, suppliers are subjected to a price war (Grieger, 2003) by only incentivizing them to a marketplace of numerous buyers. The incentive is somewhat unsustainable. As a result, numerous suppliers, especially quality and innovation dependent firms, will therefore opt-out from the EM’s. Products having technical complexity are likely to be traded through traditional supply chain structures due to high transaction costs in obtaining product descriptions, risk assessment, and product functionalities (Skjott-Larsen, Kotzab, & Grieger, 2003).
Do contracts or rules of contracting need to change?
Literature has provided certain recommendations to enhance better integration between supply chain structures and electronic marketplaces (Grieger, 2003) (Skjott-Larsen, Kotzab, & Grieger, 2003) (Lu & Liu, 2015).
- EM should design an in-house logistics distribution system to transport materials to its clients to ensure smoother compliance with the contractual terms.
- EM can direct its in-house logistics distribution system to third-party service providers (sub-contracting)
- EM's are currently buyer-centric, which needs to change over time to incorporate important contractual systems such as quality (product complexity issues) and delivery schedule efficiency.
To conclude, contracts in the supply chain will not change fundamentally; however, the rules of contracting can be better managed if certain steps, as stated above, are taken to efficiently integrate sourcing in the oversupply chain structure.
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