Ownership of IT Assets in Procurement Systems

Abstract

With the rapid growth of business-to-business electronic commerce and the increasing need for supply chain collaboration, systems that support supply procurement are becoming ever more important. Due to the substantial costs of hardware, software and effort needed for implementation success, firms that participate in developing e-procurement systems want to reap as much value as possible. We use the theory of incomplete contracts to understand the different ways to organize the ownership of IT assets in procurement systems across two or more firms. The purpose is to maximize the value that the participants can appropriate and give them the proper incentives to invest. Based on the theory, we investigate the primary determinants of optimal ownership for e-procurement systems, focusing on the relative importance of participants' investments, which is a measure of the marginal value that each participant adds to any proposed ownership structure for the IT assets. We also provide a framework for analyzing e-procurement system ownership structures. We apply our approach to vendor managed inventory systems, as an illustration of the range of e-procurement systems ownership settings that we can treat with this theoretical perspective.