Electronic Data Systems (EDS) last week formed a subsidiary that will manage a private Web-based network designed to help groups of companies use their combined purchasing power to buy a variety of goods.
The EDS CoNext subsidiary, formed in conjunction with business-to-business e-commerce vendor Ariba and consultancy A.T. Kearney, will attempt to automate a business practice called "strategic sourcing." This practice involves buying goods based on pricing terms shared by a group of companies, and is done today mainly through fax and phone by corporations on good terms.
EDS CEO Dick Brown calls CoNext a first-of-its-kind effort, noting that EDS has a billion-dollar war chest on hand to fund e-commerce projects. However, he declined to say how much the company will invest in the Leveraged Sourcing Network, as CoNext's net is called.
EDS has tapped Ariba to provide the network's underlying Web-based procurement technology. Ariba markets software for purchasing goods from desktop computers and operates the Ariba Network, a set of mailbox and gateway services to connect buyers and sellers over the Internet.
Ariba expects to see about a dozen consortia created in the future for conducting business-to-business purchasing over CoNext's network, says Keith Krach, chairman and CEO of Ariba. The groups will be formed according to geographic location or other factors. Participating companies will band together to buy everything from office supplies to utility servicesA.T. Kearney, which has made a specialty of strategic sourcing consulting, will help EDS bring corporations onto the CoNext network, expected to be available in June. Initial participants include The Clorox Company, Entergy Services, Fort James, Kellogg, Prudential Life Insurance and Tyco Healthcare Group.
While it's unclear how much companies might save using CoNext-based purchasing, it will certainly cost them a lot to participate. It will require a "minimum of hundreds of thousands of dollars per year" just to join, says Dave Rome, Ariba's vice president of alliances. In addition, companies will have to pay transaction fees on purchases.