J.P. Morgan & Co. plans to step cautiously into electronic procurement with software it has licensed from Intelisys Electronic Commerce Inc.
The New York banking company will use the software to let its employees make online purchases of office products and computers directly from suppliers, but it does not plan to create an electronic marketplace for its corporate customers to use.
That strategy contrasts with those of other big banking companies, including Chase Manhattan Corp., Citigroup Inc., and Bank of America Corp. All three have created alliances with electronic commerce vendors, such as Ariba Inc. and Commerce One Inc., to develop bank-branded commercial exchanges on the Internet on behalf of their corporate customers.
J.P. Morgan's "pragmatic" plan to simply Web-enable its own procurement "is a nice, contained strategy," said Laurie Orlov, an analyst at Forrester Research. "It is not a 'me-too' strategy of Wells Fargo and every other bank in the world."
The banks that are building electronic marketplaces are hoping to grab a piece of the burgeoning market of business-to-business sales on the Internet. The domestic market is expected to increase to $2.7 trillion in 2004, or 17% of all trade, from $406 billion this year, according to Forrester.
The Intelisys software is focused on helping corporations make electronic connections to their suppliers and helping suppliers that do not have Internet purchasing catalogues to create them.
J.P. Morgan was the third major banking company to announce it had selected Intelisys software. Chase, which owns 30% of Intelisys, is a customer, as is First Union Corp. Thirteen other corporations also use the software. So far, these buyers have extended the Intelisys capability to about 300 of their suppliers.
Lloyd O'Connor, chief executive officer of Intelisys, called the J.P. Morgan deal another "endorsement of the Intelisys model of connecting buyers directly to suppliers, basically rejecting the aggregation approach being used by others."
Intelisys aims to bring buyers and suppliers together without intervening, Mr. O'Connor said. "We do not get in the way."
By automating the purchase of office supplies for operations, maintenance, and repairs, institutions can lower their purchasing costs by 15%, Mr. O'Connor said.
J.P. Morgan's annual procurement budget was not disclosed, but Mr. O'Connor said that Chase's expenses in this category are about $4.2 billion a year.
Administrative costs alone - from management approvals to paperwork - average between $100 and $125 per transaction, regardless of the value of the goods being bought, he said.
"The value of the transaction is irrelevant," Mr. O'Connor said. "It has to go through a number of management signatures and approvals," whether it is one computer or 10,000 paper clips.
J.P. Morgan's procurement service using the Intelisys software is expected to become operational in the third quarter. Terms of the deal with Intelisys were not disclosed.