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New standard for corporate buying

American Express and other major companies announce a new standard to simplify corporate purchases over the Net.

American Express (AXP) and other major companies today unveiled a new standard designed to streamline the process of making corporate purchases over the Internet.

The Open Buying on the Internet protocol, or OBI, is designed to create a standard way for corporate buyers and sellers to communicate on the Internet, particularly for purchases of low-cost, high-volume items used in everyday business such as office supplies, PCs, cellular phones, indirect materials, and catering.

OBI is based on existing standards such as EDI (electronic data interchange) and is designed to replace custom systems that individual companies create and try to persuade their suppliers or customers to use.

"The single most important barrier to Internet business-to-business commerce is the lack of interoperability," said Thayer Stewart, an American Express vice president of marketing. "The various technology solutions cannot communicate with each other or companies buy or build redundant systems, and gridlock has ensued. Corporations and suppliers are hesitant to buy."

"What makes this specification particularly positive is its orientation toward users," said Erica Ruguilles, an analyst at Giga Information Systems. "It was developed with buying organizations [and suppliers], and the software vendors were brought in only after the fact. That will mean it takes more time for software vendors to comply but it will result in [a specification] that's more useful."

Blane Erwin, a Forrester Research analyst, says OBI will boost business-to-business commerce and remove technology as an issue for companies that select purchasing software, but he worries that OBI "will really get squeezed hard."

"OBI has got to get the endorsement of the National Association of Purchasing Management, an association of 40,000 suppliers and purchasing managers, and must get 25 killer testimonials by end of this year," Erwin said.

With the protocol now published, OBI proponents expect to begin trials by year's end.

OBI is specifically targeted for business-to-business purchases, and American Express hopes Net-based procurement will boost use of its corporate purchasing card, although the standard does not specifically address payments, only ordering.

OBI would work alongside SET, the new Secure Electronic Transactions protocol for secure credit card purchases over the Internet. Business purchases that would be covered by OBI generally made with credit cards or paid by check using purchase orders and negotiated prices from regular suppliers.

Such interbusiness purchases are an emerging category of the Internet commerce market. Ruguilles said most software firms targeting that segment have said they will comply with OBI.

The OBI announcement listed support from Microsoft, Oracle, Actra, InteliSys, and Open Market.

Ruguilles said that software vendors think they can comply with the new OBI standard by the end of the year, but she thinks early next year is more realistic.

Neal Casteel, manager of electronic commerce for National Semiconductor, which worked on the protocol, said OBI would free him from maintaining an internal catalog of authorized vendors on his company intranet.

Instead, employees making routine purchases would be connected seamlessly from their own intranet to an OBI-compliant vendor's own catalog, see National's negotiated prices, check availability, and place an order. The protocol provides for routing orders through an approval process in the purchaser's company before orders are filled.

In October, American Express helped create a group of buyers and suppliers called the Internet Purchasing Roundtable to draft the specification. Corporate buyers participating included Apple Computer, BASF, Ford, General Electric, Hoffmann-LaRoche, Lexmark International, National Semi, United Technologies Research Center, United Technologies, and Pratt & Whitney.

Participating suppliers included Corporate Express, Office Depot, Olsten Corporation, VWR Scientific Products, and W.W. Grainger. E-commerce consulting firm SupplyWorks facilitated the process.

Now that the specification is drafted, the Internet Purchasing Roundtable will become a nonprofit user group to support the standard and has renamed itself the OBI Consortium.

Fee-based membership is open to buying and selling organizations, technology companies, financial institutions, and others.