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2.0 Literature review
An e-Procurement technology can be defined as any technology designed to facilitate the
acquisition of goods by a commercial or a government organization over the Internet (Davila et
al. 2003). E-Procurement offers buyers and sellers a new form of communication and it is
thought that buying on-line can increase the cost efficiency of a company (Konings and
Roodhooft 2002). Expected advantages are manifold and include reducing administrative costs,
shortening the order fulfillment cycle time, lowering inventory levels and the price paid for
goods and preparing organizations for increased technological collaboration and planning with
business partners (see for example (Croom 2000) and (Roche 2001)). A deeper analysis of the
main effects of the e-Procurement introduction can found in Neef (2001). In his work, benefits
are grouped in three categories: process efficiency, compliance and leverage. If we consider that
for most companies the cost for purchased products and services can account for more than 60%
of the average companys costs, then the potential effects of the e - Procurement introduction on
the companys competitive position can be impressive. The adoption of some sorts of e-
Procurement is high: a study by Deloitte Consulting (Whyte, 2000) indicated that 30% of the
studied companies had begun implementing at least a basic e -Procurement solution whereas 61%
are either planning or are considering an implementation. However, it seems that the actual
concretization of the mentioned benefits is much more difficult than it was thought in the past
when pioneering investments were done. The expected growth rate for e-Procurement
transactions has been revised downwards by analysts. In fact, after an initial period of
experimentation, it became clear that not all investments allowed the achievement of the hoped
results and profits gained werent as high as expected: organizations have found implementation
more complex, more expensive and more time consuming than they originally envisioned. The
success rate of e-Procurement projects seems to be very low.
2.1 Eprocurement Implementation IssuesResearch by Boston Consulting Group (2001) on implementation of E procurement by European
companies, found that only 20% achieved the planned benefits. For a firm to realize the
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maximum value-creating benefits from an e-Procurement strategy, the purchasing process must
be evaluated to determine if it needs to be reengineered (Presutti 2003). What has been in some
cases neglected is the consciousness that the e-Procurement introduction is something more than
a simply technological adoption, but it entails organizational changes and it leads to the process
redefinition. Lets think, for instance, to the new role that purchasing managers have to assume
since the shift from a centralized to a decentralized modality of purchasing (Neef, 2001). Given
this consideration, the e-Procurement project can be seen as a business process reengineering
(BPR) problem and some criticalities that have been found in that field can be transferred within
this context too. The most relevant consideration, for our concern, is the difficulty that still exists
when BPR projects have to be evaluated and, above all, the observation that expected benefits
are seldom reached in practice (Cameron and Braiden 2004).
Neef (Neef, 2002) have mentioned that E procurement is accompanied by a shift from
centralized to a de-centralized mode of purchasing. This would require extensive reengineering
of the procurement processes, which has to be factored into the E procurement projects in terms
of timeline and resources. (Cameron and Braiden, 2004) Furthermore, Cameron and Braiden
(2004) state that it is never easy to decide which type of project to undertake as this is dependent
on the status of the organisation and the main features associated with the company. As a
consequence, for a successful reengineering project, a methodology must be selected which suits
the business needs of the organisation. If evaluation methodologies for the BPR and, hence, for
the procurement reengineering, need further research, it is clear that the first step towards asystematic analysis is the investigation of the main characteristics of a firm and how they could
be influenced by the introduction of e- Economy initiatives. Every investment has thus to be
carefully evaluated taking into consideration the specific situation a firm is involved in: its
strategic objectives, its resources (human and technological), the industrial sector it belongs to
and every other characteristic that can somehow influence its competitive position. Even if the
operational effectiveness is expected to improve as a consequence of the e-Procurement
implementation, this is not a sufficient condition for guaranteeing the success of the investment.
The actual impact of some procedures linked to new economy cant be completely understood if
the analysis is only focused on the operative level: the whole firm must be the object of theevaluation. Particularly, what has to be assured is a strategic alignment between operative
decisions and the strategic objectives. If this is the objective, some efforts have to be addressed
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towards the comprehension of what could be the effect of a specific investment also on the
strategic position in a long-term horizon. It has also to be understood to what degree the changes
following e-Business initiatives are compatible with the strategic positioning and, hence, if the
structure will support strategic priorities. The utility of such alignment is stressed in most of the
literature about operations strategy (see for example (Hill 2000) or (Brown 1996)) where more
strict relationships among different strategic levels are considered necessary for reaching a
competitive advantage.
[I want the procurement process steps and which steps are affected by the e procurement process
process specific change or related papers to be referred]
2.2 2.1.1 IT system and related issues with e-procurement implementation
Here we have classified the issues with e-procurement under the following categories:
Lack of system integration and standardization issues
This factor refers to a host of e-procurement systems development challenges that may
potentially confront the firm. In general, e-procurement systems are a relatively recent
development in the business application area and it is not unusual to find a lack of
benchmarkable reference models especially in firms that are just beginning to learn of these
systems functionalities and uses in their organizations. Consequently, a back -end integration
issue that results from this situation is the lack of a base infrastructure to collect transactiondata from more than one e-commerce application, if, in fact, the firm had to run such multiple
systems simultaneously. And even if this base infrastructure existed, it would still be difficult to
observe data management standards and controls when a number of e-procurement systems need
to be running and maintained. Another challenge is software immaturity, which is probably true
more of the lesser known vendors in the marketplace and to a limited extent, of the major players
such as Ariba, Oracle, SAP, CommerceOne, etc., who are the trailblazers in product definition.
Unlike its more mature counterpart which is enterprise resource planning (ERP), certain e-
procurement packages may lack key features like invoicing, payment, reconciliation,
authentication, security, and consolidation of general ledger and invoicing systems. Non-global
stand-alone solutions may not be able to manage the complexities of different geographical
jurisdictions, currencies, tax structures, etc. One other implementation issue is the lack of data
Formatted: Normal, Justified, No bullnumbering, Don't adjust space between Laand Asian text, Don't adjust space between
Asian text and numbers
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interchange standards for e-procurement systems. Business managers need to be aware of
developments surrounding the standards making organizations and support their efforts towards
evolving universal data exchange standards, especially those based on extensible markup
language (XML) (Olivia, 2001). Finally, the last item in this factor is the financial penalty of not
paying attention to hidden costs of implementation that can creep up on the firm and derail its
well-intentioned efforts. Hidden costs covering such things as implementation, systems
integration, content aggregation and rationalization, catalog and search engine maintenance,
transaction management, supplier enablement, end user training, business process re-
engineering, and administration, could very easily exceed software licensing and maintenance
costs by five to ten times. Firms should demand more cost transparency in dealing with software
vendors and service providers and be vigilant in querying reference firms that have previously
launched similar e-procurement projects.
Immaturity of e-procurement-based market services and end user resistance
This factor encompasses the immaturity of providers of e-procurement services, lack of
preparation of certain suppliers a buyer firm may be dealing with, and resistance of a firms end
users to learning multiple e-procurement systems. Immature marketplace service providers, for
instance, may not have the capitalization required to provide a complete suite of services to its
members. Consulting services for more complex or advanced e-procurement implementations
may fall short of expectations. Leading-edge firms are more accustomed to educating their
consultants, w hereas smaller firms may need more directive guidance. Also, some softwarevendors and marketplace service providers are saddled by immature service pricing models that
discourage the growth of their clientele. Then, theres the immaturity of certain supp liers that a
buyer firm deals with. Although most tier-one suppliers are probably technologically
sophisticated, the hub firm or channel master may still have to be prepared to underwrite the
costs of bringing its preferred suppliers up to par when it comes to very specific e-procurement
implementation requirements (Kyte, 2000b). Suppliers need to learn how to generate catalog
content, process electronic purchase orders, use invoicing mechanisms, among other tasks. The
last item here is the resistance of internal end-users to learning how to use multiple e-
procurement systems, especially when other older and competing means of purchasing are stillbeing supported by the firm such as the use of procurement cards and expense submissions.
Firms should encourage the learning of new e-procurement systems through intensive training
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and educational sessions with end users/employees and reward them by deploying easy-to-use
and seductive desktop purchasing systems. The purchasing experience should be practically
effortless so that workers in the firm are able to focus on more substant ial and value adding
tasks that are more critical to their job descriptions.
Maverick buying and difficulty in integrating e-commerce with other systems
This factor entails the challenges in changing purchasing related behaviors of employees and
integrating e-commerce transactions with those of other e- procurement systems. Maverick
buying or purchasing without the use of formally defined processes on the part of end
users/employees even after the e-procurement solution has been fully implemented, has proven
to be difficult to eliminate. Thus far, selling the benefits of new e-procurement systems to end-
users, making them accountable for savings they purport to achieve in alignment with corporate
cost savings targets, and demonstrating how e-procurement systems will help them reach such
targets through intensive end user training and educational programs appear to be the best
solutions to this problem. The firm also needs to anticipate potential problems when spend data
from e-commerce-driven transactions need to be siphoned off and combined with other
purchasing-related transaction data collected from other systems. This is expected to be less of
an issue as the firm builds its e- procurement initiatives upon a sound and robust base
infrastructure that ca n serve as a convergence point for procurement data originating from
diverse sources.
Adoption issues in E-Procurement
The following four factors are identified to have an effect on the adoption of e-procurement in
organizations. These factors include (1) perceived barriers/costs, (2) perceived drivers/benefits,
(3) firm size, and (4) complexity of buying situation. The choice of the theoretical constructs in
this model was determined through an extensive literature review as well as informal
conversations with various procurement executives in the power tools industry.
Barriers/Costs of e-Procurement Adoption
The successful adoption of e-procurement depends on the barriers present in the system.
Identifying such barriers is an integral part of the major managerial function in developing the
right pathway for the adoption of e-procurement. The barriers could stem from infrastructure,
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strategy, people, culture, etc. (Gunasekaran and Ngai 2008). For example, Bingi, Mir, and
Khamaleh (2000) found that the major concerns that face electronic commerce adoption are the
absence of the technological infrastructure needed to support business operations, information
security, and privacy of exchange. Moreover, Kheng and Al Hawamdeh (2002) reported that the
amount of required investment and the inadequate in-house skills are the main barriers that
Singaporean companies faced in implementing e-procurement techniques. Similarly,
Subramanian and Shaw (2004) indicated that firms perceived uncertainty regarding resource
availability and perceived difficulty of integrating new systems with legacy IT system can hinder
firms e -procurement adoption. Hawking and colleagues (2004) continued this stream of
research, finding that the lack of integration of firms IT systems with those of business partners
negatively impact adoption of e-procurement techniques. Furthermore, the difficulty in
performance evaluation is quite visible in the e-procurement context, as managers may lack the
information needed toevaluate partner capabilities (Bingi et al. 2000). This is especially evident
when suppliers may be hesitant or even unable to meet business cus tomers systems integration
requirements without guarantees of future revenue streams (Sigala 2006).
Drivers/Benefits of e-Procurement Adoption
There is also a large body of literature that delineates the benefits of adopting e-procurement
practices as a solution for managing the order process. Hawking and colleagues (2004) found
empirical evidence for the importance of Internet-based procurement in Australian markets. They
showed that companies adopt e-procurement techniques to improve market intelligence and toreduce the operational and inventory cost. Davila and others (2003) reported that companies that
use e-procurement technologies save 42 percent in purchasing transaction costs due to the
simplification in the purchase process and the reduction in purchasing cycle time, which in turn,
increases flexibility and provides more up-to-date information at the time of placing a purchase
order. Additionally, Bartezzaghi and Ronchi (2003) found that Web-based technology helps in
increasing market efficiency in terms of supplier search, supplier selection, contract negotiation,
and purchase price. Thus, e-procurement tends to leverage the bargaining power of companies
willing to establish contracts with their preferred suppliers. As a result, the overall maverick
buying will be lower and the purchase from non-contracted vendors will be less (Tatsis et al.2006; Venkatesan 1992).
Complexity of Buying Situation and Procurement Adoption
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The literature classifies buying situations into three main categories: straight rebuy, new task,
and modified rebuy (Kotler 2000; Robinson, Faris, and Wind1967). The straight rebuy is
characterized by reordering on a routine basis that requires little information search and entails
less perceived risk on the part of buyers. On the other hand, new task occurs when buyers
purchase strategically important products for the first time. Buyers typically perceive high risk
and engage in extensive information search in such situations. Finally, the modified rebuy is
either an upgraded straight rebuy or formerly a new task that has become familiar with buyers
over the passage of time. In modified rebuy situations, buyers may become active in searching
for new information compared to straight rebuy situations, because due to specification
modification, they may find that perceptions of risk have increased or they may feel there is an
opportunity for cost reduction. As the buying situation moves from straight rebuy to new task,
the purchasing task becomes more complex. Buyers need more information from their suppliers
and usually set up a joint team to design the new task buy (Sain et al. 2004). Hence, when the
buying situation becomes more complex, the benefits sought from adopting the e-procurement
techniques are expected to be less, and the cost incurred in the adoption are expected to be
higher. The rationale for this prediction is-based on the contingency theory. Speckman and Stern
(1979) asserted that the degree of buying center members involvement in the procurement
process is contingent upon the buying situation. For example, compared to the routine buying
situation, when the buying situation is complex and new, it is expected to have additional
investment in human and physical assets and in the time spent to design the new task.Furthermore, it is expected in B2B contexts that face-to-face and personal selling are the main
communication mechanisms between the customers and their suppliers, especially in situations
where the consequences of the purchase behavior are severe and where no prior experience in the
purchase situation is available (which the case of a new task purchase). As a result, adopting e-
procurement techniques is likely to be less.
Firm Size
Examining the effect of firm size on technology adoption is motivated by the fact that firms vary
based on their financial resource availability and managerial skills. Firms with a large workforceare more likely to adopt e-procurement than smaller-workforce firms due to the differences in
information processing capacity, bargaining power, and availability of financial resources (Sigala
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2006). Managers of large companies believe that they have a greater differential in value (i.e.,
benefits outweigh cost) than smaller companies for adopting e-procurement. Hence, e-
procurement adoption can imply greater scalability for the business process in larger
organizations. Therefore, as is consistent with previous literature, it is important to control for
the firm size when testing for e-procurement adoption (Wu, Mahajan, and
Balasubramanian 2003).
Eprocurement benefits
Financial Benefits
e-Procurement software provides the following key benefits to the financial elements of a
procure to pay process (a)full order to invoice visibility (b)accurate and detailed accrual
information (c)scheduled invoice file and journal import generation (d)no requirement for
invoice or accrual input or posting (e)a proven automated invoice reconciliation and dispute
resolution process (f)100% price and quantity validation (f)full supplier statement reconciliation.
Eprocurement will not only maximize the efficiency of your financial process it will significantly
enhance cost control procedures; with the following features (a)flexible authority level control
limits (b)point of order budget control (c)controlled off-catalogue purchasing module (d)petty
cash module.
Perceived Supplier benefits:
Whichever part of the procurement process you decide to automate, you need to take our
suppliers with you. This means maximising the incentives and minimising the perceived barriers.
To appreciate what this means you will need to be able to view the landscape from the suppliers
point of view. There are advantages and disadvantages in the changes ahead from the suppliers
perspective (a)e-procurement could benefit suppliers (b)Increased transparency (c)Increased
visibility in and access to the market, improved marketing information (d) e-Ordering made easy
(e)Reduced payment times (f) Lower transaction costs (inventory costs, error rates etc)
Relative Performance benefit
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Research on innovation revealed that the characteristics of innovation, as perceived by the
adopting firm, can crucially impact on its adoption (Rogers, 1983). Based on a meta analysis of
the technological innovation literature concerning the characteristics of innovations, Tornatzky
& Klein (1982) identified relative advantage, compatibility, and complexity as innovation
characteristics salient to the formation of the adoption attitude. Relative advantage is the degree
to which an innovation is perceived as better and more beneficial than its precursor,
compatibility is the degree to which an innovation is perceived as consistent with existing values,
needs, and past experiences of the adopter, while complexity refers to the degree to which an
innovation is perceived as difficult to use and implement (Rogers, 1983).
Technical Benefit
The Internet and web-based technologies have significantly improved collaboration and
integration among supply chain partners permitting strong customer and supplier integration for
inventory planning, demand forecasting, order scheduling, and customer relationship
management ( Feeny, 2001 ). In a recent London School of Economics survey CEOs rated IT as
the firms top strategic tool, but asserted that the source of competitive advantage was not
technology per se, but superior information sharing provided by these systems ( Compass Group,
1998 ). Of all the information technologies, the emergence of the Internet may have had the
greatest impact on information exchange between buyers and sellers to date ( Rabinovich et al.,2003 ). Accessing real-time demand information and achieving inventory visibility was virtually
impossible prior to the Internet, and relied on composites made from information accessed via
telephones, faxes, and EDI. The Internet has now surpassed information technologies such as
EDI in its information sharing capabilities and cost ( Chopra et al., 2001 ). EDI permitted sharing
of limited content with a few remote partners at a relatively high cost. Today, Internet enabled
supply chains are powerful strategic weapons due to their unparalleled integration of information
among partners and relatively low transaction cost. The argument that e-business technologies
promote supply chain integration is further supported by transaction cost economics. The
premise of the literature in this area is that cooperation and coordination among firms is limitedby the transaction costs of managing the interaction ( Coase, 1937; Williamson, 1975; Stoeken,
2000 ). As transaction costs increase, market transaction efficiency decreases. These
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inefficiencies may result in higher market prices and promote vertical integration in the supply
chain. IT has been shown to decrease transaction costs, comprised of coordination costs, that
include direct costs of integrated decisions ( Nooteboom, 1992 ), and transaction risk, which is the
risk of being exploited in the relationship ( Clemons and Row, 1992; Clemons et al., 1993 ).
Transaction cost economics suggests that IT should promote organizational cooperation and
collaboration given that it reduces transaction costs. The Internet and the Web may have a
particularly strong impact due their interoperability, open standards, and low cost.
Degree of Adoption Link with Benefits
E-procurement is gaining in popularity in business practice and its benefits encourage its
adoption for a variety of areas. The problem with assessing the value associated with e-
procurement has been addressed by researchers and practitioners, but a clear methodology to
determine the benefits related to e-procurement adoption is still missing. This paper defines e-
procurement and identifies the most significant drivers for e-procurement adoption and correlates
the extent to which the organization has benefitted. We have classified them into high, medium
and low degree of adoption based on the extent to which e-procurement has permeated in the
process of purchasing the input materials from the supplier. Finally, the developed model takes
into account different benefits that occur due to various degrees of adoption.
Our Model:
Hypothesis:
The relationship between e-procurement technologies and intra and inter-organizational
collaboration has been assumed by past studies ( Raghunathan, 1999 ), though it has not been
directly tested. Studies have, however, tested the relationship between general use and other
constructs that are related to collaboration ( Mohr and Nevin, 1990 ), such as relationship
commitment( Kent and Mentzer, 2003 ). For example, a study by Kent and Mentzer (2003) found
a strong and positive relationship between investment in e-procurement and the benefits gained
subsequently. Other researchers have demonstrated that the presence of drivers of e-procurement
has a positive correlation on degree of adoption of the same( Clemons and Row, 1992; Clemons
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et al., 1993 ), expected to bring about increased coordination ( Vitiv ickery et al., 2003 ). These
studies collectively support the development of our first hypothesis that higher degree of
adoption of e-procurement leads to higher degree of perceived benefits for the organization.
H1: Higher degree of adoption of e-procurement leads to higher degree of perceived benefits for
the organization.
A review of the procurement literature reveals mixed results with respect to the impact of IT
based procurement on organizational performance ( Hu and Plant, 2001 ). A study by Hitt and
Brynjolfsson (1996) finds that various level of benefits have been observed by individual factors
.This varitation observed among various studies can be attributed to variations in methods and
measures used in the analyses. Most recent studies, however, have found support for the direct
impact of e-procurement and technical benefits, relative performance, perceived manufacturer
benefits, perceived supplier benefits and financial benefits ( Bharadwaj, 2000; Kearns and
Lederer, 2003; Santhanam and Hartono, 2003 ). Based on these studies we have come up with our
next five hypotheses which are
H2a: Higher degree of adoption of e-procurement leads to higher technical benefits for the
organization
H2b: Higher degree of adoption of e-procurement leads to higher relative performance benefits
for the organization
H2c: Higher degree of adoption of e-procurement leads to perceived manufacturer benefits for
the organizationH2d: Higher degree of adoption of e-procurement leads to higher perceived supplier benefits for
the organization
H2e: Higher degree of adoption of e-procurement leads to higher financial benefits for the
organization
H3a:The functional role of manager influences his perception of e-procurement benefits in the
organization.
H3b: Higher relevant organizational experience leads to higher perceived benefits from e-
procurement implementation.H3c: Level at which a manager works affects his perception of benefits from e-production
implementation.
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Findings
Financial Benefits Vs DOA: From the graph we can see that the perceived benefit is maximum when
eprocurement adoption is maximum in the organization. The reason for this is because of the fact that
eprocurement has been made mandatory in the system. Hence there is a sizable effect in the balance
sheet. The perceived benefits are minimum when the degree of adoption is medium. This is because
eporcurement has been adopted partially. The benefit that has been derived partially is overshadowed
by the extra cost that is spent on other unused applications. However when the degree of adoption is
very low, i.e. when only selective functions are incorporated with eprocurement system the perceived
benefits seem to be high as the effect is clearly evident, though in small proportions.
33.13.23.33.4
3.53.63.7
very low low medium high very high
F i n a n c i a l B e n e f i t s
FB Vs DOA
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Relative Performance Vs DOA: As the Degree of Adoption of eprocurement increases in the
organization there is an improvement in the relative performance of the organization. Hence higher the
degree of adoption, higher is the perceived eprocurement benefit. As eprocurement is gradually
adopted in the system, efficiency across the adopted function increases. Hence we will be able to see
significant amount of increase in perceived benefits as the degree of adoption increases.
Technical Performance Vs DOA: We can see that with the increase of Degree of Adoption the perceived
Technical benefit increases. With internet technologies starting to replace conventional methods a lot of
companies have started investing on internet resources. With the increasing usage of internet by the
industrial participants it has become easy to access real-time information. Some of the areas where
there has been distinct effect because of installation of eprocurement technologies are: Quick decision
making and dynamic access to inventory information.
2.9
33.13.23.33.43.5
3.6
very low low medium high very high R e l a t i v e P e r
f o r m a n c e B e n e f i t s
Rprf_Ben Vs DOA
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Perceived Manufacturer Benefits Vs DOA: From the graph, we can observe that with the increase in
Degree of Adoption, the perceived benefits increases. Adoption of eprocurement in house needs
consensus not only from the top management but also from the staff who are actually involved in the
procurement process. Hence at the introductory stage there may be apprehensions due to automation
of the process but as staff clearly see the benefit they become ready to incorporate to the rest of the
divisions.
Perceived Supplier Benefits Vs Degree of Adoption: From the graph we can observe that the variation
in perceived supplier benefits is not very wide. With the increase in degree of adoption in the perceived
2.8
3
3.2
3.4
3.6
3.8
very low low medium high very high
D O A
Tech_Ben Vs DOA
2.8
3
3.2
3.4
3.6
3.8
very low low medium high very high P e r c e i v e d M a n u
f a c t u r e r
B e n e f i t s
PMB Vs DOA
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supplier benefit increases gradually. But there is an effective decrease in the percentage increase along
the adoption stage. With the increasing awareness of higher degree of adoption of eprocurement in the
organization there is increased transparency in the system and the entire procurement cycle is
shortened.
Eprocurement Benefits Vs Degree of Adoption: From the graph we can observe that as the degree of
adoption increases, there is an increase in perceived eprocurement benefits. Hence automating the
transaction looks into rationalizing the flow of transactions and flow of information within and outside
the boundaries.
2.6
2.8
3
3.2
3.4
3.6
very low low medium high very high
P e r c e i v e d S u p p
l i e r
B e n e
f i t s
SB Vs DOA
3
3.2
3.4
3.6
3.8
Very Low Low Medium High Very High
E p r o c B e n e f i t s
E Proc Benefits Vs DOA
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Loay S, Ricki G Ingalls. , 2003, Success Factors for e-Procurement Marketplaces , IIE Annual
ConferenceProceedings , , . p. 1 (6 pages)
3. The Need for Measuring Performance of e-Procurement
Initiatives
In its simplest sense, e-Procurement performance measurement is an iterative process that
focuses on the key drivers of e-Procurement, established around e-Procurement strategies and
business cases. For example, what are the Critical Success Factors (CSFs) of an e-Procurement
initiative? Furthermore, within each CFS, what performance measures can be identified? From
the project management sense, public sector organizations may be measuring the progress of
e-Procurement initiatives in terms of milestone achievement. However, research reported by
BuyIT (2002) argues that relatively few organizations are accurately monitoring the benefits
achieved as a project progresses. e-Government strategies that do not set clear and measurable
objectives for constituency services, operational proficiency and political return have been
estimated to have a 70% chance of failure (Maio et al. 2000). To support this notion, a research
report commissioned by the Victorian Government states that without a formal regime that
includes measurable outcomes, metrics, baselines, and accountabilities, some of the planned
benefits from implementing the Government Online Strategy may be at risk (DMR 2003). This
may hold true in the case of e-Procurement initiatives as well. From the procurement
management sense, performance measures are needed to determine how effective e-Procurement
policies and practices have been to meet the stated objectives. If e-Procurement systems are to
achieve their potential to add value to budgets and help develop local industry, there should be
wider discussion and agreement on what the benefits are and how the benefits can be quantified
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in terms of performance measures. It is difficult to demonstrate accountability and make
improvements without performance measures (AMS 2003) because measurement is the key to
making the change a success. Effective delivery of the e-Procurement business case depends on
the continuous measurement of the key benefits (OGC 2001). Furthermore, good measurement
systems with appropriate benchmarks are important components of any reform program to
identify potential areas for enhancement (APCC 2003).
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E-procurement success factors
This studys findings suggest a three -pronged approach to addressing e-procurement in the firm.
Supplier and contract management
The first factor refers to the rationalization of the firms management of its suppliers. This
studys findings reconfirm the need for the well documented practice of reducing the number of
suppliers with whom a firm intends to conduct e-procurement (Roth, 2001; Min and Galle,
2001). In the course of doing so, it also makes sense to consolidate its suppliers and contracts to
achieve significant savings and better contract terms. Forrester Research (2004-2005 )reported
on best practices on e-procurement and found that firms and government offices adopting such
practices do, in fact, centralize corporate-wide purchasing policies, standards, technologies, and
the actual execution of sourcing to the relevant departments and employees (Bartels, 2004a, b).
Large customer firms appear to be in a better position to centralize its purchasing resources; they
have larger annual purchasing volumes, and thus stand to gain more financially from price
discounts they could extract from major suppliers (Min and Galle, 2001; Riggins and
Mukhopadhyay, 1994). In keeping with focusing the firms energies on a highly select group of
suppliers, it is also suggested that the buyer firm tries to understand their preferred suppliers
technology plans and their future abilities to respond to future business information systems
requirements and involving them in planning for e- procurement initiatives such as the supplier
councils conducted by Harley Davidson Motor Company (Fitzgerald, 2002) and the Online
Procurement Top Committee (OPTC) organized by JJM, a Taiwanese freight forwarder, as it
coordinates its purchasing activities with its 500 suppliers (Lin and Hsieh, 2000). On account of
their power, larger customer firms appear to be able to keep a tighter rein on their supplier
network when it comes to implementing IT infrastructure requirements (Min and Galle, 2001).
Otherwise, it is still a major challenge to get suppliers to participate fully in e-procurement
initiatives and ensuring that they adopt the appropriate technologies to make these initiatives
work (Bartels, 2004a, b). The importance of giving individual and unit spending visibility is
reconfirmed by this study as well, and reinforces the recommendations from the literature.
Having macro and micro visibility in procurement transactions enables the firm to create audittrails in the system, understand spending patterns, maximize buying leverage, undertake
informed sourcing decisions, pursue contract compliance, and optimize budgeting and planning
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(Bushell, 2004; Croom, 2000). Consequently, too, the firm could decompose its spending into
more granular categories, specific end-user constituencies, and particular geographies to more
effectively determine appropriate areas for e-procurement (Hope-Ross, 2001b).
End-user behavior and e-procurement business processes
The second factor probably has the greatest impact on the success of the e-procurement
initiative: redesigning affected business processes and consequently, influencing end-user/
employee behaviors accordingly to conform to the new systems and enforcing new procedural
guidelines through the computerized business rules programmed in the e-procurement software
the firm decides to implement. Conducting spend pattern analysis prior to business process re-
engineering helps the firm understand who is doing the spending, how much they are spending,
on what they are spending, and with whom they are spending. Providing such visibility precedes
assigning ownership to spending business processes and final accountability in achieving savings
targets in conjunction with the use of re-engineered procurement processes. Redesigning
business processes looks into rationalizing the flow of transactions and information both within
the firm and outside its boundaries, particularly in relationship with its suppliers, with the
enabling support of information technology. Also, in the actual management of its e-procurement
business process, it is recommended that the firm centralize control of the different contracts it
administers, product data, catalogs, and price updates for indirect procurement to gain greater
control over its sources of supply, purchase price, and inventory policies. To minimizeimplementation complexity, most firms usually initiate e-procurement with indirect rather than
direct goods/services.
Information and e-procurement infrastructure
The third factor has to do with the firms actual selection of the e -procurement solution itself and
the portfolio of buy-side, sell-side, or marketplace catalogs it would need to support as a seller
firm or connect to as a buyer firm. Though initially a firm may need to choose one of the three
general options it has for doing e-procurement buy-side, sell-side, and marketplace services
eventually, it has to maintain a portfolio of possibly all three since not one electronic
environment could meet all purchasing needs of the firm. Due to cost constraints, small firmstend to opt for the marketplace at the outset. Medium-sized firms may stay with marketplaces for
a limited period of time and then, move into the portfolio arrangement. Large firms, however,
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appear to immediately use a combination of all three environments and are most motivated and
prepared to create linkages with its tier-one suppliers.
Using cost-benefit analysis, the firm should be able to identify and justify the different items that
constitute the total cost of ownership. A few of the functionalities can be (a)functionalities of the
software package (b)technical architecture (i.e. the overall software design that determines the
means through which components of the software interact and integrate with each other and
other application systems within the firm and with its trading partners) (c)installation costs
(d)service and support; and (d)other post-acquisition costs (including all hidden costs)