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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


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


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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are there? A conceptual overview. , Journal of Revenue & Pricing Management, Vol. 6 Issue 2, p77 -85

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)

first draft _final_23 march w2007

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