How does the use of e-procurement change the nature of the skills and knowledge required of supply management personnel? (750 words, provide all references used & use attached docs as well).

Impact of e-procurement on procurement practices and performance

Gioconda Quesada Marvin E. González James Mueller Rene Mueller Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Article information:

To cite this document:

Gioconda Quesada Marvin E. González James Mueller Rene Mueller, (2010),"Impact of e-procurement on

procurement practices and performance", Benchmarking: An International Journal, Vol. 17 Iss 4 pp. 516 538

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Alan Smart, (2010),"Exploring the business case for e-procurement", International Journal

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Hsin Hsin Chang, Yao-Chuan Tsai, Che-Hao Hsu, (2013),"E-procurement and supply chain

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www.emeraldinsight.com/1463-5771.htm BIJ

17,4 Impact of e-procurement

on procurement practices

and performance 516 ´

Gioconda Quesada, Marvin E. Gonzalez,

James Mueller and Rene Mueller Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Department of Marketing and Supply Chain Management, School of Business,

College of Charleston, Charleston, South Carolina, USA

Abstract

Purpose ? The purpose of this paper is to investigate the impact of electronic procurement

technologies on procurement practices (PPR) and procurement performance (PP).

Design/methodology/approach ? This paper posits a model of the relationships between

e-procurement technology (EPT) usage, PPR, and PP. This model was tested and validated using a

sample of 368 procurement specialists in the USA.

Findings ? The ?ndings suggest that EPT usage positively affects managers? perceptions of both

PPR and PP.

Research limitations/implications ? The ?ndings of this paper primarily pertain to the

operational level of the organization. Future research could also attempt to isolate the impact of

individual EPTs on ?rm performance.

Practical implications ? The contribution for practitioners is to provide guidelines for the use of

EPTs, and to report its impact on PP. The measurement instruments developed in this paper can be

used to evaluate and benchmark current PPR.

Originality/value ? This paper contributes to the literature by providing an empirical test of the

impact of EPTs on perceptions of PPR and performance.

Keywords Procurement, Sourcing, Electronic commerce, Information systems,

Supply chain management, United States of America

Paper type Research paper Benchmarking: An International

Journal

Vol. 17 No. 4, 2010

pp. 516-538

q Emerald Group Publishing Limited

1463-5771

DOI 10.1108/14635771011060576 Introduction

Supply chain management (SCM) involves all the approaches used to ef?ciently

integrate the supply-side participants of a ?rm?s value chain (Porter, 1980) so that

products/services are delivered to the customer in the right quantities, to the right

location, at the right time, and at optimal cost. The application of information systems

(IS) technology to facilitate this integration process is a phenomenon that continues to

receive managerial attention and, consequently, academic interest. Research on the

application of IS technology to support SCM is abundant, results clearly show that the

use of new SCM technologies increase the ef?ciency of the supply chain as well as

improve overall ?rm performance (Lindskog and Wennberg, 2002). While electronic

data interchange (EDI), inter-organizational systems, e-commerce, e-sourcing,

e-procurement, and e-auctions are all applications of IS that support SCM

(Kameshwaran et al., 2007; Lee and Whang, 2000; Presutti, 2003; Puschmann and Alt,

2005; Dedrick et al., 2008). According to Novack and Simco (1991), e-procurement studies

are particular important due to the fact that procurement is one of the most critical

functions of the supply chain. In terms of e-commerce, e-procurement is usually the Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) starting point for many companies? overall e-commerce strategy (Chang et al., 2004). One

study shows organizations spending at least one-third of their overall budget on

procurement products and services (Killen and Kamauff, 1995). More recent research

(Moozakis, 2001) ?nds that investments in procurement technologies account for the

greatest percentage (53 percent) of business investment in enterprise applications

software, followed by customer relationship management (41 percent), SCM (31 percent),

and electronic resource planning (8 percent).

Although overall adoption rates of e-procurement technology (EPT) are still a relative

unknown (Pearcy et al., 2008), most researchers agree that the full impact of

e-procurement has not yet been realized and that the adoption and integration of EPTs

into the business mainstream is occurring at a much slower pace than expected

(Davila et al., 2003). Indeed, studies have shown that while over 70 percent of American

buyers use internet technologies at work (Caridi et al., 2004), the percentage of business

procurement conducted electronically is relatively low ? ranging from 10 percent

(Qualyle, 2005) to 20 percent (Kulp et al., 2006). This disconnect is evident in a recent

study by Gunasekaran and Ngai (2008). In this study, 80 percent of industry respondents

agreed that the use of the internet was important in procurement; however, only

20 percent had actually adopted EPTs. According to Talluri et al. (2006), managers

recognize bene?ts of e-procurement such as: better coordination with suppliers, quicker

transaction times, higher ?exibility, better supplier integration, and lower costs

(Fang et al., 2007).

If managers and workers understand the bene?ts of EPTs, why are they not used?

Gilbert (2000) has partially answered this question by arguing that companies jump onto

the e-procurement bandwagon without fully understanding the inter-organizational

collaboration and network effects underlying these technology models, the investment

required to move the right information from suppliers to employees, and the

complexities of integrating these technologies with existing enterprise resource

planning systems. Recognizing the managerial challenges, operational risks, and

dif?culty measuring incremental increases to pro?t inherent in implementing new

(and relatively expensive) supply chain technologies, this research seeks to explore the

effect of EPT usage on procurement practices (PPR) and PP). Through a large-scale

empirical study investigating how emerging EPTs affect the procurement function,

a theoretical model is developed and resulting hypotheses are empirically tested. First,

a literature review is presented.

Literature review and hypotheses development

Leenders et al. (2002) brie?y summarize the history of procurement since the late 1800s.

Initially, procurement (purchasing) was considered a clerical function. By the 1970s,

purchasing/procurement began to receive academic attention as its importance as an

administrative function became recognized (Ammer, 1974). It was Porter?s (1980)

seminal work, however, that prompted ?rms to think of procurement as a strategic

function rather than simply and administrative one (his ?ve forces model includes

supplier and buyer power as two critical forces for competitiveness). Since the 1980s,

procurement has evolved from being viewed as merely a process for buying goods and

services for a ?rm, to being more comprehensively de?ned as all the activities necessary

to acquire goods and services needed to achieve user requirements (Tassabehji and

Moorhouse, 2008). Impact

of e-procurement 517 BIJ

17,4 Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 518 The strategic importance of procurement has been reiterated frequently, and is still

one of the critical themes found in the literature (Drake and Lee, 2009; Ordanini and

Rubera, 2008; Rajagopal and Bernard, 1993; Ellram and Carr, 1994; Rink and Fox, 1999;

Kocabasoglu, 2002). Soares-Agular and Palma-Dos-Reis (2008) and Drake and Lee (2009)

argue the importance of giving procurement a strategic role in the organization and

agree that achieving world-class status in procurement requires leadership and

alignment of purchasing strategy with business strategy.

While relatively fewer studies have analyzed procurement and its impact on different

functional, ?rm or supply chain performance objectives (Croom and Johnson, 2003;

Gebauer et al., 1998; Frohlich and Westbrook, 2002), components of the basic

e-procurement model can be gleaned from contributions in the literature at both the

strategic and operational levels. The benchmarking process can provide a critical link in

understanding the relationship between the components of this model, as shown in

Figure 1, and explained in the next sections.

EPT usage

EPT usage has been de?ned as the extended usage of electronic network technologies

and practices that facilitate electronic communication, information exchange and

transaction support through either public or private networks (Min and Galle, 1999).

In this context, it becomes critical to understand the effects of changing information

technologies on EPT usage, business performance, and the achievement of business

goals.

Previous literature has used the term e-procurement to describe the use of the internet

on procurement tasks (Davila et al., 2003; Presutti, 2003). The mistaken emphasis on the

internet only could lead academicians and practitioners to understand too narrowly the

capabilities, bene?ts and limitations of e-procurement; however, this is not internet

procurement, but electronic procurement (Neef, 2001). Clearly, the internet provides a

low-cost solution for those ?rms wanting to start e-procurement but not having the

resources necessary for adopting more expensive information technologies such as EDI.

Despite the emphasis on the internet, EPT is not synonymous with

internet-procurement. Indeed, Ordanini and Rubera (2008) found that the internet is

useful primarily when used as a complementary tool used in conjunction with other

EPTs. Other researchers have cleared this misunderstanding by naming web-based B2B

procurement as speci?c procurement activities done through the internet (Candrasekar

and Shaw, 2002; Lindskog and Wennberg, 2002). E-procurement

technology usage

(EPT)

H2 Figure 1.

Research framework Procurement

practices

(PPR) H3 H1 Procurement

performance

(PP) Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Procurement practices

Despite signi?cant academic interest in the subject, it does not appear to be a universally

accepted delineation of the PPR construct. Based on a review of the literature (Cammish

and Keough, 1991; Keough, 1993; Ellram and Siferd, 1993; Laios and Xideas, 1994;

Baldwin and Orr, 1997; Cavinato, 1991; Novack and Simco, 1991; Rajagopal and

Bernard, 1993; Herberling, 1993; Sutton, 1989; Archer and Yuan, 2000; Leenders et al.,

2002; Lincoln University, 2001; Gebauer and Segev, 2001; Kong and Li, 2001; Rink and

Fox, 1999; Segev, 2001; Berger and Gattorna, 2001; Subramaniam and Shaw, 2002; Neef,

2001; Alt and Fleisch, 2000; Presutti, 2003; Tracey, 2004; Gonzalez and Medrano, 2002),

PPR can be divided into information gathering, supplier contact, contracting,

requisitioning, and intelligence/analysis as described below:

(1) Information gathering. Webster and Wind (1996) specify the buying tasks as:

.

identi?cation of need;

.

establishment of speci?cations;

.

identi?cation of alternatives;

.

evaluation of alternatives; and

.

selection of suppliers. (2) (3) (4) (5) All of these steps are done in the procurement stage of information gathering.

As stated by Segev et al. (1998), in information gathering, prospective

buyers identify their needs and evaluate potential sources to ful?ll them. This

process is accomplished by gathering information about market conditions,

products and sellers. Novack and Simco (1991) explain the information

gathering process as conducting market analysis, depending upon if it is a

competitive market (many suppliers), an oligopolistic market (a few large

suppliers) or a monopolistic market (one supplier).

Supplier contact. The buyers? request for quotes, request for proposals (RFP),

request for information and bids are all contained in supplier contact. Rink and

Fox (1999) include supplier contact as part of the procurement activities in any

stage of a product-life cycle, from requesting for quotes, to requesting for volume

discounts and bids. Segev et al. (1998) report that the RFP ranked third in

frequency-of-use as a negotiation technique, after face-to-face contact and bids.

Contracting. Negotiation is the interaction of partners to determine price,

availability and delivery times of goods and services (Segev et al., 1998).

Contracting is simply the result of successful negotiations. The contracting

process varies depending on whether the transaction is a new buy, a modi?ed

rebuy, or straight rebuy (Anderson et al., 1987).

Requisitioning. In requisitioning, the terms of the contracts are carried out and

goods and services are transferred in exchange for money or other forms of

compensation. Requisitioning is also referred to as settlement (Segev et al., 1998),

or delivery of products and performance of service (Novack and Simco, 1991) and

culminates with the generation of performance data used as inputs in the

following stage, intelligence, and analysis.

Intelligence and analysis. Berger and Gattorna (2001) de?ne intelligence and

analysis as the identi?cation, collection and use of internal and external data to Impact

of e-procurement 519 BIJ

17,4 Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 520 enable procurement to make smart sourcing decisions. Narasimhan and Carter

(1998) speci?ed purchasing practices as:

.

supplier certi?cation;

.

supplier development;

.

supplier quali?cation;

.

just-in-time procurement; and

.

supply base rationalization.

All these activities require intelligence and analysis as part of the PPR to make

better decisions about suppliers. Novack and Simco (1991) argue to include

intelligence and analysis as a post-purchase/make performance evaluation for

control purposes; however, Gonzalez et al. (2004) argue that intelligence is more

than just a control of performance; high-quality information is a key tool for

developing effective strategies.

Recent literature in SCM shows empirical and theoretical evidence that improvement in

PPR; positively affect the procurement function performance. Vaidyanathan and

Devaraj (2008) show empirical evidence that support the relationships between PPR and

e-procurement satisfaction performance. Vaidyanathan et al. (2008) provided results

based on Australian companies showing that higher frequency of PPR positively

impacts the effect of e-procurement on procurement performance (PP). Tatsiopoulos

(2004) indicate that about 60 percent of global purchasing expenditures are spent on

high-volume, low-money maintenance, repair, and operating (MRO) purchases (MRO

supplies); which typically account for 20 percent of an organization?s purchases but

80 percent of its orders. Therefore, by improving the PPR of MRO ordering, a dramatic

decrease in transaction costs is expected. Tavi (2008) emphasizes that organizations

cannot ignore the abundant bene?ts that world-class PPR offer in an increasingly global

economy (increased control, cost savings, ef?ciencies and good corporate citizenship,

among others). Based on the literature, the authors claim:

H1. The higher the use of PPR in a ?rm, the higher the PP.

Carr et al. (2000) found that higher ?rm performance is associated with functional-level

purchasing expertise, purchasing risk-taking, and strategic purchasing activities.

Likewise, Bayraktar et al. (2009) report a positive correlation between the adoption of IS

technology and the level of SCM practices and ?rm performance by using a sample of

metal fabrication industry in Turkey. The transformational effect of e-procurement has

been empirically validated by Croom and Brandon-Jones (2007); however, it is within

the narrowly constrained domain of nine UK public sector organizations. Finally, while

Garrido et al. (2008) investigated the impact of internet intensity-of-use in PPR on the

organizational processes and structure, it was only done with Spanish industrial ?rms.

Segev et al. (1997) investigated the impact of the internet on PPR; however, the ?ndings do

not report validity and reliability of the PPR construct, only descriptive statistics related to

procurement implementation via internet applications. This study seeks to overcome

some of the constraints presented in previous literature by using a large and

representative random sample selected from the Institute for Supply Chain Management,

the world?s largest SCM association. Based on previous literature, the authors suggest:

H2. The higher the EPT usage of the ?rm, the higher the PPR. Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Procurement performance

Although the need for performance measurement in procurement has long been

recognized, for a variety of reasons, many organizations fail to measure it adequately

(Cammish and Keough, 1991; Brun et al., 2004). Easton et al. (2002) review the history of

PP measurement in the literature through the 1980s and early 1990s and conclude that a

general weakness of ?traditional? measures is that they recognize and reward mainly

short-term gains, rather than long-term ones. Laudon and Laudon (2010) argued that

measuring long-term impact is notoriously dif?cult.

Another problem with traditional metrics is that they often work to improve the PP at

the expense of other departments? performance; however, the concept of improving only

one unit?s performance (a traditional way of measuring PP) has been heavily criticized in

the literature (Bourne et al., 2002; Ghalayini and Noble, 1996, 1997) and is counter to the

total quality management philosophy. Other criticisms of traditional measures of PP

include: being based too much on ?nancial performance; one-dimensional or incomplete;

contradictory to continuous improvement; in?exible; no strategic focus; and even

invalid (Easton et al., 2002).

The literature on e-PP is divided in terms of its impact at the operational or strategic

level of the organization. At the operational level, there have been several studies

investigating the impact of EPTs on PPR and PP including Mishra et al. (2007),

Vaidyanathan and Devaraj (2008) and Teo et al. (2009). It is argued that by utilizing new

procurement technologies, ?rms can increase the ef?ciency of their entire procurement

process and, thereby, can achieve higher ?rm performance (Lindskog and Wennberg,

2002). Research by Gebauer et al. (1998) has also described PPR and how these positively

impact PP in terms of cost, time, satisfaction, quality, stock, and value.

Several studies are particularly useful for helping de?ne and understand e-PP and

how it can be measured. Croom and Johnston (2003), for example, focus on

e-procurement when they address the impact of e-business on internal customer service.

Frohlich and Westbrook (2002) measure the impact of web-based procurement in

operational performance (delivery time, transaction cost, pro?tability, and inventory

turnover) while Gebauer et al. (1998) analyze the effect of the internet on strategic

procurement planning practices and how these practices in?uence PP. Relatively few

studies, however, have analyzed this phenomenon and its impact on different functional,

?rm or supply chain performance objectives.

The potential bene?ts of e-procurement have been described extensively in both

practitioner and academic journals (Kocabasoglu, 2002; Lindskog and Wennberg, 2002;

Gebauer et al., 1998). There is general agreement that e-PPR positively impact PP in

terms of cost, time, satisfaction, quality, stock, and value; however, estimates of the

impact of investments vary (Ordanini and Rubera, 2008; Gunasekaran and Ngai, 2008)

and empirically derived ?gures are dif?cult to unearth. The Aberdeen Group (2006)

reports e-procurement bene?ts including: 64 percent reduction in off-contract

(?maverick?) spending, 7.3 percent reduction in prices for spend brought back onto

contract, 66 percent reduction in requisition-to-order cycles and 58 percent reduction in

requisition-to-order costs; accordingly, the report concludes that e-procurement ?really

works?. A.T. Kearney, a global management consulting ?rm, similarly argues that

companies can save more than 13 times their investment in EPTs and claims further that

the top 500 global companies could realize $330 billion in annual savings through the use

of e-procurement (Plano, 2002). Hackett Benchmarking & Research likewise argue that Impact

of e-procurement 521 BIJ

17,4 that e-procurement can save a company 2 percent annually (Roth, 2001). Rai et al. (2009)

provide evidence of the positive impact of e-procurement on procurement productivity.

Hence, the authors suggest:

H3. The higher the EPT usage of the ?rm, the higher the PP. Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 522 Owing to the great impact of e-procurement on business performance (as reviewed

previously), it is the purpose of this research to provide a broad understanding of the

impact of all kinds of electronic technologies that facilitate the PPR among organizations

(Berger and Gattorna, 2001). In this study, the researchers include in EPTs (public as

well as private networks) that could be designed for speci?c ?rms, e.g. EDI and other

interorganizational systems.

Research methods

A large-scale survey approach was used to test the hypotheses derived for the research

model (Figure 1). The constructs for this research were developed with a strong

theoretical foundation based on a review of available literature. The literature review

included theoretical models as well as reliable and valid measures that have been used in

past research on PPR and performance. Items were found in the literature and were

augmented by open-ended interviews with procurement managers. A ?ve-point Likert

scale where 1 ? not at all, 2 ? to a small extent, 3 ? to a moderate extent, 4 ? to a

considerable extent, and 5 ? to a great extent was used. A sixth classi?cation was

provided for reducing missing values, 6 ? do not know.

The ?rst step was to allow experts in the business and academic ?elds to review the

items for clarity and content. The items were modi?ed, deleted and added as necessary

by incorporating their feedback and analysis. The researchers then used the Q-sort

methodology (Stephenson, 1953) to pre-test the convergent and discriminant validity of

the scales (Q-sort also ensures content validity and clari?cation of the items and

dimensions of the different constructs).

A large-scale survey was the instrument for data gathering (Appendix 1). The focus

of the study is procurement specialists, since they are the most appropriate to answer

questions related to PPR, PP, and EPT usage. The Institute for...

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