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Supply Chain Management: An International Journal

Successful use of e-procurement in supply chains


Thomas Puschmann Rainer Alt

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Thomas Puschmann Rainer Alt, (2005),"Successful use of e-procurement in supply chains", Supply Chain Management: An
International Journal, Vol. 10 Iss 2 pp. 122 - 133
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Gioconda Quesada, Marvin E. Gonzlez, 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 http://
dx.doi.org/10.1108/14635771011060576
Rebecca Angeles, Ravi Nath, (2007),"Business-to-business e-procurement: success factors and challenges to implementation",
Supply Chain Management: An International Journal, Vol. 12 Iss 2 pp. 104-115 http://dx.doi.org/10.1108/13598540710737299
Hsin Hsin Chang, Yao-Chuan Tsai, Che-Hao Hsu, (2013),"E-procurement and supply chain performance", Supply Chain
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Successful use of e-procurement in


supply chains
Thomas Puschmann
The Information Management Group (IMG AG), St Gallen, Switzerland, and

Rainer Alt

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Institute of Information Management, University of St Gallen, St Gallen, Switzerland


Abstract
Purpose Electronic support of internal supply chains for direct or production goods has been a major element during the implementation of
enterprise resource planning (ERP) systems that has taken place since the late 1980s. However, supply chains to indirect material suppliers were not
usually included due to low transaction volumes, low product values and low strategic importance of these goods. Dedicated information systems for
streamlining indirect goods supply chains have emerged since the late 1990s and subsequently have faced a broad diffusion in practice. The concept of
these e-procurement solutions has also been described broadly in the literature. However, studies on how companies use these e-procurement solutions
and what factors are critical to their implementation are only emerging. This research aims to explore the introduction of e-procurement systems and
their contribution to the management of indirect goods supply chain.
Design/methodology/approach Chooses a two-part qualitative approach. First, summarizes the results of a benchmarking study that was
conducted by a consortium of 12 multinational companies. During the benchmarking process 120 questionnaires were distributed, ten phone-based
interviews were conducted, and finally five successful practice companies were selected and analyzed in detail. Second, draws together the success
factors identified in the benchmarking study and maps them against the successful practice companies.
Findings Although e-procurement has substantially streamlined the procurement and coordination processes for indirect goods, many companies
operate multiple e-procurement solutions. For integrated procurement solutions, the paper recognizes the need of an overall procurement strategy and
organization, an alignment of various e-procurement solutions along the procurement process and the need for integrated system architectures.
Companies also have to realize that a no standardized e-procurement solutions exists and that important success factors are non-technical in nature.
Originality/value This paper presents a first step towards a systematic analysis of factors that may guide companies in the implementation of eprocurement solutions. Besides providing a direct contribution to the project work in companies it may stimulate further research in e-procurement
success factors.
Keywords Procurement, Communication technologies, Supply chain management, Benchmarking, Critical success factors
Paper type Research paper

been redesigning their relationships with business partners for


indirect procurement. Direct procurement addresses all
components and raw materials that are used in the
manufacturing process of a finished product, such as sheet
metal, semiconductors, and petrochemicals (Lamming,
1995), whereas indirect procurement relates to products and
services for maintenance, repair and operations (MRO) and
focuses on products and services that are neither part of the
end product nor resold directly (Zenz, 1994). Traditionally,
ERP systems have been applied to products with high
transaction volumes and direct implications for value-adding
processes. As a consequence, we still find paper-prone and
labor-intensive processes for indirect procurement that harbor
large inefficiencies.
The diffusion of e-procurement systems in the late 1990s
has created the potential for reorganizing the MRO supply
chains. Compared to ERP, these systems were considerably

Introduction
Evolution of e-procurement
As a major part of supply chain management (Leenders and
Fearon, 1997; Monczka et al., 1997), supply chains in
procurement are traditionally supported by information
technology. With the implementation of enterprise resource
planning (ERP) or manufacturing resource planning (MRP)
systems in the 1980s electronic data interchange (EDI)
connections with suppliers were established. For example,
close partnerships have been forged with direct material
suppliers through the automation of delivery schedules by
linking a companys materials management system with
supplier systems. Since the mid-1990s companies have also
The Emerald Research Register for this journal is available at
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This research was conducted as part of the Competence Center Business


Networking at the Institute of Information Management (IWI-HSG) in
collaboration with the Transfer Center for Technology Management
(TECTEM) at the Institute of Technology Management, University of St
Gallen. The authors would like to thank the staff from TECTEM, in
particular Mr Urs Frehner, for their cooperation and for the suggestions
for revisions of the manuscript from two anonymous reviewers.

Supply Chain Management: An International Journal


10/2 (2005) 122 133
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540510589197]

122

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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

Figure 1 Effects of e-procurement

less expensive and more flexible due to increased


standardization on a technical level. More or less all studies
on e-procurement report large efficiencies regarding process
and procurement costs (Gebauer and Segev, 1998). The main
idea of e-procurement is to include the end-user (requester) in
the procurement process via an electronic multi-vendor
catalog and to close the process gaps (e.g. re-entry of data)
in the supply chain for indirect goods (Neef, 2001). A third
phase of development in e-procurement has also been
observable with the integration of electronic markets (emarkets) in the supply chain since the end of the 1990s
(Poirier and Bauer, 2000). These e-markets evolved alongside
the early system vendors like Ariba, Commerce One or SAP
and support the outsourcing of operational procurement
functions, offering tools for auctions and requests for
quotations. However, the following evolution of e-markets
has led to a substantial consolidation and many now focus on
outsourced solutions for catalogs and auctions.
To summarize, these three development stages form the
basis for the term e-procurement in this paper. According to
(Dolmetsch et al., 2000), e-procurement deals with the
management of supply chains in the procurement of indirect
goods that is based on Internet information systems and also
e-markets.

companies were planning to implement e-procurement


systems at that time. Other studies show similar proportions
for other countries (for the USA, for example, Industrial
Distribution, 2001; The Institute of Management and
Administration, 2000). A study by Wyld (2004) reports that
currently almost half of all American companies use eprocurement systems.
Although the adoption of e-procurement has rapidly
increased in recent years, companies face different
challenges associated with the advent and use of eprocurement. One is that most companies only apply single
e-procurement functions. The analysis by Wyld (2004) shows
that in the USA only 30 percent of the companies surveyed
use e-procurement systems for requests for quotations, online
auctions (25 percent) or e-markets (33 percent). A second
challenge is that, despite the overwhelming evidence which
shows the advantages of e-procurement systems, proprietary
systems such as EDI continue to persist, and have to be
included in a companys overall e-procurement infrastructure.
To do so, companies need to know the critical success factors
in implementing e-procurement strategies, processes and
systems.
From an academic perspective, some initial contributions to
success factor research exist. An analogy with the natural
sciences shows that causal links between actions and their
successful effects as the main goal. In the social sciences, the
deterministic claim of the empirical success factor research
approach very often cannot contribute clear results (e.g.
Eyholzer and Hunziker, 2000; Industrial Distribution, 2001;
The Institute of Management and Administration, 2000;
Wyld, 2004, Kauffmann and Mohtadi, 2004; Gebauer and
Shaw, 2004). Instead of the verification of constant laws, the
search for a few parameters (success factors) is therefore
proposed (e.g. Boynton and Zmud 1984). This more
qualitative research approach identifies success factors from
case studies and differs from empirical success factor research
that defines strong requirements in terms of validity and
reliability. Despite these missing causal effects, there is a belief
that research has to strive for recommendations that reduce
uncertainty and guide management actions (Tan and Pan,
2002).
Because of the difficulties of empirical success factor
research, this article chooses a two-part qualitative approach.
It summarizes the results of a benchmarking study that was
conducted by a consortium of 12 multi-national companies
from Germany and Switzerland. During the benchmarking

Benefits of e-procurement
The potentials of e-procurement have already been proven in
a number of studies (Aberdeen Group, 2001; Eyholzer and
Hunziker, 2000; Arthur Andersen Business Consulting,
2001). According to these studies, e-procurement enables
companies to decentralize operational procurement processes
and centralize strategic procurement processes as a result of
the higher supply chain transparency provided by eprocurement systems.
Typically, a companys procurement function is subdivided
into strategic and operational processes since activities and
priorities in these two areas are entirely different (Kaufmann,
1999; Lamming, 1995). Supplier management, the pooling of
purchase requisitions and procurement-oriented product
development are tasks that are typically assigned to strategic
procurement. Prior to e-procurement, strategic procurement
often had to deal with administrative routine work as well,
such as individual transactions, converting purchase requests
into purchase orders or ensuring the correct allocation of
invoices received. Strategic aspects are frequently neglected in
the process, with the buyer having little influence over the
choice of suppliers and the purchased products. The use of
Internet technologies in procurement is aimed at realizing
faster and more efficient operational procurement processes
which bypass the purchasing department and enable those
people to concentrate on more strategic tasks (Giunipero and
Sawchuk, 2000; see Figure 1). In e-procurement, requesters
directly search for and select products in electronic catalogs
which are authorized and negotiated by strategic procurement
in advance.
Successful use of e-procurement
Despite the potentials promised by the vendors of such
systems, e-procurement got off to a slow start. A study by
(Eyholzer and Hunziker, 2000) shows that only 18 percent of
the Swiss companies analyzed used electronic product
catalogs, auctions or requests for quotations in procurement
in the year 2000. According to this study, however, many
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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

process that took place between March and September 2000,


120 questionnaires were distributed, ten telephone interviews
were conducted, and finally five successful practice companies
were selected and analyzed in detail. The article analyzes
implemented e-procurement solutions and identifies factors
that the companies surveyed cited as important requirements
for the successful use of e-procurement systems in their
organizations.

Figure 2 Focus of the benchmarking project

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Research method
Benchmarking method
Benchmarking can be defined as the systematic comparison
and learning from other companies with the goal of achieving
sustainable improvements for a companys own position
(Camp, 1989). Depending on focus, two benchmarking
approaches can be distinguished which are not mutually
exclusive (Pieske, 1995):
1 Goal of comparison. Quantitative benchmarking is aimed at
comparing efficiency on the basis of key performance
indicators in order to define a companys position by
applying objective criteria. The goal of qualitative
benchmarking, on the other hand, is to deduce reference
concepts, methods and models for the design and the
transfer of successful practices to ones own company.
2 Horizon of comparison. Four main types of benchmarking
can be differentiated depending on organizational focus.
Internal benchmarking studies allow companies to
compare best practices on a quantitative, key
performance indicator-based approach. External
methods such as competitive benchmarking support
individual positioning very well but are lacking when it
comes to discovering detailed key performance indicators
from other industries (Boutellier et al., 1999).

The results of the 52 questionnaires returned were reported to


the consortium in the second meeting. Ten responses with the
highest scores (regarding the defined criteria) were
documented in more detailed case studies based on phone
interviews. All cases were reported on an anonymous basis to
the consortium members and prioritized during the review
meeting. Finally, this assessment process led to the selection
of five successful practice companies.
Benchmarking partners
The review meeting led to the selection of five successful
practice companies. These companies presented their
solutions during site visits. The five selected companies were:
1 Babcock Borsig AG, headquartered in Oberhausen,
Germany, is an international technology group operating
in the fields of power engineering and shipbuilding. In
keeping with its decentralized company structure,
Babcock has a decentralized purchasing organization.
Babcock runs a Lotus Notes-based e-procurement system
which covers approx. 90 percent of the companys indirect
procurement volume.
2 Bayer AG, headquartered in Leverkusen, Germany, is a
multi-national company with core competencies in
chemical and pharmaceutical products. Prior to
implementing the SAP Business-to-Business eprocurement system, Bayer started a worldwide
bundling project for indirect goods in order to achieve
horizontal and vertical synergies in procurement. In 2000
the company initiated an e-procurement project with an
electronic catalog including some 169,000 articles from
39 suppliers.
3 Cisco Systems, Inc. is a manufacturer of networking
equipment and services for the Internet and is
headquartered in San Jose, USA. Cisco arranged its
procurement in line with the different commodities the
company procures (e.g. telecom, IT, training, etc.). In
1996 the company started with the implementation of the
Ariba Operating Resource Management System (ORMS).
Cisco purchases approx. 60 percent of all indirect
products and services from 17 suppliers via the Ariba
solution.
4 SAP AG, headquartered in Walldorf, Germany, is the
worlds largest supplier of ERP systems. The company
introduced a corporate purchasing department in 1999
for the coordination of their international procurement
activities. The company announced 14 purchasing
managers for each country and each commodity. At the
same time, the company implemented the SAP B2B
Procurement system with which SAP procures approx.
16,000 items for services and IT.

The consortium benchmarking which was applied for this


benchmarking project concentrates on an external, industryindependent comparison of generic concepts and critical
success factors. The company consortium consisted of
purchasing specialists from twelve German and Swiss
companies and was supported by an expert team consisting
of the University of St Gallens Institute of Information
Management and its Benchmarking Center TECTEM. The
consortium benchmarking method aims to identify crossindustry successful practices which are selected in a given
project procedure. These successful practices are concepts,
methods and models that have been proven in one or more
companies and lead to a competitive advantage (Boutellier
et al., 1999).
Qualitative benchmarking requires the definition of objects
of comparison to ensure the comparability of the successful
practices (Camp, 1989). In the e-procurement benchmarking
project, these objects were defined during the first consortium
meeting. The objects of comparison were: introduction
project, the procurement organization, content and catalog
management, supply chain processes and system architecture,
as well as operational efficiency (see Figure 2).
The benchmarking project encompassed four phases (see
Figure 3). During the preparation phase objects of
comparison and criteria were defined and discussed in the
first consortium meeting (see Table I). This structure was
used in the questionnaires that were sent to 120 potential
successful practice companies in Europe and North America.
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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Figure 3 Research method

Table I Defined criteria for successful practices


Object of comparison

Defined criteria

Introduction project

Complete implementation of e-procurement system


E-procurement in operation . six months
Change management system in place
Multinational enterprises with large procurement volume
High degree of implementation
Reorganization project as part of e-procurement project
Criteria for the development of a procurement portfolio
Company-wide product classification scheme (e.g. UN/SPSC)
Use of catalog hosting on the intranet
Use of e-procurement standard software
Internal integration with ERP systems
External integration with e-markets
Measurement system for procurement (e.g. balanced scorecard)
Use of key performance indicators
ROI analysis

Organization

Content and catalog management

Supply chain processes and system architecture

Operational efficiency

procurement. Little attention was paid to MRO procurement,


and manual, paper-based procedures prevail. Not only are
they labor-intensive and harbor a considerable error potential,
but many transactions simply bypass the purchasing
department and are carried out directly with local suppliers.
Especially the large benchmarking companies started eprocurement with organizational concepts on corporate level.
Typically, the areas purchasing, IT and financial accounting
had to be coordinated in order to define common goals.
Successful e-procurement implementations included more
than merely a new IT system. The benchmarking project
highlights five factors for the implementation of eprocurement in large organizations (see Figure 4):
1 realignment of the purchasing operation;
2 reorganization of the procurement process;

Xerox (Europe) Ltd is headquartered in London, UK, and


manufactures copiers, printers, scanners, software as well
as providing services. In 1999 the company started a
procurement project that focused on the reorganization of
its 16 independent country-based procurement
organizations through a central commodity board that
coordinates procurement on a pan-European level.
Besides the procurement of indirect products, Xerox has
a strong focus on the procurement of services since this
represents the biggest volume in its procurement portfolio.

Results of the benchmarking study


Introduction project
Many large companies have a similar situation in their indirect
procurement supply chain prior to the implementation of e125

Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Figure 4 Implementation project

3
4
5

people also raised objections to a lean authorization procedure.


Since they have usually spent years performing the task of
authorizing, they consider it to be an important and
meaningful part of their daily work. In the case of a lean
procurement process, invoice verification can be simplified as
well, only performed at random or replaced by a credit system.
Supplier management is another area of organizational
change. E-procurement provides the opportunity to establish
preferred suppliers in the MRO area as well (Smeltzer, 2001).
For this purpose it is necessary to implement supplier
management as part of the e-procurement project. As most of
the large companies have decentralized procurement
structures in place, all of the companies analyzed
implemented a central coordination instance in order to
have better control over the products and services to be
purchased on a company-wide basis. Bayer, for example,
conducted a pooling project prior to the implementation of its
e-procurement solution in order to bundle volumes on a
regional and, where possible, even on a global level.

preparation of catalogs offering the right amount of goodquality content;


embracement of suppliers at an early stage; and
integration of e-procurement and back-end systems.

The overall introduction of an e-procurement system typically


required approximately six months. All benchmarking
partners had pilot solutions in place prior to the roll-out of
the system. However, addressing non-technical questions took
significantly longer. Bayer, for example, needed about a year
to form a global commodity coordination board which was
necessary to pool volumes of certain products and services.
Another year was required to establish centralized master data
management, a key element for data quality in the catalog.
Organization
Prior to the introduction of e-procurement, buyers frequently
had to deal with individual transactions. They had to
negotiate with suppliers, convert purchase requests into
purchase orders, handle queries and ensure the correct
allocation of the invoices received. In the operational
workload, strategic aspects were neglected and buyers had
little influence over the choice of suppliers and the purchased
products. Their negotiating power was limited as the
purchasing decision was made by the requester or the
authorizer and not by the purchasing department. The
requester was at the center, with all activities emanating from
him or her (see Figure 5).
E-procurement brings about important simplifications of
the MRO procurement process and reduces this operational
workload for buyers by decentralizing the operational
procurement process. If the procurement process is to be
faster and more convenient, the number of authorization
stages must be radically reduced. Babcock Borsig, for
example, eliminated its authorization workflow altogether.
At Bayer, all employees may authorize their own purchasing
operations up to a limit of e1,500. SAP reduced the number
of authorization stages from six to one. With the old, paperbased procurement process, numerous authorization stages
were necessary and involved, e.g. line and project managers,
specialists or the purchasing department. Very often these

Content and catalog management


Despite the re-engineering of the procurement process,
content management is another key factor for successful eprocurement implementation (Smeltzer, 2001; Poole and
Durieux, 1999). Among our successful practice companies,
four strategies were observed (see Table II):
1 Intranet catalog. Electronic multi-vendor product catalogs
hosted on a companys own intranet to pool enterprisewide demand and optimize procurement processes.
2 Punchout. A catalog hosted on the suppliers web site (e.g.
Dell) if products are more complex and need to be
configured with a product configurator.
3 Auction. Auctions to leverage price reductions through
supplier competition. Auctions are suitable for products
and services with low complexity and allow comparison
among different suppliers.
4 Request for quotation (RFQ). In settings with low frequency
of use and high complexity, RFQs are an instrument for
inviting suppliers to submit bids based on previously
published specifications.
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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Figure 5 Shift from managing transactions to managing suppliers

Table II Characterization of e-procurement strategies


E-procurement strategy
Criterion
Number of orders
Volume per order
Number of requestors
Number of suppliers
Degree of standardization
Competition

Intranet catalog
High
Low
High
Low
High
Low

Punchout
Medium
Low
Medium
Low
Medium
Low

Identifying the right e-procurement strategy for each


commodity is crucial to the success of a companys solution
and therefore ranks as one of the major challenges. First of all,
products and services with a very high degree of coordination
effort with the supplier and a very low order frequency are
certainly not candidates for e-procurement (Porter, 2001).
These products require a high effort for content negotiation.
Bayer, for example, conducted an auction for a plant with a
value ofe310 million. It took the company three months to
specify the product with all the necessary details in order to
keep it comparable among the different suppliers. Finally, the
auction was conducted with a price reduction of one percent.
This confirms that when conducting auctions, price is not the
sole determining factor for supplier negotiations (Kenczyk,
2001). Among the decision criteria to consider when bidding
and buying engineered custom parts are quality, technical
ability, cost, lead time, delivery arrangements and payment
terms, to name but a few. These requirements are unique to
both the part design and the capability of suppliers. Table II
shows the criteria that characterize each single e-procurement
strategy. Auctions and requests for quotations are partly
complementary strategies used to reduce procurement costs.
Where appropriate, companies conduct auctions for certain
products and catalog them afterwards.
Some companies tried to catalog services as well. In the
initial phase of most e-procurement projects, services are not
usually included in catalogs. However, the benchmarking
study shows signs that bode well for the cataloging of services.
Bayer, for example, is establishing a standard directory for
maintenance services. With some 800,000 order items a year,
this results in a considerable transaction volume. One item
within this area, for example, is lay one meter of cable. In
collaboration with Manpower, a UK-based human resource
company, Xerox has already built up a catalog for temporary

Auction
Low
High
Low
High
High
High

Request for quotation


Low
High
Low
Medium
Medium
Medium

staff. Function, level of qualifications, workplace and length


of employment can be entered, the price is then shown and
the order can be sent to Manpower electronically. Catalog
orders for services are usually more detailed than paper-based
orders, each item is standardized and listed individually. This
makes it possible to draw an exact comparison between the
invoices received and the order submitted. The main criterion
for services is their degree of standardization. For example,
the qualification profile of a new employee is not as
standardized as a print job for a marketing brochure.
Therefore, Xerox uses the punchout scenario for services
with a low degree of standardization and less purchasing
frequency.
Catalog management deals not with the content itself but
with the physical hosting of catalogs (Dolmetsch et al., 2000).
In our benchmarking study we found three different strategies
(see Figure 6). An initial strategy is the use of catalogs that are
hosted on a companys Intranet. The purchasing company is
the owner of the catalog data and changes are typically
performed by the purchasing company itself or the supplier.
All the successful practices used this form of catalog hosting
because the company has better control over changes and the
catalog can easily be released after approval by the purchasing
department.
A second strategy which uses externally hosted catalogs on
a suppliers website is the punchout mechanism. The
punchout scenario enables requesters to access external
catalogs via their own e-procurement system (Kalakota and
Robinson, 2001). Selected products and services can be
chosen from the suppliers electronic product catalog and
transferred to the internal e-procurement system with a
mouse click. The advantage of this strategy is a streamlined
catalog maintenance and procurement process in the same
way as the catalog would be hosted on a companys own
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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Figure 6 Strategies for catalog management

intranet. The requester sees only those products and services


that the purchasing department negotiated. Product
configurators from the suppliers that could only be
integrated into a companys own Intranet with a great deal
of effort are the main reason for using the punchout scenario.
A third strategy for catalog management is the use of
external multi-vendor product catalogs that are hosted on
electronic marketplaces. This strategy is tightly coupled with a
companys general procurement strategy (Raisch, 2001).
Babcock Borsig, Bayer and SAP used this strategy because
they initiated their own electronic marketplaces with other
partner companies. SAP, for example, introduced its
marketplace emaro in order to pool volumes and
standardize procurement processes with suppliers. Bayer
follows the same strategy. The company launched the
marketplace cc-chemplorer in October 2000 with the same
169,000 catalog items that Bayer had formerly held in its own
multi-vendor product catalog. The main goal of these
marketplaces was to use synergies not only within one
company but also across several companies. Although a broad
diffusion of these e-markets did not occur and some solutions
(e.g. emaro, EC4EC) have disappeared cc-chemplorer
appears to operate successfully in the segment of outsourced
content and catalog management.

processes. Similarly, implementing an e-procurement system


in isolation without considering the entire procurement
process and the systems involved will not be sufficient
(Deise et al., 2000). As shown in Figure 7, the various eprocurement strategies need to be crafted in a companys
procurement process according to their strengths (Riggs and
Robbins, 1998; Hughes et al., 1998; Dolmetsch et al., 2000;
Kalakota and Robinson, 2001). Usually, they are
complementary and support different parts of a companys
procurement process.
At Bayer and Xerox the roll-out of the e-procurement
system has been aligned with the SAP R/3 project. The
decision in favor of a particular e-procurement system will
usually depend on the existing ERP and procurement
systems. However, comprehensive studies on system
evaluation are not usually performed. Selecting a system
tends therefore almost without exception to be a pragmatic
decision. Xerox, for example, evaluated e-procurement
systems from Ariba, Commerce One, Oracle and SAP, and
finally chose the SAP solution because of its integration
capability with their existing SAP R/3 system. Another major
criterion when selecting an e-procurement system is its
technological maturity. Cisco opted for Aribas e-procurement
system as it provided the best link to the Oracle system at the
time and also led in terms of user friendliness. Typically, all eprocurement systems have adapters to allow seamless
integration with back-end systems. Ciscos Ariba system, for
example, extracts all user information such as user name,
password and IP addresses from the Peoplesoft human
resources system. Additional interfaces exist to link in the
Oracle financial and material management system. As eprocurement is not targeted exclusively at the optimization of
internal processes, integration is also required towards the
suppliers and electronic marketplaces. SAP, for example, uses
emaro to link with suppliers systems for order processing and
accounting. However, most of the companies still focused on
internal integration whereas the link to electronic
marketplaces continues to be a second priority (see Figure 8).

Supply chain processes and system architecture


Compared to the internal focus of traditional logistic
approaches, SCM emphasizes the management of upstream
and downstream relationships and the role of supply chain
optimization to increase customer value at less cost
(Christopher, 1998; Ross, 1998). Examples of SCM
initiatives are just-in-time, zero inventory, efficient consumer
response, vendor-managed inventory or continuous
replenishment (Kalakota and Whinston, 1997). SCM
involves three areas to deal with (Christopher, 1998): order
processing activities, physical activities, and order-related
financial activities. The experiences of many failed ERP
implementations show that the introduction of a new system
is only efficient with the redesign of existing business
128

Successful use of e-procurement in supply chains

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Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Figure 7 Supply chain processes and e-procurement strategies

Figure 8 Use of e-procurement systems

The use of standards plays a critical role in e-procurement.


Objects to be standardized are catalogs, data and processes. If
the catalog data were not organized according to an ordered
structure, they would be virtually unusable. For example, Bayer
structured and stored its items using the eCl@ss standard
(Table III). Like UN/SPSC, eCl@ss is a product classification

system. In addition, it is possible to cover various characteristics


of a product with the aid of the list of attributes. Some products
differ only marginally in their characteristics. A set of weighing
scales, for example, may have a scale from 20-200 g or 101,000 g and show different graduations. However, UN/SPSC
does not allow characteristics of this kind to be included.
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Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

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Table III E-procurement architecture components and standards

Company

E-procurement
system

ERP system

Babcock Borsig AG
Bayer AG
Cisco Systems, Inc.
SAP AG
Xerox (Europe) Ltd

Lotus Notes
SAP B2B 2.0
Ariba Buyer 6.1
SAP B2B 2.0
SAP B2B 2.0

SAP R/3
SAP R/3
Oracle, Peoplesoft HR
SAP R/3
SAP R/3

Architecture component
Product
Catalog
classification
standard
standard
BME-Cat
Harbinger
Ariba
Requisite
Requisite

BME-Cat
eCl@ss
UN/SPSC
UN/SPSC
UN/SPSC

Communication
standard

E-market

ASCII
XML
XML
XML
XML

EC4EC
chemplorer

emaro

needs to be redesigned. In the successful practices, this redesign


focused on:
.
reduction or elimination of authorization stages;
.
regulation of exceptions to a limited degree at the beginning;
.
elimination of paper;
.
integration of suppliers in the entire process chain; and
.
consideration of the complete process, from searching for
articles through to invoicing.

Operational efficiency
According to a study from Intersearch Corp. (1998),
approximately 80 percent of all purchasing transactions are
spent on indirect products and services. Most Fortune 100
companies have in excess of 40,000 suppliers of indirect
goods but purchase less than US$10,000 annually from 80
percent of those suppliers. E-procurement provides an
opportunity to consolidate sources and control maverick
buying, which can account for dramatic savings. These cost
savings are one of the most important motivations for eprocurement. Nearly all of the companies analyzed in the
benchmarking study have confirmed operational efficiency.
E-procurement benefits fall into two major categories:
efficiency and effectiveness (Kalakota and Robinson, 2001).
The former includes process, products and inventory savings
(see Figure 9), the latter the proactive management of key
data, and higher-quality purchasing decisions within
organizations. Efficiency improvements are calculated on the
basis of the as-is situation prior to the implementation of eprocurement. The more complicated the old paper-based
procurement processes, the more authorization stages and
exceptions, and therefore the higher the savings will be. To
take advantage of these potentials, the procurement process

Many figures relating to the savings potentials in the


procurement process have already been published (e.g.
Intersearch Corp., 1998; Killen & Associates, 1997). The
average process costs per order in the as-is situation at all
benchmarking partners lay between US$70-150. The cost
reductions in an e-procurement project are on average
between 50 percent and 80 percent. This savings potential,
averaging US$70 and more per order, forms the basis for
most feasibility studies prior to e-procurement projects. The
long-term e-procurement users among the benchmarking
partners, namely Babcock Borsig and Cisco, confirm these
savings potentials. Here, it is important to consider not only
the savings in the actual purchasing operation itself but also
on the part of users, authorizers, invoice verification and
logistics. Cisco highlights the efficiency potential of eprocurement. In view of the companys growth structures,
processes in procurement also have to grow, or be readily
adaptable. Purchasing volume has more than doubled within
the last two years and is nevertheless still handled by the same
number of staff but now using e-procurement.

Figure 9 Savings potential of e-procurement

Summary and outlook


Summary of benchmarking results
The benchmarking study showed that companies which
successfully implemented e-procurement rely on proven
concepts regarding introduction, organizational change,
content and catalog management, procurement processes
and system architecture in order to achieve operational
efficiency. The successful practices demonstrate that eprocurement is merely a non-technical issue. The effort
undertaken to implement e-procurement as a strategy is
mostly spent on organizational aspects and the redesign of
procurement processes rather than on technical questions. All
successful practices implemented a globally oriented
commodity coordination board to agree upon the products
purchased via the e-procurement solution. The strong
decentralization of the procurement function in large
companies was a barrier to achieving synergies from pooling
volumes at a corporate level. E-procurement enabled companies
130

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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

to gain greater transparency over their procurement portfolio


with the availability of more detailed data.
The benchmarking project showed that all successful
practices have strengths in certain areas. Babcock Borsig,
for example, focused on the support of procurement processes
in operational and strategic issues with the marketplace
EC4EC that not only supported indirect but even direct
procurement processes. Bayer, on the other hand, had a
strong focus on content management. The company defined a
high percentage of its indirect product volume and developed
a catalog that also served to build up a new business segment
with the marketplace cc-chemplorer. Ciscos e-procurement
solution was characterized by a high degree of integration on a
systems level. The young company history provides the
advantage of avoiding data redundancies on a global basis.
The e-procurement systems are tightly integrated with other
operational systems. This allows Cisco a very high degree of
transparency and standardization. The same can be said
about SAP. Because of the companys IT focus, it has been
using its own electronic marketplace since 1999 for the
procurement of PCs from Fujitsu Siemens. The establishment
of the emaro marketplace was the next step in this direction. A
completely new dimension of e-procurement is provided by
Xerox. The company traditionally has a strong focus on the
procurement of services and it began very early with the
bundling of services in catalogs.
All the companies analyzed collected know-how concerning
e-markets. But most of them did not plan to substitute their
internal catalogs by catalogs hosted on e-markets. In fact,
these companies believed that electronic marketplaces
complement their existing e-procurement solutions with
functionality for strategic procurement issues (e.g. requests
for quotations). Other companies used their internal catalogs
to found e-markets, as the examples of Babcock Borsig and
Bayer show.
Table IV summarizes the success factors which were
identified in the benchmarking project and maps them against

the successful practice companies. Seven independently


named success factors were important in all five companies
(1.2, 1.3, 2.1, 2.2, 3.3, 4.2, 5.1). Other factors can be
explained by company or project specifics. The use of
standards for data interchange, for example, was much more
important for Bayer and SAP because these companies used
eMarkets to integrate their e-procurement systems with their
suppliers. This is the reason why these three companies also
had to develop a strategy for the physical hosting of their
catalogs.
Outlook
In most companies, procurement has always been an unnoted
function (Kaufmann, 1999). Managements prime interest
was focused on manufacturing and sales. Recently, more and
more companies have realized that procurement plays a very
important role. In fact, procurement is more significant than
sales in terms of its influence on company figures. For
example, a case study at Mercedes-Benz identified that a 10
percent increase in turnover had the same effect on the
operating result as a reduction in material costs of 0.518
percent, due to the leverage effect of procurement costs
(Kalakota and Robinson, 2001). Thus, e-procurement has a
strategic function in most organizations as the high diffusion
of Wyld (2004) shows. Since many companies have
implemented traditional e-procurement systems, new areas
of improvement come along:
.
Collaborative procurement. Collaboration is aimed at a
closer interaction between suppliers and customers
through the use of Internet technologies such as portals.
An example of such collaboration scenarios comes from
the automotive industry where manufacturers report their
demand and inventory status through supplier portals.
These numbers are used by first-tier suppliers to feed their
supply chain and production planning systems with realtime data. This form of collaboration means a two-way

Table IV Summary of success factors


Object of comparison

Success factor

1. Introduction project

1.1
1.2
1.3
2.1
2.2

2. Organization

3. Content and catalog management

3.1
3.2

4. Supply chain processes & system


architecture

3.3
4.1
4.2

5. Operational efficiency

4.3
5.1
5.2

Realignment of the purchasing organization


Preparation of catalogs
Embracement of suppliers at an early stage
Automation of authorization workflow
Creation of a central coordination instance for
supplier management
Identification of the right e-procurement strategy
for each commodity
Standardization of services for representation
in the catalog
Strategy for the physical hosting of the catalogs
Alignment of e-procurement strategies with the
procurement process
Integration of the e-procurement system with
other relevant systems
Use of standards for catalogs and data interchange
Redesign of the procurement process in order to gain
efficiency improvements
Link to the balanced scorecard

131

Babcock
Borsig

Bayer

Cisco
Systems

SAP

Xerox

U
U
U
U

U
U
U
U

U
U
U
U

U
U
U

U
U
U
U

U
U
U

U
U

U
U

U
U

U
U

U
U

U
U

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Successful use of e-procurement in supply chains

Supply Chain Management: An International Journal

Thomas Puschmann and Rainer Alt

Volume 10 Number 2 2005 122 133

Gebauer, J. and Shaw, M.J. (2004), Success factors and


impacts of mobile business applications: results from a
mobile e-procurement study, International Journal of
Electronic Commerce, Vol. 8 No. 3, pp. 19-41.
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Changing the Way Corporations Buy, JGC Enterprises,
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Intersearch Corp. (1998), National Purchasing Organisations
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Kalakota, R. and Robinson, M. (2001), E-business 2.0:
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interaction between the manufacturer and the supplier


without any manual processes.
Mobile procurement. Adding mobile access to eprocurement applications is an option that has not yet
been widely adopted. Gebauer and Shaw (2004) report a
case study in which a field service engineer can create a
purchase request for a field repair job. The application
provides functionality in three areas: creating purchase
requisitions; approving requisitions; and checking the
status of requisitions. Mobile procurement enhances
existing e-procurement solutions and makes the
application independent of the location where it is used.
The benefits are high mobility; support for simple
activities like tracking, access to ad hoc information, and
reachability.

Future research can address these new areas of improvement


and analyze in detail the integration of mobile and
collaborative procurement functions into existing solutions.
The study described in this paper was limited, because it was
only a snap-shot. Thats why another topic for further
research is the empirical validation of the success factors
which were identified in the benchmarking project. A third
subject for further research can be the embedding of the
success factors into procedure models for the introduction
and implementation of e-procurement systems.

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