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Supply Chain Management: An International JournalSuccessful use of e-procurement in supply chainsThomas Puschmann Rainer Alt

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To cite this document:Thomas Puschmann Rainer Alt, (2005),"Successful use of e-procurement in supply chains", Supply Chain Management: AnInternational Journal, Vol. 10 Iss 2 pp. 122 - 133Permanent link to this document:http://dx.doi.org/10.1108/13598540510589197

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Gioconda Quesada, Marvin E. González, James Mueller, Rene Mueller, (2010),"Impact of e-procurement onprocurement practices and performance", Benchmarking: An International Journal, Vol. 17 Iss 4 pp. 516-538 http://dx.doi.org/10.1108/14635771011060576

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Successful use of e-procurement insupply chains

Thomas Puschmann

The Information Management Group (IMG AG), St Gallen, Switzerland, and

Rainer Alt 

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

AbstractPurpose  – 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 notusually included due to low transaction volumes, low product values and low strategic importance of these goods. Dedicated information systems forstreamlining 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 solutionsand what factors are critical to their implementation are only emerging. This research aims to explore the introduction of e-procurement systems andtheir 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 wasconducted 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 successfactors 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 companiesoperate multiple e-procurement solutions. For integrated procurement solutions, the paper recognizes the need of an overall procurement strategy andorganization, 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 e-procurement solutions. Besides providing a direct contribution to the project work in companies it may stimulate further research in e-procurementsuccess factors.

Keywords  Procurement, Communication technologies, Supply chain management, Benchmarking, Critical success factors

Paper type  Research paper

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 company’s materials management system withsupplier systems. Since the mid-1990s companies have also

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 harborlarge 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 considerablyThe Emerald Research Register for this journal is available at

www.emeraldinsight.com/researchregister

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal

10/2 (2005) 122–133

q  Emerald Group Publishing Limited [ISSN 1359-8546]

[DOI 10.1108/13598540510589197]

This research was conducted as part of the Competence Center BusinessNetworking at the Institute of Information Management (IWI-HSG) incollaboration with the Transfer Center for Technology Management(TECTEM) at the Institute of Technology Management, University of StGallen. The authors would like to thank the staff from TECTEM, inparticular Mr Urs Frehner, for their cooperation and for the suggestionsfor revisions of the manuscript from two anonymous reviewers.

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less expensive and m ore 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 thirdphase of development in e-procurement has also been

observable with the integration of electronic markets (e-

markets) 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.

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 e-

procurement systems.

Typically, a company’s 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

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 e-procurement systems.

Although the adoption of e-procurement has rapidly

increased in recent years, companies face different

challenges associated with the advent and use of e-

procurement. 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 company’s 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 fromcase 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

Figure 1 Effects of e-procurement

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Thomas Puschmann and Rainer Alt 

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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.

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 company’s 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 company’s position by

applying objective criteria. The goal of qualitativebenchmarking, on the other hand, is to deduce reference

concepts, methods and models for the design and the

transfer of successful practices to one’s own company.

2   Horizon of comparison.  Four main types of benchmarking

can be differentiated depending on organizational focus.

Internal benchmarking studies allow companies to

com pare 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 consortium benchmarking which was applied for this

benchmarking project concentrates on an external, industry-independent 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 Gallen’s Institute of Information

Management and its Benchmarking Center TECTEM. The

consortium benchmarking method aims to identify cross-

industry 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.

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 partnersThe 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 company’s 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 e-

procurement 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 f or 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 indirectproducts and services from 17 suppliers via the Ariba

solution.

4   SAP AG , headquartered in Walldorf, Germany, is the

world’s 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.

Figure 2 Focus of the benchmarking project

Successful use of e-procurement in supply chains

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5   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 e-

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 purchasingdepartment and are carried out directly with local suppliers.

Especially the large benchmarking companies started e-

procurement 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 e-

procurement in large organizations (see Figure 4):

1 realignment of the purchasing operation;

2 reorganization of the procurement process;

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

Organization   Multinational enterprises with large procurement volume

High degree of implementation

Reorganization project as part of e-procurement project

Content and catalog management   Criteria for the development of a procurement portfolio

Company-wide product classification scheme (e.g. UN/SPSC)

Use of catalog hosting on the intranet

Supply chain processes and system architecture   Use of e-procurement standard software

Internal integration with ERP systems

External integration with e-markets

Operational efficiency   Measurement system for procurement (e.g. balanced scorecard)

Use of key performance indicators

ROI analysis

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3 preparation of catalogs offering the right amount of good-

quality content;

4 embracement of suppliers at an early stage; and

5 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, paper-

based procurement process, numerous authorization stages

were necessary and involved, e.g. line and project managers,

specialists or the purchasing department. Very often these

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 com panies 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.

Content and catalog management

Despite the re-engineering of the procurement process,

content management is another key factor for successful e-

procurement 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 company’s own intranet to pool enterprise-

wide demand and optimize procurement processes.

2   Punchout . A catalog hosted on the supplier’s 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.

Figure 4 Implementation project

Successful use of e-procurement in supply chains

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Identifying the right e-procurement strategy for each

commodity is crucial to the success of a company’s 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 avalue of e310 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

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 company’s 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 supplier’s 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 supplier’s 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 company’s own

Figure 5 Shift from managing transactions to managing suppliers

Table II  Characterization of e-procurement strategies

E-procurement strategy

Criterion   Intranet catalog Punchout Auction Request for quotation

Number of orders   High Medium Low Low

Volume per order   Low Low High HighNumber of requestors   High Medium Low Low

Number of suppliers   Low Low High Medium

Degree of standardization   High Medium High Medium

Competition   Low Low High Medium

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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 company’s 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

company’s 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

m arketplace emaro in order to pool volum es andstandardize 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.

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

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 e-

procurement strategies need to be crafted in a company’s

procurement process according to their strengths (Riggs and

Robbins, 1998; Hughes   et al., 1998; Dolmetsch  et al., 2000;

K alakota and R obinson, 2 00 1) . U sually, they are

complementary and support different parts of a company’s

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 willusually 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 Ariba’s 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 e-

procurement systems have adapters to allow seamless

integration with back-end systems. Cisco’s Ariba system, forexample, 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 e-

procurement 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 w hereas the l ink to electronic

marketplaces continues to be a second priority (see Figure 8).

Figure 6 Strategies for catalog management

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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 20-200g or 10-

1,000g and show different graduations. However, UN/SPSC

does not allow characteristics of this kind to be included.

Figure 7 Supply chain processes and e-procurement strategies

Figure 8 Use of e-procurement systems

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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 maverickbuying, which can account for dramatic savings. These cost

savings are one of the most important motivations for e-

procurement. 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 e-

procurement. The more complicated the old paper-based

procurement processes, the more authorization stages and

exceptions, and therefore the higher the savings will be. Totake advantage of these potentials, the procurement process

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.

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 andlogistics. Cisco highlights the efficiency potential of e-

procurement. In view of the company’s 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.

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 e-

procurement 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

Table III  E-procurement architecture components and standards

Architecture component

Company

E-procurement

system ERP system

Catalog

standard

Product

classification

standard

Communication

standard E-market

Babcock Borsig AG   Lotus Notes SAP R/3 BME-Cat BME-Cat ASCII EC4EC

Bayer AG   SAP B2B 2.0 SAP R/3 Harbinger eCl@ss XML chemplorerCisco Systems, Inc.   Ariba Buyer 6.1 Oracle, Peoplesoft HR Ariba UN/SPSC XML –

SAP AG   SAP B2B 2.0 SAP R/3 Requisite UN/SPSC XML emaro

Xerox (Europe) Ltd   SAP B2B 2.0 SAP R/3 Requisite UN/SPSC XML –

Figure 9 Savings potential of e-procurement

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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 astrong 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. Cisco’s 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 company’s 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 alsohad to develop a strategy for the physical hosting of their

catalogs.

Outlook

In most companies, procurement has always been an unnoted

function (Kaufmann, 1999). Management’s 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 real-

time data. This form of collaboration means a two-way

Table IV  Summary of success factors

Object of comparison Success factor

Babcock

Borsig Bayer

Cisco

Systems SAP Xerox

1. Introduction project   1.1 Realignment of the purchasing organization U U U U

1.2 Preparation of catalogs U U U U U

1.3 Embracement of suppliers at an early stage U U U U U

2. Organization   2.1 Automation of authorization workflow U U U U U

2.2 Creation of a central coordination instance for

supplier management U U U U U

3. Content and catalog management   3.1 Identification of the right e-procurement strategy

for each commodity U U U

3.2 Standardization of services for representationin the catalog U U

3.3 Strategy for the physical hosting of the catalogs U U U

4. Supply chain processes & system

architecture

4.1 Alignment of e-procurement strategies with the

procurement process U U U

4.2 Integration of the e-procurement system with

other relevant systems U U U U U

4.3 Use of standards for catalogs and data interchange U U U

5. Operational efficiency   5.1 Redesign of the procurement process in order to gain

efficiency improvements U U U U U

5.2 Link to the balanced scorecard U U U

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interaction between the manufacturer and the supplier

without any manual processes..  Mobile proc urem ent.   Adding m obile access to e-

procurement 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 purchaserequisitions; 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. That’s why another topic for further

research is the empirical validation of the success factors

which were identified in the benchmarking project. A thirdsubject 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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