AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
CORPORATE STRATEGY AND EXISTING BUYER-SUPPLIER
RELATIONSHIPS ON THE USE OF ELECTRONIC
PROCUREMENT APPLICATIONS IN US-BASED FIRMS
Dawn H. Pearcy
Eastern Michigan University, 469 Owen, Ypsilanti, Michigan, United States
Larry C. Giunipero
The Florida State University, 241 Rovetta Business Building, Tallahassee, Florida, United States
Keywords: Electronic procurement, supply chain management, corporate strateg
y, buyer-supplier relationships.
Abstract: Given the emerging nature of e-procurement, additional empirical research is necessary to understand the
antecedents of its use. Therefore, the purpose of this study is to empirically test the relationship between the
firm’s corporate strategy as well as the strategic importance of the existing buyer-supplier relationship and
the use of nine different e-procurement applications. A total of 128 purchasing/supply management
professionals completed the self-administered survey. The data revealed a positive, significant relationship
between the firms’ use of a low-cost corporate strategy and e-procurement applications which are
considered market mechanisms. The data revealed a negative, significant relationship between the firms’
use of a low-cost corporate strategy and e-procurement applications that are considered coordination flows.
The data did not support a significant relationship between the strategic importance of the existing buyer-
supplier relationship and use of the various e-procurement applications.
1 INTRODUCTION
The use of e-business has undeniably changed the
way that organizations across all industries conduct
business. Increasing numbers of purchasing/supply
management decision-makers have adopted various
electronic procurement (e-procurement) applications
in an attempt to achieve the proposed benefits of
lower purchase prices, enhanced productivity, and
increased efficiency. Presutti (2003, p. 221) defined
e-procurement as “a technology solution that
facilitates corporate buying using the Internet.” Min
and Galle (2002, p. 227) advanced a more detailed
conceptualization of e-procurement and defined it as
“business-to-business purchasing practice that
utilizes electronic commerce to identify potential
sources of supply, to purchase goods and services, to
transfer payment, and to interact with suppliers”.
Many different types of e-procurement
appl
ications exist and firms employ them for diverse
purposes. Given the variety of e-procurement
applications, several researchers have developed
topologies to classify them. For example de Boer, et
al. (2001) identified the following six e-procurement
applications: e-sourcing (identifying new potential
suppliers), e-tendering (supplier contact such as
request for price), e-informing (obtaining
information about suppliers), e-reverse auctions
(purchasing goods/services based on a bidding
process), and e-MRO/Web-based ERP (order
creation, placement, and receipt). Knudsen (2003)
identified e-collaboration (synchronization between
buyer and supplier through data sharing) as an
additional category of e-procurement. Additional
researchers who established taxonomies for e-
procurement applications include Wang, et al.
(2004); García-Dastugue and Lambert (2003);
Frohlich and Westbrook (2002); Kehoe and
Boughton (2001); and Whitaker, et al. (2001).
243
H. Pearcy D. and C. Giunipero L. (2007).
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF CORPORATE STRATEGY AND EXISTING BUYER-SUPPLIER RELATIONSHIPS ON THE
USE OF ELECTRONIC PROCUREMENT APPLICATIONS IN US-BASED FIRMS.
In Proceedings of the Second International Conference on e-Business, pages 243-249
DOI: 10.5220/0002109202430249
Copyright
c
 SciTePress

2 PROBLEM STATEMENT AND
PURPOSE
Given the wide variety of e-procurement
applications available to purchasing/supply
management organizations, how does the firm
decide which is/are appropriate for their purposes?
Over the years, researchers have explored the factors
that impact adoption decisions and e-procurement is
no exception. Previous researchers have examined
the role of firm size (Pearcy and Giunipero 2007),
degree of centralization (Moon 2005), competitive
environment (Wu, et al. 2003), and the firm’s
technical capabilities (Zahay and Handfield 2004) in
the adoption of e-procurement. However, much still
remains undiscovered about the empirical
relationship between corporate strategy, buyer-
supplier relationships and the adoption of specific e-
procurement applications.
The purpose of this study is to answer two major
research questions: 1) What is the relationship
between corporate strategy and the adoption of 9
different e-procurement applications? 2) What is the
relationship between the strategic importance of the
existing buyer-supplier relationship and these nine
different e-procurement applications?
Understanding the role of corporate strategy in
the adoption of e-procurement applications is
important because less-than optimal outcomes can
result if a firm adopts a specific e-procurement
application without regard to its consistency with
corporate strategy (Porter 2000). A significant
stream of literature exists that supports the notion
that the firm’s purchasing strategies and activities
must be consistent with overall corporate strategy
(e.g., Narasimhan and Carter; 1998; Landeros and
Monczka 1989; Andrews 1971). However, there is a
lack of empirical research that specifically examines
this relationship in the realm of e-procurement.
It is also important to develop a better
understanding of the role of existing buyer-supplier
relationships in the adoption of e-procurement
applications. Given the time, effort, and resources
required to develop and maintain successful
cooperative buyer-supplier relationships, empirical
evidence about how these relationships impact the
firm’s processes and activities is critical.
Increasingly, cooperative buyer-supplier
relationships are viewed as an asset to the firm
(Johnson 1999). If a buyer-supplier relationship is
strategically vital to the firm, it is important for
managers to ascertain which e-procurement
application(s) will best support the maintenance and
growth of the relationship. Conversely, if a firm
engages in arms-length transactions with its
suppliers, mangers must implement e-procurement
applications that facilitate the most important aspect
of these business interactions, namely price.
This study contributes to an emerging stream of
academic research regarding e-procurement use by
examining two potentially vital antecedents in the
use of nine different e-procurement applications
across 33 different industries. Purchasing/supply
managers can benefit from this research by
improving their corporate alignment. They can
provide improved support of the overall corporate
strategy, through the selection and use of e-
procurement applications that support the desired
strategy.
In order to examine this topic, a review of the
existing literature and the research hypotheses are
presented. This is followed by a description of the
research methodology and presentation of the results.
The paper concludes with a discussion of the
findings, managerial implications, and limitations.
3 LITERATURE REVIEW AND
DEVELOPMENT OF THE
HYPOTHESES
3.1 Types of E-procurement
Applications
García-Dastugue and Lambert (2003) established a
framework to assist managers in the process of
selecting e-procurement applications that fit their
business situation or circumstances. This framework
was then applied to the use of seven Internet-based
technologies that were grouped in two categories.
The two categories identified were market
mechanisms and coordination flows.
According to García-Dastugue and Lambert
(2003), when firms use market mechanisms, the goal
is to engage in a transactional business interaction
with suppliers where the primary focus is making a
purchase at a certain price. Therefore, market
mechanisms are suitable for firms looking to
promote price competition among potential suppliers.
Market mechanisms also involve limited information
sharing between the buyer and supplier and are often
restricted to basic information such conditions of the
transaction, delivery, and payment (García-Dastugue
and Lambert 2003). The authors classified another
group of e-procurement applications as coordination
flows. In contrast to market mechanisms, firms use
coordination flows to facilitate ongoing relationships
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244

rather than make purchase decisions based on price.
García-Dastugue and Lambert (2003) further stated
that coordination flows allow firms to share
information which will ensure the uninterrupted
flow of products (e.g., production planning or
product development).
3.2 The Relationship between
Corporate Strategy and Use of
E-procurement Applications
While the academic literature identifies a number of
different theories of corporate strategy (e.g.,
Thompson and Strickland 1995; Miles and Snow
1978), Porter’s (1980) theoretical framework was
used in this study. Porter (1980) suggested that
corporate strategy refers to the planning and
implementation of measures that firms use to ensure
that the policies and actions of functional
departments are coordinated and directed at some
common set of goals. Porter’s theory of corporate
strategy was selected because it has been widely
accepted by academicians, and has been successfully
applied across a wide variety of industries and
countries (Campbell-Hunt 2000, Govindarajan 1988).
Porter (1980) developed a theory which maintains
that in an attempt to secure competitive advantage,
firms have the option of employing three broad
types of strategies - cost reduction, differentiation, or
focus. Cost reduction was selected for this research
because Porter regarded it as the clearest of them all
(Porter, 1998, p. 12).
When a firm assumes an overall cost leadership
strategy, it implements a number of policies,
procedures, tactics and activities directed toward
achieving this objective (Porter 1980). Astute
decision-makers recognize that the firm’s tactics and
activities must be consistent with the firm’s overall
corporate strategy. The fit between the firm’s
strategy and its activities or tactics is not a recent
concern in the literature. Andrews (1971) asserted
that a functionally motivated practice that seems to
have merit when considered individually might fail
to produce the desired outcomes because of its
mismatch with the firm’s overall strategic
orientation. Monczka and Trent (1991) and
Narasimhan and Carter (1998) support the notion
that the firm’s purchasing/supply management
tactics/activities should emanate from its corporate
strategy. The work of Smeltzer and Ruzicka (2000)
and Knudsen (2003) extend this premise and find
that a firm’s selection and use various e-procurement
applications should come as a result of a thorough
understanding of how their use fits into the firm’s
corporate strategy.
Based on previous research, which suggests that
purchasing activities, including the use of e-
procurement applications is impacted by corporate
strategy, the following is hypothesized:
H1: A positive, significant relationship will exist
between the use of a low-cost corporate strategy and
the use e-procurement applications that are classified
as market mechanisms.
H2: A negative, significant relationship will exist
between the use of a low-cost corporate strategy and
the use of e-procurement applications that are
classified as coordination flows.
3.3 Strategic Importance of the
Existing Buyer-Supplier
Relationship
Starting nearly two decades ago, increasing numbers
of buying firms opted to move toward longer-term,
cooperative relationships with their suppliers in an
attempt to improve business outcomes (Kalwani, and
Narayandas 1995). Some researchers take a broader
view of long-term, cooperative relationships and
assert that they not only provide benefits to each
party, but they also consider these relationships as
strategic assets (e.g., Webster 1992; Achrol 1991;
Thorelli 1986).
When the firm’s competitive position is
contingent upon the joint capabilities and resources
of its partner (i.e., the relationship is strategically
important [see Johnson 1999]), it is expected that the
buying firm will seek to engage in activities which
preserve/advance the relationship. Under this
circumstance, the supplier has already been selected
and the use of e-procurement is directed toward
maintaining the long-term relationship and sharing
information that will ensure the uninterrupted flow
of goods, rather than on reducing the purchase price.
Therefore, the following is hypothesized:
H3: A negative, significant relationship will exist
between the relative strategic importance of the
existing buyer-supplier relationship and the use of e-
procurement applications that are classified as
market mechanisms.
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF CORPORATE STRATEGY AND EXISTING
BUYER-SUPPLIER RELATIONSHIPS ON THE USE OF ELECTRONIC PROCUREMENT APPLICATIONS IN
US-BASED FIRMS
245

Market-based
E-procurement Applications
Figure 1: The Research Model.
H4: A positive, significant relationship will exist
between the relative strategic importance of the
existing buyer-supplier relationship and the use of e-
procurement applications that are classified as
coordination flows.
4 METHODOLOGY
4.1 The Instrument
The “low-cost corporate strategy” construct was
measured using a scale developed by Zahra and
Covin (1993). The 4-item scale was anchored in
reference to the firm’s key competitors, which,
according to Zahra and Covin (1993) is appropriate
because it recognizes the fact that strategy is a
comparative term. The elements of corporate
strategy that were assessed included: operating
efficiency, efficiency in securing raw materials,
capacity utilization, efficiency of the distribution
channel, and reduction of production cost. Each
item was measured on a 5-point Likert scale ranging
from 1 = “much less than your competitors” to 5 =
“much more than your competitors”.
“Strategic importance of the existing buyer-
supplier relationship” was measured using three
(after scale purification) of the six items identified
by Johnson’s (1999) study. Survey participants
were asked to respond to the following items
regarding their decision to utilize a popular e-
procurement application with suppliers: “It is very
important for our organization to maintain
relationships with these suppliers”, “When
developing our firm’s strategy, we consider these
suppliers as a large part of the picture”; “Our firm’s
long-term strategy depends on maintaining a good,
healthy relationship with these suppliers”. Each
item was measured on a 5-point Likert scale ranging
from 1 = strongly disagree to 5 = strongly agree.
The set of items used to assess “use of
electronic-procurement applications” was developed
by the researchers. Respondents were asked to
respond to the following: “We use Internet-based
technologies to:”…This statement was followed by a
list of e-procurement applications. The respondents
assessed each item on a 5-point Likert scale from 1
= strongly disagree to 5 = strongly agree. The e-
procurement applications were identified by an
extensive review of the trade and academic
literatures and numerous in-depth case studies of
firms operating in widely diverse industries as
reported by Antonette, et al. (2002). Table I
contains a list of the e-procurement applications
assessed in the study.
In order to maximize the comprehensiveness of
the questionnaire, it was pre-tested on a group of
supply management professionals and academicians.
Minor changes were made based on their
recommendations prior to mailing.
4.2 Survey Participants and
Questionnaire Mailing
The Institute for Supply Management (ISM), an
organization composed of supply chain management
professionals and academicians in the United States,
provided the list of potential study participants. The
sampling frame of 15,000 potential survey
participants consisted of all members employed with
firms in the following eleven industries: food
products, paper products, chemicals, petroleum,
rubber, primary metals, transportation equipment,
fabricated metals, computer equipment, measuring
and analyzing instruments, and electrical equipment.
The data, which were analyzed in the present
study, were collected as part of a larger investigation
of on-line reverse auction implementation.
Therefore it was necessary to identify and select
firms from the sampling frame that used the
technology. The researchers identified 1,025
potential survey participants. A survey, cover letter,
Low-cost Corporate
Strategy
Strategic Importance of the
Existing
Buyer-Supplier
Relationship
H1 +
H2 -
H3 -
Coordination-based
E-procurement Applications
H4 +
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and postage paid envelope were mailed to each of
the potential participants and a follow-up postcard
followed two weeks later in an attempt to increase
the response rate.
5 RESULTS
5.1 Response Rate and Sample
Demographics
A total of 128 useable surveys were received. This
resulted in a 12.5% response rate. The respondents
were experienced in the purchasing/supply
management profession, with an average of nearly
12 years of experience. Thirty-three different
industries were reported including petroleum/gas,
transportation, telecommunications, pharmaceuticals,
industrial equipment, and metals/mining were
represented to name a few. The three most
commonly reported lines of business were
manufacturing (26%), food (12%) and auto parts
(11%). The respondents held a variety of positions,
with purchasing manager being the most common
(18.8%), followed by senior buyer (20%) and
director of e-business (19%). Annual revenues for
the respondents’ business unit also varied widely,
ranging from $US4.5 million to $US45 billion, with
a mean of $US5.49 billion. The dollar amount of
purchases for which the respondents’ were
responsible ranged from $1US million to $US17
billion, with a mean of $US57 million.
5.2 Reliability Analysis
Each scale was subjected to a reliability analysis
using Churchill’s (1979) paradigm for scale
development. Both the “low-cost corporate strategy”
scale and the “relative strategic importance of the
existing buyer-supplier relationship” scale were
found to be reliable, with coefficient alphas of .79
and .86 respectively. The reliability of the “e-
procurement applications” scale is discussed in a
subsequent section.
5.3 Hypothesis Tests
The first step in testing the research hypotheses was
to classify the e-procurement applications as market
mechanisms or coordination flows. This was
accomplished through the use of exploratory factor
analysis (EFA) on the 12 e-procurement application
items included on the survey. The EFA (rotated
solution) on the 12-items revealed three factors,
which was not theoretically supported. The first
factor was comprised of 5 items with factor loadings
ranging from .59 to .84. The second factor was
comprised of 4 items with factor loadings ranging
from .61 to .86. The third factor was comprised of
only two items, “we use the Internet to access e-
marketplaces” and “we use the software services of
an e-purchasing solution provider”. These items had
factor loadings of .90 and .66 respectively. Using
Tabachnick and Fidell (1996) as a guide in handling
two-item factors, correlations were examined. The
correlation between the two items did not exceed .7
(r = .44), nor were they relatively uncorrelated with
the other items. Consequently, both items were
deleted. One additional item, “we use Internet-based
technologies to check suppliers’ financial status”
failed to load on any factor and was therefore
deleted according to Comrey and Lee’s (1992) rule-
of-thumb.
The nine-item scale was then subjected to a
reliability analysis. The resulting coefficient alpha
was .70, with no possibility for improvement by
deleting items. A confirmatory factor analysis
(CFA) was performed on the scale. The rotated
solution revealed two factors. The first factor was
composed of four items and the factor loadings
ranged from .64 to .88. The second factor was
composed of five items and had factor loadings
ranging from .62 to .85. The factors explained
58.7% of the variance in the data.
The two factors were then labeled according to
the classification scheme of García-Dastugue and
Lambert (2003). The first factor was composed of
transactional, price-driven types of e-procurement
applications (e.g., “search for low-cost sources of
supply”, “place orders on suppliers’ websites”).
This factor was labeled “market mechanisms”. The
second factor, which included e-procurement
applications such as “plan and schedule production”
and “collaborate with suppliers on product/service
design issues”, was labeled “coordination flows”.
The researchers tested for discriminant validity
in order to establish whether each set of items could
be considered a distinct scale. The items exhibited
significant correlations within each scale (ranging
from .27 to .69) and were uncorrelated across scales,
confirming discriminant validity. Both scales were
also found to be reliable. Cronbach’s alpha for the
“market mechanism” scale was .77; it was .80 for
“coordination flows” (see Table 1).
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF CORPORATE STRATEGY AND EXISTING
BUYER-SUPPLIER RELATIONSHIPS ON THE USE OF ELECTRONIC PROCUREMENT APPLICATIONS IN
US-BASED FIRMS
247

Table 1: Factor Analysis.
Factor We use Internet-
based
Technologies to:
1
Market
mechanisms
2
Coordination
flows
Develop an
integrated supply
chain
.22 .70
Plan and schedule
production
.08 .74
Collaborate with
suppliers on
product design
issues
-.09 .85
Achieve cross-
functional
coordination
-.05 .83
Search for
suppliers that will
help us
differentiate our
products/services
-.15 .62
Search for low-cost
suppliers
.64 -.07
Visit suppliers’
websites
.83 -.02
Access on-line
catalogs
.88 .07
Place orders on
suppliers’ web sites
.70 .02
Extraction method: Principle Component Analysis
Rotation Method: Varimax with Kaiser Normalization
The second step in testing the research
hypotheses was the use of simple linear regression.
The data provides support for H1. A positive,
significant relationship exists between the use of a
low-cost corporate strategy and the use of market
mechanisms (p<.0001, adjusted R
2
= .09, β = .42).
The data also provides support for H2. A negative,
significant relationship exists between the use of a
low-cost corporate strategy and the use of
coordination flows (p = .02, adjusted R
2
= .03, β = -
.27). Neither H3 nor H4 were supported by the data.
Simple linear regression did not reveal a significant
relationship (at α = .05) between the relative
strategic importance of the existing buyer-supplier
relationship and the use of market mechanisms (p
= .12) or coordination flows (p = .95).
6 DISCUSSION AND
MANAGERIAL
IMPLICATIONS
Firms in this study exhibit alignment between a low-
cost corporate strategy and the use of market based
e-procurement applications. Clearly, the respondents
recognize the advantages of using these applications
to drive lower price, thereby supporting a low-cost
corporate strategy. While obtaining lower purchase
prices is desirable, the knowledge component is also
valuable.
For example, supply management professionals
have the ability to visit web sites and access to on-
line catalogs that permit quick comparison of prices.
An often overlooked benefit of e-procurement
applications is the streamlining of the buying
process and the lowering of the transactional costs
associated with doing business. Placing orders
electronically, via a seller’s website or through a
buyer’s portal saves significant amounts in
transaction costs. One source finds that the
traditional purchase order cost $125-150 dollars per
order. Switching to an e-procurement application
reduces this price to less than $US25 per order
(Antonette, et al. 2002)
Interestingly, no relationship was found between
the strategic importance of the existing buyer-
supplier relationship and the use of e-procurement
applications. This implies that the firms in this
sample chose to use both types of e-procurement
applications with those suppliers who they perceived
as being strategically important. Despite the fact that
a supplier is perceived as being strategically
important, this does not lower the competitive
expectations of the purchasing/supply manager. The
difference is that firms were also willing to use
cooperative e-procurement applications with these
strategic suppliers. These coordination-based e-
procurement applications allowed increased
coordinated efforts between the parties. The overall
view implied here is that the strategically important
supplier must be competitive and that the use of
coordination flow applications will assist in
streamlining that particular supplier’s operations to
assist with improvements in their operating
efficiencies.
7 LIMITATIONS
The study was strictly limited to US-based supply
managers and perhaps there are differences
internationally. The sample was taken from SIC
codes that were manufacturing-oriented. Purchasing
professionals in the ISM tend to be oriented toward
the manufacturing sector which is undergoing
significant price pressures due to globalization.
These pressures coupled with the huge impact of
low-cost countries have driven many manufacturing
firms to a low-cost strategy in order to survive and
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compete. Perhaps, a more service-oriented sample
would provide different results.
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AN EMPIRICAL INVESTIGATION OF THE IMPACT OF CORPORATE STRATEGY AND EXISTING
BUYER-SUPPLIER RELATIONSHIPS ON THE USE OF ELECTRONIC PROCUREMENT APPLICATIONS IN
US-BASED FIRMS
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