UNDERSTANDING THE RELATIONSHIP BETWEEN

PROCUREMENT PERFORMANCE AND E-PROCUREMENT

SYSTEMS IMPLEMENTATION

Antonio Soares Aguiar, K. (Ram) Ramamurthy

IT Department, Atlantic University, Oeiras, Portugal

Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, U.S.A.

Antonio Palma Reis

Department of Management, ISEG - Technical University of Lisbon, Lisbon, Portugal

Keywords: EPS Implementation, Systems Integration, Power Balance, Green Procurement Performance.

Abstract: Information Technology (IT) can help generate a positive contribution, not only to the economic growth but

also to a better environment. In this context, our paper aims to analyze the role of electronic procurement

systems (EPS) implementation and use on the firm’s green procurement performance. We propose a

conceptual model to explain the role of EPS Implementation on procurement performance where the

environment component is also included. We hypothesize that: (1) procurement performance is affected by

the extent of EPS implementation success; and (2) the relationship between EPS implementation success

and procurement performance is moderated by both the power balance (between the focal firm and its

suppliers) as well as the extent of internal and external systems integration. Additionally we propose a

research methodology to empirically test the conceptual model and associated hypotheses.

1 INTRODUCTION

The main objective of this research is to examine the

potential relationship between procurement

performance (measured not only by the traditional

efficiency and effectiveness criteria but also by a

new environmental dimension) and the

implementation of an electronic procurement system

(EPS). The current understanding of this association

can be enhanced by considering the specific role of

power balance between the firm and its suppliers

and EPS integration with both internal and external

(suppliers) systems.

Procurement, public and private, of goods and

services that are friends of the environment is a

possible definition of green procurement. The

application and effective use of this concept by the

buying organizations could generate significant

economical and environmental benefits. Taking into

account the public sector, one knows that around

16% of European Union wide GDP is for purchasing

goods and services. In what concerns to the private

sector, almost one half of the sales revenue of

business firms is typically spent in acquiring inputs

(goods and services) from external suppliers. Most

of that extensive budget is spent in products that

could easily be replaced by products with better

environmental characteristics. Just as an example, if

all public authorities across the EU demanded green

electricity, this would save the equivalent of 60

million tonnes of CO2, which is equivalent to 18%

of the EU's greenhouse gas reduction commitment

under the Kyoto Protocol. Because the electronic

procurement systems (EPS) are designed to store

and process large amounts of data about product

characteristics as well as suppliers, we see this type

of information system as an enabler for

organizations to significantly contribute to the

improvement of the environment. So, this paper

presents one main research question and two

additional accessory research questions: (1) Is there

a relationship between procurement performance

and EPS implementation success? (1a) Does power

balance moderate this relationship? (1b) Does EPS

Soares Aguiar A., Ramamurthy K. and Palma Reis A. (2010).

UNDERSTANDING THE RELATIONSHIP BETWEEN PROCUREMENT PERFORMANCE AND E-PROCUREMENT SYSTEMS IMPLEMENTATION.

In Proceedings of the Multi-Conference on Innovative Developments in ICT, pages 32-38

DOI: 10.5220/0002960900320038

 SciTePress

integration with both the firm’s internal and external

information systems moderate this relationship?

Getting answers to these research questions can

not only give firms one more management

instrument to improve their procurement

performance but also enable academics to use this

model to enrich the curricula and develop further

research. Based on the previously introduced

research questions, a theoretical framework as well

as the associated research hypotheses are developed

on Section 2. In Section 3 we propose a research

methodology that can be used to test the hypotheses

and find the answers to the former research

questions. Section 4 presents some limitations and

difficulties we will have to deal with along this

study. Finally, Section 5 presents the conclusions

and, since this is a research in progress paper, a

work plan to complete the research projects is also

suggested.

2 CONCEPTUAL MODEL AND

RESEARCH HYPOTHESES

The conceptual model that we propose is presented

in Figure 1. This conceptual model posits three

predictors for procurement performance: (1) EPS

implementation success; (2) power balance between

the focal firm and their main suppliers; and (3) EPS

integration with both internal information system

and external (main suppliers) information systems;

while controlling for firm size, EPS age and industry

effects. Next, we discuss in some detail each model

component while developing the study hypotheses.

Figure 1: A Conceptual Model for Procurement

Performance.

2.1 Procurement Performance

Procurement performance is the final

dependent/endogenous variable in the model.

Typically, procurement consists of five stages:

search, negotiation and pricing or price discovery,

ordering, order coordination, and payment (Leenders

et al. 2002; Premkumar et al. 2005). Weele (2000)

developed a Procurement Performance Model where

effectiveness (product price) and efficiency (process

cost) were the main variables to evaluate. Using that

model, Kumar et al. (2005) developed a procurement

performance measurement system that could be used

by organizations in the health industry. In

accordance with these studies, the highest priorities

for procurement managers surveyed in Williams and

Hardy (2007) and Tanner et al. (2008) were

reductions in both purchase price (effectiveness) and

process costs of procurement (efficiency). Taking

into account both practitioners and researchers we

plan to use these variables to capture the impact of

EPS use on procurement performance. Additionally,

since EPS use can also have an impact at the

environmental level we are also interested in

capturing these possible benefits (waste and carbon

dioxide reduction) that can emerge from a successful

EPS implementation and use.

2.2 EPS Implementation Success and

Procurement Performance

In general, IT implementation success can be

evaluated not only through the effective use of the

system and user satisfaction but also at the Project-

Level (Finch 2003; Schwalbe 2007). Even though

users could use an IS it does not mean that they are

satisfied or feel comfortable using it. According to

Subramaniam and Shaw (2002) satisfaction is

affected by how well the IT is perceived to meet

user expectations. If the EPS is easy to use, allows

users to have lower cycle times on their orders or

allows them to access information quickly and with

minimum effort, user satisfaction could increase and

so would the EPS implementation success. On the

other hand, if an employee had the habit of going

physically to the purchase department in order to

request some items, s/he would probably have had

an informal and perhaps a pleasant conversation

with people around. Producing the order requisition

at the employee’s own computer keyboard

drastically reduces these unofficial meetings and

perhaps some satisfaction. When a firm is able to

implement an information system paying attention to

the appropriate implementation factors and it is

being used satisfactorily by employees (based on

DeLone and McLean (2003) updated model) it will

bring net benefits for the organization. In the context

of EPS one could say that with effective

consideration of the factors identified and defined by

Cooper and Zmud (1990) during the stages of the

implementation process one would expect that the

UNDERSTANDING THE RELATIONSHIP BETWEEN PROCUREMENT PERFORMANCE AND E-PROCUREMENT

SYSTEMS IMPLEMENTATION

use of EPS will have a positive impact on the

procurement performance of the organization. Based

on these arguments we posit that:

H1: Higher levels of EPS implementation

success are positively associated with higher levels

of procurement performance.

2.3 EPS Implementation Success,

Power Balance and Procurement

Performance

While we argue above that EPS implementation

success could result in improved procurement

performance we also note EPS is an inter-

organizational system (IOS). In the context of IOS

the extent of dependence and an ability to exercise

power and control determines the balance of power

between the focal firm and its key suppliers, and has

often been cited as a key factor both in terms of

deciding on and setting the design parameters for

such systems as well as in terms of nature and extent

to which the systems would be managed and used.

Following the old adage that a chain is only as

strong as its weakest link, unless EPS is used by

both the focal firm and its major suppliers its

implementation can neither be deemed to be a

success nor is it likely to result in improved

performance. There is evidence to indicate that

dependence (of customer-supplier) and power have a

significant role in the decision to adopt and use these

systems (Wey and Gibson, 1991; Hart and Saunders,

1997). In a typical supplier-customer interaction

there is a certain amount of built-in dependency in

the relationships between the two parties given that

each is dependent on the other for resources that are

subsequently exchanged (Pfefer and Salancik, 1978).

The party that is less dependent on the other (e.g.,

has alternate sources for required resources) would

be in a position to exert greater control and power

over the inter-organizational transactional context

(Stern and Kaufman, 1985; Oliver, 1990; Hart and

Estrin, 1991). Research in marketing has found that

exercise of such power and control has a significant

influence on various aspects of inter-organizational

relationships such as decisions related to, for

instance, the system’s design parameters (Copeland

and McKenney, 1988), transaction parameters

(price, delivery schedule etc.), channel conflict, and

channel performance (Gaski, 1984). Based on these

discussions we posit that:

H2: The effect of EPS implementation success on

procurement performance will be low in contexts

where the balance of power is not in favor of the

focal firm; conversely, the effect will be high in

contexts where the balance of power is in favor of

the focal firm.

2.4 EPS Implementation Success

Systems Integration and

Procurement Performance

As a large-scale system that can involve several

business processes within a firm and its numerous

trading partners across the supply chain, an e-

procurement system requires huge investments in

terms of acquisition, implementation, integration,

training, and maintenance, placing tremendous strain

on company resources (Talluri et al. 2006). Barua et

al. (2004) defined the concept of systems integration

as the extent to which a firm integrates its various IT

systems to provide visibility to customer and

supplier data and to allow online information sharing

and transaction execution across the value chain. A

distinction can be made between internal processes

integration and external processes integration

(Porter, 1985; Williamsson, 1985). With regard to

internal processes, the integration of primary

processes (e.g., those integrating primary activities

and directly producing the outputs of the firm) can

be distinguished from the integration of secondary

processes, those that support secondary activities

(Barki and Pinsonneault, 2005). According to

Williamsson (1985), external processes integration

can also be separated according to whether they

integrate customers (direct forward integration),

suppliers (backward integration), or third parties for

instance, banks or government entities (lateral

integration). Since the focus of the analysis is the

procurement performance we are interested not only

in the effect of EPS integration with the firm’s main

suppliers (external backward integration) but also in

the effect of EPS integration with the firm’s internal

processes (internal process integration). We confine

only to the main suppliers of the firm because,

according to Talluri et al. (2006) at this stage of

evolution of the EPS life cycle it is not plausible that

all the suppliers could be integrated with the firm.

Indeed, EPS integration is a process of continuous

evolution when organizations have resources to

assign to that activity and are willing to be persistent

at those efforts. Thus, this study focuses its attention

on measuring the extent to which EPS is integrated

with different information systems within the

organization such as the ERP or even CRM systems.

The literature presents several studies showing that

the higher the extent of integration the greater the

benefits for the organization (Frohlich and

INNOV 2010 - International Multi-Conference on Innovative Developments in ICT

Westbrook, 2001; Frohlich, 2002; Subramaniam,

2003). Indeed, if the use of EPS can (1) automate the

order scheduling and fulfillment processes; (2)

support the operations or production planning,

scheduling, and shipment; (3) foster the access to the

supplier’s databases, for instance, to enable the firm

to track the status of an issued order; and (4) allow

the firm to receive electronic invoices from the

suppliers directly on its accounting system, then

chances are that the overall procurement

performance of the firm would improve. However,

based on Saeed et al. (2005) the impact of external

integration on process efficiency is significant for

higher levels of integration and not significant for

lower levels of integration. Based on the foregoing

discussion we posit that:

H3a: The effect of EPS implementation success

on procurement performance is low in contexts of

lower integration of EPS with other internal systems

of the firm; conversely, the effect is high in contexts

of higher integration of EPS with other internal

systems of the firm.

H3b: The effect of EPS implementation success

on procurement performance is low in contexts of

lower systems integration between the focal firm and

its main suppliers; conversely, the effect is high in

contexts of higher systems integration between the

focal firm and its main suppliers.

3 RESEARCH METHODOLOGY

There are some parameters that should be evaluated

in order to design a research project (Sekaran, 2003):

the purpose of the study, the type of the research, the

unit of analysis, the time schedule, and the research

environment. Beyond that, this section also

describes the universe of the study, the data

collection methods, pretest of the survey, and, the

measurement issues.

The purpose of the study depends on the stage of

knowledge development on the topic under analysis.

A study may be either exploratory in nature,

descriptive, or it may test hypotheses. The purpose

of this study is to validate a model to explain

procurement performance based on EPS

implementation success, the power balance between

the focal firm and its suppliers and the systems

integration of the EPS and internal and external

systems. The validation of the model depends on the

test of three hypotheses proposing the relationships

between the model’s variables presented in Fig. 1.

The type of research can be causal or

correlational. A causal research is supposed to meet

the following criteria: 1) the cause must happen

before the effect; 2) variations observed in causes

should lead to systematic variations on effects; and

3) variations on the effects should not be assigned to

other factors except the causes (Reto e Nunes,

1999). Since the present research may not warrant

these conditions, this study must be considered

correlational.

The unit of analysis is a research design choice

that is associated with the level of data aggregation.

In this research, the unit of analysis is the firm.

With regard to time schedule, a study may be

longitu-dinal or cross-sectional (Sekaran, 2003). A

study is longitudinal when the data about the unit of

analysis are collected at multiple points in time.

When the data regarding the unit of analysis are

collected on a single moment in time, the study is

cross-sectional. Since the data for this research is

planned to be collected just once and refers to just

one moment in time, this study is cross–sectional.

The research environment refers to the extent of

interference of the researcher in the location where

the phenomena occur. Therefore, we can have a field

study, a field experiment, or a laboratory

experiment. Field experiments and laboratory

experiments should be carried out when the purpose

of the research is to establish casual relationships. In

such a research environment, the interference of the

researcher is moderate to high. Field studies are

conducted when the researcher intends to perform

correlational studies with minimal interference,

which is the present case.

Regarding the universe of the study, we think

that a given phenomenon should be analyzed where

it occurs. In Portugal, EPS is nowadays a

phenomenon of the large companies. So, we have

selected the 2500 largest companies operating in

Portugal as the sampling frame to empirically test

the model presented in section III.

With regard to the data collection method we

plan to use a primary data source. Data will be

collected through a questionnaire that will be

available on the Web. Beyond the Web site, we will

also develop a database with information that will

allow us to send emails to chief procurement officers

of the targeted companies.

The questionnaire will be pretested through

interviews with procurement managers and IT

managers to assess its initial validity and overcome

any other inherent problems.

Operationally defining a concept to render it

measurable is done by looking at the behavioral

UNDERSTANDING THE RELATIONSHIP BETWEEN PROCUREMENT PERFORMANCE AND E-PROCUREMENT

SYSTEMS IMPLEMENTATION

dimensions, facets, or properties denoted by the

concept. These are then translated into observable

and measurable elements (indicators) so as to

develop an index of measurement of the concept.

The measurement of constructs is developed

according to information shown on Table 1 through

Table 5. There, we show the concepts of the

theoretical model presented on Section II, the

indicators, the scales, and the sources used.

In this study, we want to test an association

between one metric dependent variable, the

procurement performance (PP, See Table 1) and a

set of metric independent variables (See Table 2 to

Table 5). As a consequence of the developed

conceptual model in Figure 1 and based on the

definitions in the previously introduced Tables (1 to

5), we can write that:

PP = β

+ β

*EIS + β

*PB + β

*II + β4

*EI + β

*(EIS*PB) + β

*(EIS*II) +β

*(EIS*EI)+Σ

where, the I

’s (k = 8, 9, 10) stands for the industry

dummies (three broad groups are considered for

analysis: manufacturing, commerce and services).

This model is consistent with our conceptual

framework in Figure 1 and the hypotheses defined

earlier. Testing the hypotheses is equivalent to

testing whether the coefficients β

’s (j = 1,5,6,7) are

significant or not, that is: (1) a significant and

positive coefficient β

means support for H1; (2) a

significant and positive coefficient β

suggests

support for H2; (3) a significant and positive

coefficient β

suggests support for H3a; and (4) a

significant and positive coefficient β

suggests

support for H3b; while significant and negative

coefficients imply inhibitors to procurement

performance.

Table 1: Measurement of variables in the conceptual

model.

Concept Indicator Scale Source

Procurement

Performance

(PP)

PP1-4

Likert

Scale

Kumar et al.

(2005)

EPS Internal

Integration (II)

II1-3

Likert

Scale

Authors

EPS External

Integration (EI)

EI1-4

Likert

Scale

Authors

Power Balance

(PB)

PB1-4

Likert

Scale

Wey and

Gibson

(1991)

EPS

Implementation

Success (EIS)

EIS1-3

Likert

Scale

Premkumar

et al. (2005)

Table 2: Green procurement performance indicators.

Indicator Description

PP1

The use of EPS has contributed to reducing the

price of products/parts/supplies that we

purchase

PP2

The use of EPS has contributed to reducing the

total costs in our procurement process

PP3

The use of EPS has contributed to buy new

products that allow us to reduce the waste

generated by the firm’s operations

PP4

The use of EPS has contributed to buy new

products that allow us to reduce the carbon

dioxide generated by the firm’s operations

Scale range (1= Strongly disagree; 7 = Strongly agree)

Table 3: EPS internal and external integration indicators.

Indicator Description

To what extent have you implemented web-

based processes to integrate EPS with your

company’s following systems?

II1

Inventory consumption tracking, planning, and

control systems

II2

Supplier payment/Accounts payable systems

II3

Materials and product costing/accounting

systems

II4

Customer facing systems (e.g., sales order,

customer relationship, distribution, etc.)

To what extent have you implemented web-

based processes to integrate your EPS with

the following systems/processes at your main

suppliers?

EI1

Order scheduling and fulfillment

EI2

Operations (or Production) planning, scheduling,

and shipment

EI3

Allowing access to their databases (to enbale you

to track status of your order)

EI4

Accounting processes (e.g., billing, receivable,

claims, reconciliation…)

Scale range (0 = Not at all; 1= Rarely; 7 = Fully)

Table 4: Power balance indicators.

Indicator Description

PB1

Our firm primarily set prices and supply

terms/conditions for supplies to be procured

PB2

Our firm set the rules and procedures for order

placement and fulfillment

PB3

Our firm made most of the key decisions

regarding various design parameters for EPS

PB4

Our firm decided on enhancements/upgrades to

EPS and set standards for its use

Scale range (1= Strongly disagree; 7 = Strongly agree)

INNOV 2010 - International Multi-Conference on Innovative Developments in ICT

Table 5: EPS implementation success indicators.

Indicator Description

EIS1 EPS project did not violate the budgeted costs

EIS2

Users are happy with the opportunity to use EPS to

perform their job

EIS3

Users of EPS are using it to perform all the activities

of the procurement cycle (search, negotiation,

ordering, order coordination, and payment).

Scale range (1= Strongly disagree; 7 = Strongly agree)

4 LIMITATIONS

We recognize that one big issue in the development

of this investigation will be data collection. In

Portugal, the executives do not have a good attitude

in responding to research inquiries. To be successful,

managers of those firms have to understand the

value of the research project and that's not an easy

job! Furthermore, even though our target is the 2500

larger firms in Portugal, we are aware of the low rate

of EPS adoption (around 20%, based on a study by

Soares-Aguiar and Palma-dos-Reis, 2008). So we do

expect some difficulties but we look forward to have

the wisdom and tools to overcome them.

5 CONCLUSIONS

We propose to empirically test a research model to

explain procurement performance based on EPS

implementation success, power balance between the

focal firm and its main suppliers, and EPS

integration with both internal and external (main

suppliers) information systems. If the hypotheses are

confirmed, then, the instrument can be used by both

academics and practitioners. While the academics

can use it for several purposes including further

research, the practitioners can apply it to improve

their green procurement performance measured by

the reductions on process cost, product price, waste

and carbon dioxide emission.

Since this is a research in progress paper, we

propose to empirically test the research model and

hypotheses using a large scale cross-sectional survey

study in the context of the 2500 relatively large

companies operating in Portugal. In order to

accomplish that task we plan to develop a data base

with information about the respondents (respondent

name, job title, email, company name, etc.),

implement a web-based survey, perform a pretest

and refine the instrument as necessary. After these

tasks have been completed, data collection will

follow. Care will be taken at various stages to ensure

that none of these steps is compromised to assure

satisfactory psychometric properties. Furthermore,

efforts will be made to ensure adequate sample

coverage to minimize inherent biases and sample

size to address concerns relating to statistical power

of the test. Given the contemporary nature and

importance of the domain of inquiry, it is gratifying

to note that a major association of purchasing

professionals has agreed to support the study by

requesting its members to respond to the survey.

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