http://sajie.journals.ac.

za

A FRAMEWORK FOR THE IMPLEMENTATION

OF E-PROCUREMENT

M.V. Jooste1 and C. de W. van Schoor2

2
Department of Industrial and Systems Engineering
University of Pretoria, South Africa
[email protected]

ABSTRACT

e-Procurement is a sound solution for companies to initiate e-business initiatives since it

promises several distinct benefits, such as process cost and lead time reduction, improving
strategic sourcing of commodities and enabling companies to negotiate better prices.
Procurement is a broad term that touches on internal and external aspects of the company,
complicating the decision to choose the most suitable e-procurement solution. An evaluation
framework is proposed to assist in evaluating the susceptibility of a company’s products to e-
procurement and choosing the most suitable e-procurement solution.

OPSOMMING

e-Verkryging is ‘n goeie beginpunt vir maatskappye om hulle aan e-besigheid bloot te stel
aangesien dit verskeie voordele soos proseskoste en leitydvermindering, verbetering van
strategiese aanskaffing van produkte en die vermoë om beter pryse met verskaffers te
onderhandel, beloof. Verkryging is ‘n breë term wat heelwat aspekte binne en buite die
onderneming behels. Dit bemoeilik die besluit om die mees geskikte e-verkryging-oplossing
te kies. ’n Evalueringsraamwerk word voorgestel ter ondersteuning van die evaluering van
die ontvanklikheid van ‘n onderneming se produkte vir e-verkryging en die keuse van die
mees geskikte e-verkrygingoplossing.

1
The author was enrolled for the M Eng (Industrial Engineering) at the the Department of Industrial and Systems
Engineering, University of Pretoria

SA Journal of Industrial Engineering 2003 14(2): 1-22

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1. MOTIVATION FOR AN E-PROCUREMENT FRAMEWORK

The introduction of the Internet has challenged numerous value chain propositions and
processes. Its low cost, low barrier of entry and timely distribution of information provides a
seamless extension of processes across company borders. Initial scepticism about the business
benefits of e-procurement is now being replaced by recognition of the value of e-procurement
for business, be it through process improvements, improved management or actual cost
savings.

According to Elliff [7], e-procurement is any purchasing-related activity that involves

electronic communication, such as the Internet or related software, to help companies achieve
increased value. From point-and-click ordering using Web-based catalogues of individual
suppliers to marketplaces that bring together in one place the products or services offered by
multiple suppliers to live auctions that determine the lowest-price bidder.

e-Procurement is a sound solution for companies to initiate the e-wave as it promises great
cost savings (Thompson et al. [29]). Savings promised include a reduction in processing cost,
reduction in the supply base (which leads to cost savings) as well as negotiating better prices
through the availability of sufficient post-purchase information. Maverick spending (off-
contract purchasing) is also reduced through better-controlled purchases.

Laub et al. [18] conducted research among a number of companies that have implemented e-
procurement, but did not achieve the claimed savings or improvements. A large percentage of
the respondents acknowledged that they had become involved with e-procurement through
management pressure to become involved with anything “e”. These companies admitted that
their implementation revolved more around making the technology work rather than ensuring
that it fitted into the current business structure. By following a selection framework such
errors would not have been made.

According to Milton et al. [23], “As many companies lack experience purchasing
e-procurement solutions, it can be helpful to seek objective assistance, ensuring evaluation
processes are completed and objective, and allowing for the selection of well suited software.”

According to Thompson et al. [29], businesses are competing increasingly in supply chain
management. It is therefore vital that the choice of an e-procurement solution, as well as the
planning and installation, should involve much more than only system aspects and should also
include:

Strategic procurement and its process.

Supplier selection, -management and -relationship.

System business models.

The system business model chosen has a significant impact in terms of integration of the
buyer and supplier, as well as the maintenance and content management to be performed.

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2. PROCUREMENT AND E-PROCUREMENT DEFINED

2.1 What is Procurement?

Whilst purchasing mainly describes the process of buying (learning of need, locating and
selecting a supplier, negotiating price and other pertinent terms and following up to ensure
delivery), procurement is a somewhat broader term that includes aspects such as stores
management, traffic, incoming inspection and salvage (Hugo et al. [13]). Lambert & Stock
[18] adds that purchasing generally refers to the actual buying of materials and those activities
associated with the buying process. Procurement is broader in scope and includes purchasing,
traffic, warehousing and receiving materials. Procurement is therefore all actions necessary to
close the complete purchasing cycle.

Due to the fact that procurement is an all-encompassing function, an adequate

e-procurement solution should encompass all procurement-bordering aspects to realise the full
value. The following table indicates the procurement actions that are addressed by purchasing,
procurement or e-procurement respectively.

Purchasing Procurement e-
Activity
Actions Actions Procurement
Providing uninterrupted material
X X X
flow
Vendor selection and management X X X
Procurement process improvement X X
Maintaining product quality X
Materials handling X
Standardising supply X X
Improving company competitiveness X X

Table 1: Addressing Various Procurement and Bordering Actions

From the above table, it is clear that procurement involves several aspects not addressed in
purchasing. e-Procurement addresses the bulk of these actions, but does not improve or
impact on materials handling or maintaining product quality. e-Procurement is therefore a tool
to assist companies to buy the right requirements (quality) in the right quantities at the right
time at the right price from the right supplier and does so by empowering the end user to
largely control the purchase.

2.2 Strategic Sourcing

Strategic sourcing is the process of optimising the total acquisitioning cost of materials and
services (Louw [20]). This implies definitive supplier relationship and -management
strategies for each category of materials or services bought. Technology such as e-

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procurement is therefore tools that can be used to minimise the cost of acquisitioning
materials.

Hence, e-Procurement is merely a catalyst for change, driving compliance and sustaining
value delivered to a company’s strategic sourcing policy. It is imperative that companies
consider e-procurement and its value from a process and strategic sourcing point of view
rather than from a technology viewpoint.

3. OPERATIONAL IMPACT OF E-PROCUREMENT

Thompson et al. [29], Richardson [27] and Neef [24] mention that e-procurement’s benefits
are primarily seen in the indirect purchasing domain (goods and services that are not linked
direct to the manufacturing systems) with the following major benefits:

Reach that allows suppliers to access new customers and buyers to find new suppliers.

The ease of exchange of information that provides supply chain partners with a
“dashboard-type of view” of orders and service performance.

Increased accuracy of information by reducing the number of data-entry points within

the process. Key information is only entered once.

Electronic routing that eliminates the problem of lost documents and the requirement
for manual tracking. This makes for increased control and accountability for business
procurement.

Real-time tracking of order status.

Payment for purchases can be automatically triggered upon matching of the invoice
with the delivery note and the purchase order (occurs automatically). Although it does
not necessarily imply automatic payment, integration with Electronic Funds Transfer
(EFT) or Procurement Card (P-Card) solutions would automate the total procure-to-
pay process.

Reduced administration cost, as well as reducing the administration burden of

purchasing professionals in an organisation.

The following table lists a number of unnecessary costs associated with the procurement
process (Laaper [16]) and summarises how e-procurement aims to reduce these costs.

Although e-procurement automates some actions in the procurement process, it also provides
tools for measuring and management procurement in broader terms in organisations.

According to Thompson [29] one of the main reasons for an e-procurement venture is to
reduce costs. According to McLeod [22] the average cost of stationery orders at First Rand
Bank was reduced from R210 (sometimes larger than the total order value) to R50 per order.
Of the initial R210 cost per order only about R15 refers to consumables. The rest is the cost of
employees previously allocated to the process who can be applied elsewhere (such as with

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more strategic aspects) after the implementation of an e-procurement solution. Companies

implementing e-procurement seldom realise any bottom-line saving and the total financial
impact is difficult to justify. This has contributed to the slow initial adoption rate of e-
procurement in companies.

Associated Procurement Costs Solution Through e-Procurement

With the bulk of e-procurement based on catalogue
Maintaining a larger-than-needed spending, companies can control from which
supplier base. companies purchases are made. This has a follow-on
effect of a reduced supplier base.
e-Procurement contributes to companies better
Obtaining larger-than-needed
controlling their purchasing. Through data analysis
volumes
companies can reduce spending per product type.
Each product type follows a standardised process in
Lack of standardisation
e-procurement through approval to requisitioning
Longer-than-necessary lead time results in carrying
The cost of extended lead and cycle unnecessary safety stock. e-Procurement provides a
times. vehicle to track fulfilment more effectively,
providing MIS for improved supplier management.
e-Procurement simplifies order processing. Costs
The cost of order processing and associated with receiving can be reduced if the
receiving. system is integrated with the correct back-end
system to ensure a three-way check.

Table 2: Reducing Procurement Costs Through e-Procurement

Increased control over purchases is one of the benefits that are difficult to quantify. Low-
value high-volume purchases (usually in purchasing for consumption) frequently have a
higher cost to procure than the value of the actual items being procured. Figure 1 indicates the
control e-procurement has brought about (Shift A), while a further shift in control is required
(Shift B) for “hands-free” procurement. (Adapted from Curtiss [6])

e-Procurement systems currently aim to control the uncontrolled maverick purchases (which
according to Neef [24], in some companies total 30% of the total number of purchases)
through increased contract usage and purchasing leverage with suppliers (shown as shift A in
the above figure). e-Procurement systems should advance to use the contracted prices and
make use of system-initiated transactions (shown as Shift B in Figure 1 below).

In summary, the value created by an e-procurement system falls into one of the following
three categories:

• Improving process efficiencies. This includes automated requisitioning, automated

workflow, eliminating double handling and less paperwork, shorter cycle time which
results in less inventory.

• Compliance. This results in a reduction in maverick spending.

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• Leverage. The system provides better management information on category and

supplier spending. This will create leverage for negotiating better prices with
suppliers.
CAPITAL / COMPLEX
Value

A
B

MRO
MRP / EDI
(Maintenance, Repairs,
Operations) MISCELLANEOUS

Number of transactions / Number of suppliers

Capital/ Complex MRP/EDI MRO Miscellaneous
Number of
Small Large Large Huge
transactions
Number of
Small Large Large Huge
suppliers
• High value, once • Product and • Unplanned, emergency
• Consumption
Purchasing off retail based or “maverick”
based
Characteristics • Complex and purchases purchases
• Contract pricing
hands-on • JIT and Kanban • Uncontrolled pricing
Order processing Manual Automated Manual Manual

Figure 1: Focus of e-Procurement

3.1 The Procurement Process

Figure 2 represents a generic purchasing process before the implementation of

e-procurement (Jooste [15] and Thompson et al. [28]).

It is clear that the traditional procurement process comprises numerous steps involving many
people with different roles and responsibilities. If carried out on a large scale, purchasing
processes easily become cumbersome, wasting valuable time and obliging personnel to carry
out a constant fire-fighting approach to keep track of the paperwork generated at each stage.
Especially the internal escalation of the order is frequently bypassed in companies by an
informal approach in the hallway, telephone call or e-mail and complicates the purchasing
function (Hough & Ashley [14]).

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Purchasing Finance Supplier/

User Management Receiving
Department Department Distribution

Recognition &
Selection of
description of
sources of supply
need

Determination of
prices and
availability

Formal request for Requisition Received

product approval request &
process order

Processing and
Issuing of order

Receive and Dispatch

Follow order up inspect delivery order
and expidite
Receive
delivery Invoice analysis
Processing, & 3-way check
discrepancies &
rejections
Close order

Figure 2: The Traditional Procurement Process

Implementing e-procurement not only radically reduces the number of process steps, but also
automates a number of the remaining steps (7 of the 14 process steps in the e-procurement
scenario are automated). The generic purchasing process when implementing e-procurement
is presented in Figure 3 below.

3.2 e-Procurement and e-Business

According to Lee & Whang [19], e-business is the use of the Internet for computing and
communications to execute both front-end and back-end business processes. e-Business has
emerged as a key enabler to drive supply chain integration, of which e-procurement forms a
part. e-Business impacts on supply chain integration in the following four key dimensions:

1. Information integration. This involves information sharing and transparency across the
supply chain which is accessible in real time.

2. Synchronised planning. This involves collaborative planning and replenishment across

the supply chain.

3. Workflow co-ordination. This focuses on automated business processes and co-

ordinating them .

4. New business models. These include different supply- and sell-side models that were
previously not present in the off-line world.

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e-Procurement Supplier/
User Management Receiving
system Distribution

Recognition of
Electronic routing
need, selecting of Requisition
to superior if
supplier & formal approval
required
request for product
Received request
electronically &
process order
Track order status Processing and
electronically Issuing of order

Inspect delivery
& receive on Dispatch order
system
Receive delivery
Purchase order,
delivery note &
invoice comparison
(3-way check)

Close order

Figure 3: The e-Procurement Process

Table 3 indicates the impact procurement has on each of these integration dimensions
(adopted from Lee & Whang [19]).

Dimensions of Supply Chain

Contribution of e-procurement
Integration
Supplier information sharing. Both buyers and suppliers
Information Integration have the ability to access information in real time to track
order progress.
Co-ordinated replenishment. e-Procurement with an efficient
forecasting system could initiate orders automatically rather
Planning Synchronisation
than manually, which will result in a pull rather than a push
model.
Paperless procurement, auctions, auto-replenishment, auto-
payment. e-Procurement automates the bulk of the ordering
Workflow co-ordination process. Integrating this with an automated payment system
(such as EFT) could automate the total procure-to-pay
process.
New Business Models Market exchanges, auctions, secondary markets.

Table 3: Impact of e-Procurement on Supply Chain Integration

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The Internet has allowed companies to develop innovative solutions that accelerated the
adoption of supply chain integration principles. If implemented correctly, this promises not
only to change supply chains from being adaptive to being responsive, but also promises
savings across company borders that can result in less inventory and in improved fulfilment
time in the supply chain.

3.3 e-Procurement Potential in South Africa

South Africa has very unique problems regarding the implementation of “first-world”
technologies such as e-procurement. The following are typical problems (adapted from Louw
[20]):

• Limited and monopolised supply base. On-line communities are most successful when
they involve a large number of participants. South Africa has a relatively small supply
base per commodity group and this is usually controlled by a few large participants.
This reduces the possible impact of an on-line solution such as e-procurement.

• Limited bandwidth. Bandwidth is a precious commodity in South Africa. This

negatively impacts on both the download of information and the upload of web pages.
Consequently, users frequently abandon on-line processes before completion.

• Social Responsibilities. One of the acclaimed benefits of an e-procurement solution is

a reduction in the supply base, which conflicts with South African BEE and SMME
development objectives and legislation. Also these smaller players tend to be
unsophisticated with very few having on-line access and being e-procurement ready.

• e-Procurement affordability. e-Procurement technology is advanced and costly to

South African companies. Usually only large corporations with large expenditure on
indirect purchases (such as MRO) consider such systems. This results in a very small
percentage of potential “e-procurement purchases” being made on line. Also,
implementation is usually not integrated with suppliers’ systems and the advantages of
a totally integrated solution are seldom realised.

The reasons listed above give some explanation why South Africa has had a slower than
average (compared to other countries) adoption rate of e-procurement solutions. To overcome
the problems stated, a staggered implementation process is proposed. Companies should start
with automating part of the process, such as using on-line auctions to negotiate some of their
commodities’ contracts or implementing procurement cards. A procurement card is a solution
that gives users permission to buy from certain suppliers within a spending limit. The result is
improved control over purchases and automated payment, but does not promise all the
collaboration and process savings associated with e-procurement.

4. PRODUCT SUSCEPTIBILITY TO E-PROCUREMENT

Thompson et al. [29] and Neef [24] distinguish between direct and indirect products procured
in the business-to-business (B2B) procurement arena. Direct goods are items that contribute
direct to company sales, being for production or resale. From the above categories, production
material (raw material or components) and finished goods for resale reside here. Indirect

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goods support the main line of business and can be seen as enabling goods. MRO, capital
equipment, services, construction contracts and office supplies (also known as ORM or
operating resource management) are included in indirect goods.

Fearon et al. [8] adds that products can be further distinguished into standardised or
differentiated. A standardised (or homogeneous product) is one that is exactly like those
produced by all the other producers of that product. Sellers of standardised products know
that the market is very sensitive to price because it is relatively easy for buyers to comparison-
shop. A truly differentiated product is different from all the other producers' products in some
respect. That is, the product has some feature that no other product has.

Jooste [15] adds that the product value (ranging from very low to high item value) and the
number of suppliers (a large or small supplier base) also influence the characteristics of a
product.

All four of these different characteristics are not independent of each other. Product
characteristics and the number of suppliers, for example, are directly proportional
(homogeneous products are normally supplied by a large supplier base and vice versa). Figure
4 summarises the applicability of the above characteristics towards on-line buying or the
tendency towards e-procurement.

Product characteristics

Differentiated/ Standardised/
Heterogeneous Homogeneous

Indirect goods
Low Value

A B
Limited application Ideally suited
Product Value

Product type
Direct goods
High Value

C D
Not suited Limited application

Small Large

Number of suppliers

Figure 4: Product Suitability for e-Procurement

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Products are either well suited, not suited or have limited application to e-procurement. The
four influencing factors contribute to a product’s susceptibility to e-procurement as follows:

Function within the business. Due to the uncontrolled spending as well the large
procurement cost vs. the cost of the items procured, indirect goods are better suited for
e-procurement.

Product characteristics. Standardised products can be bought from a catalogue and

require little manual intervention. They are therefore better suited for on-line buying.

Product value. Items of lower value tend to require less negotiation compared to
higher-value items.

Number of suppliers. Products supplied by a larger supplier base achieve critical mass
much easier than one with a smaller supplier base.

5. ROLE-PLAYER SUSCEPTIBILITY TO E-PROCUREMENT

5.1 Buyer and Supplier Roles

Procuring items involve at least two parties, the buyer and the supplier. According to
Churchill & Peter [3], a number of different buying role-players are involved, such as the
initiator (person who initiates the need for the product or the service), the user (person who
will use the product or service), influencers (people who will affect the buying decision),
deciders (people who will formally or informally approve the purchase or supplier) and buyer
(the person who will select the supplier and negotiate contractual agreements). Parkinson &
Baker [26] mention that behavioural aspects of these role-players such as their demographics,
personality traits, attitude towards buying and perceptual patterns will all influence their
decision and preferred way of purchasing.

The role-players involved on the supplier’s side very much depend on the channel strategy
chosen. Haas [12] distinguishes between numerous channel relationships which can be
grouped as either direct (the manufacturing company uses salespeople to sell direct to its
customers) or indirect (the manufacturing company uses an intermediary to sell its products
on their behalf). Although the Internet has the potential to disintermediate sales channels by
opening direct connections between manufacturers and end customers, Martin [21], Sculley &
Woods [28] and Hagel & Armstrong [11] are of the opinion that intermediaries will not
completely disappear. According to them, they will be replaced by infomediaries acting as
brokers between buyers and sellers, shifting value from vendors to customers. These
infomediaries will predominantly be systems providing information rather than dictating
purchases and will also enable lower commissions to be paid to middlemen.

5.2 Relationships between Role-players

Different parties within the value chain are involved in different relationships based on the
role-players and relationship characteristics. Gattorna & Walters [9] distinguish between two
types of relationship, namely vertical (between one or more supplier or buyer) and horizontal
(between a buyer and a supplier). These relationships can in turn be characterised by either

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co-operation or conflict, which in turn will determine how keen especially suppliers will be to
participate in a buyer’s e-procurement venture. These relationships are categorised in Figure
5.

High Degree

Nice Well developed

Collaboration
Low Degree

Marginal Hostile

Low degree High degree

Degree of conflict

Figure 5: Collaboration and Degree of Conflict between Role-players

Relationships with a low degree of collaboration will not be meaningful to either party - such
relationships are either marginal (associated with a low degree of conflict) or hostile
(associated with a high degree of conflict). Significant relationships come into being with a
high degree of collaboration. A relationship with a low degree of conflict tends to be
somewhat too 'nice', as the parties make too few demands from one another. Provided that it
can be handled well, raising the degree of conflict in such a situation enables a better climate
for innovation and development.

5.3 Market Forces and Industry-related Purchasing

Viljoen [30] distinguishes between two broad groups of market competitiveness, namely
perfect and imperfect competition (which includes monopolistic competition, oligopoly and
monopoly). As e-procurement solutions favour buying of homogeneous products (mainly sold
through perfect competitive and oligopolistic competitive markets), e-procurement will best
suit perfect competitive and oligopolistic markets.
Each industry (such as manufacturing, service and retail) has a different approach to
purchasing. On the one hand, the service industry mainly buys indirect goods such as office
stationery, while the retail industry buys goods for resale in a market that is very volatile and
changing continuously. e-Procurement prefers a stable environment where largely the same

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products are purchased continuously, making its applicability less likely in the retail
environment compared to the service and manufacturing sectors.

All the above characteristics influence the decision on an

e-procurement solution. The following figure summarises the applicability of the above
characteristics to on-line buying (tendency towards e-procurement).

Market
forces

Buyer Supplier &

character- Relationship channel
istics strategy

Industry
related
purchasing

Figure 6: Role-players Influencing the e-Procurement Decision

The aspects indicated in the above figure (buyer characteristics, market forces, supplier and
channel strategy and industry-related purchasing) all impact on the relationship between the
buyer and supplier. The relationship in turn also influences the supplier and channel strategy
(the significance of the relationship, as well as the value generated for buyers, will determine
if buyers would seek new relationships to buy similar products). All five the above forces will
impact on a company’s decision to implement an e-procurement solution.

6. E-PROCUREMENT BUSINESS MODELS

Before the advent of the electronic means of exchanging information, most items purchased
by companies were displayed in printed catalogues, depicting all relevant information
pertaining to the item for sale. Thompson et al. [29] mention that the rise of databases and the
increasing sophistication of interactive technologies have created a scenario where the
benefits of hosting a catalogue are equally attractive to the purchaser. Unlike printed
catalogues, which are effectively obsolete the moment they leave the printer, the hosted
catalogue remains reliable on a 24-hour by seven-day basis if maintained effectively.

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Berryman et al. [2], Welty [31] and Thompson et al. [29] mention three different
e-procurement business model solutions for buyers to access suppliers’ information on line:

1. Do it yourself. (Buy-side solution). Geller [10] compares the sell-side solution to a

shopper who visits the various vendors of interest to look at the offerings and prices.
According to Welty [31], the main advantage is that buyers avoid the headache and
investment of reformatting their suppliers' product data themselves. Content-
management is the problem of the vendor. Controlling purchases and comparison-
shopping is, however, very difficult.

2. Have your suppliers do it for you (Sell-side solution). Geller [10] compares this to a
travelling salesman where the sellers have to bring their wares to the buyers.
Berryman et al. [2] and Welty [31] add that managing the electronic supplier
catalogue in house gives the advantage of control, but requires a full maintenance
team to perform content management. According to Neef [24], this model is more
e-commerce than e-procurement.

3. Neutral marketplace (centralised trading portal owned independently). Geller [10]

and Berryman et al. [2] mention that in the e-marketplace (also referred to as a portal),
third parties set up department stores to connect buyers and sellers (and to match many
buyers and sellers). According to CommerceOne [5], this marketplace enables
consumers to link to a single portal and gain access to products, services, and
information from multiple vendors. Wheatley [32] emphasises that products best
suited for an e-marketplace are those that can easily be compared. Therefore
standardised products fit better to a catalogue and are much easier compared to one
another other.

Thompson et al. [29] also explain that the direction in which the solution is facing makes a
significant difference to its functionality. Sell-side systems face outwards from the vendor
towards the consuming companies and buy-side systems face out from the purchaser towards
its supply chain trading partners. The marketplace resides in the middle, facing outwards to
both the buyer and vendor. Buy-side solutions streamline the corporate purchasing process
whereas sell-side solutions syndicate vendor product information in order to streamline the
transaction processes of the seller.

Of the three solutions, marketplaces hold the most advantages. One of the main advantages is
the reduction in possible relationships (all relationships pass through the marketplace as
opposed to direct between buyers and suppliers). Another advantage is the reduction in cost if
compared to the buy-side or sell-side models. Users only have to pay a subscription fee that is
far less than half of what it would cost to manage the process themselves (Welty [31]).

7. FRAMEWORK FOR E-PROCUREMENT IMPLEMENTATION

The aspects discussed throughout the article support the establishment of a framework in one
of two important ways: i) assisting in deciding if the purchasing aspect is relevant to
e-procurement, and ii) choosing the correct e-procurement delivery solution. It is therefore
important that the chosen framework should first rank and determine which products are
suited for e-procurement and develop a suitable solution for the selected product groups.

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Looking at the aspects discussed in the article thus far, the discussions on procurement and its
process, as well as those on products and role-players, are used to rate and rank the delivery
of e-procurement. Looking at the supply chain of these products as well as the trading
exchange necessary for the system will assist in determining which is best suited for e-
procurement. All these factors are combined into a proposed framework shown in Figure 7.

The framework follows a top-down logic with decisions made in higher “funnels” as an input
to lower decision points (or “funnels”). The functioning of each of these decision points is
discussed individually in the following paragraphs.
Product purchased
within the company

Group products with

similar profiles

Procurement Role players &

processes relationships

Determine value Rank each Determine suitability

of implementing commodity group’s of role players for
e-procurement e-procurement e-procurement
suitability
Established value of Ranked Ranked role player
implementation commodities relationships

Prioritise commodity
Available groups for e-procurement
procurement implementation
information

Prioritised
commodity groups

• Determine information platform

• Determine data integration needs
• Determine data format to be used
• Determine ordering & inventory control logic used

e-Procurement IT Key
architecture requirements
Symbol Description

Information
Feasibility and Input
requirement analysis
Process

Proposed e-procurement solution

and commodities procured Outcome of
process

Figure 7: Framework for E-procurement Implementation

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7.1 Grouping Similar Products

As companies usually buy a vast array of SKUs, it is suggested to group products with similar
characteristics into commodity groups. Different strategies can be used to group the
commodities, of which the following are probably the most common:

Products with similar physical characteristics (e.g. bearings)

Products with similar end users (e.g. stationery)
Products with similar suppliers (e.g. electronic components)

7.2 Commodities Feasible for e-Procurement

The most important characteristic that determines if a commodity group is suited for
e-procurement is the product itself. It is therefore important to rate each of the commodity
groups’ susceptibility to e-procurement. It is suggested to rate each commodity group
according to the criteria discussed in Section 4, namely product value, product characteristics,
product type and the number of suppliers. It is recommended to give each criterion a
qualitative rating between 1 and 5. Although product value is quantitative, it has to be
converted to a qualitative value between 1 and 5. Finally the average feasibility of the criteria
needs to be determined.

7.3 Procurement and Process Feasibility

Each of the identified commodity groups probably has a unique procurement process, is
purchased by different individuals and has a different consolidation process. It is important to
understand the value proposed by using e-procurement. The following important criteria have
to be considered:

Transaction value. For each of the commodities, the average transaction value (total
spent per commodity divided by the number of transactions for the same period) has
to be determined. A qualitative value needs to be assigned, ranging from 1 (low
transaction value) to 5 (high transaction value).

Process inefficiency. Determine the current process’s inefficiency, compared to that

of the proposed e-procurement solution. Although a quantitative approach of activity-
based costing can be used, a qualitative rating based on the evaluator’s opinion
would suffice. A rating from 1 (all products in the commodity group are purchased
through a very efficient process) to 5 (all products in the commodity group are
purchased through a very inefficient process) should be assigned.

Contract purchasing. Determine what part of the commodity spend is on-contract vs.
what part is off-contract. A qualitative value ranging from 1 (no products in the
commodity group are ever purchased off-contract) to 5 (all products in the
commodity group are frequently purchased off-contract) is suggested.

An overall rating for all three criteria should be determined and it is recommended to use the
average rating for the three aspects.

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7.4 Role-player Feasibility

For each of the identified commodity groups, the criteria as discussed in Section 5 should be
used to determine the role-player feasibility, i.e. the following:

Buyer characteristics. Each of the commodities’ buyers involved has to be evaluated.

Aspects such as their susceptibility to e-procurement and the existence of purchasing
control have to be evaluated. A qualitative value ranging from 1 (buyers of the
products in the commodity group will realise little value through using e-
procurement) to 5 (buyers of the products in the commodity group will realise a large
amount of value by using e-procurement) is suggested.

Supplier and channel strategy. For each commodity group, the relationship with its
suppliers has to be evaluated (being either cohesive or conflicting). The existence of
any horizontal or vertical relationships in which the buying company is involved
should also be considered. Scoring of the supplier and channel strategy pivots on the
existence of a constructive relationship (high rating) vs. deconstructive relationship
(low rating). A qualitative value ranging from 1 (a deconstructive relationship exists
between buyers and suppliers of the products in the commodity group) to 5 (a
constructive relationship exists between buyers and suppliers of the products in the
commodity group) is suggested.

Market forces. Each commodity is purchased in a market where certain forces prevail
(or are absent). It has to be determined whether each commodity is purchased in a
perfect (high rating) or imperfect competitive market (low rating). A qualitative value
ranging from 1 (all products in the commodity group are purchased in an imperfect
competitive market) to 5 (all products in the commodity group are purchased in a
perfect competitive market) is suggested.

An overall rating for all three criteria should be determined and it is recommended to use the
average rating for these criteria.

7.5 Prioritise Commodity Groups for e-Procurement

Different aspects of the susceptibility of a commodity group to an e-procurement solution are

discussed in paragraphs 7.2 to 7.4. All three of these aspects have to be combined into a single
rating for the commodity groups. Weighting of each of the three sets of criteria depends once
again on the company, but an equal weighting is recommended.

7.6 Information Exchange and Order Initiation Solution

Each of the commodity groups has received three ratings in terms of its susceptibility to
e-procurement. Before it is decided which products to procure through an e-procurement
solution, the systems and data requirements for such a system should be identified. The
following should be considered:

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System platform. Depending on the number of users and suppliers, a choice has to be
made between the Intranet, Extranet or Internet. Due to its reach and ease of access the
Internet will in most instances be the platform of choice.

Systems integration. The current systems used for purchasing the different
commodities have to be evaluated. These could include ERP or legacy systems, EDI
solutions, etc. that will determine the integration that would be required should e-
procurement be implemented.

Information and data format. Based on the system integration needs, the data format
requirement should be established. Where EDI solutions exist, the possibility of using
XML and its impact should be evaluated.

Business model. Companies have to choose between buy-side, sell-side or marketplace

solutions. Also choosing between catalogue solutions vs. ERP/legacy-based solutions
has to be considered.

Order initiation. Analyse if orders are generated on demand or forecast and how
orders are generated (JIT, MRP, by end users, etc.). Also determine if inventory of the
commodity is centralised or decentralised and if any inventory information is
available. Based on this, determine how orders will be initiated.

From this analysis, the preferred solution is derived for each of the dimensions discussed and
it should be combined with the prioritised commodity rating as discussed in Paragraph 7.5 to
determine, first, the preferred e-procurement solution and secondly, which products to
purchase using the solution.

7. 7 Commodity Feasibility and Recommended e-Procurement Solution

Based on the results of the previous two sections, the most feasible solution for each of the
aspects should be derived. This will indicate the most preferred platform (Internet, Extranet,
Intranet), the integration required (with ERP, legacy, etc.), the preferred data format (XML vs.
EDI for instance) and the recommended e-procurement business model (buy-side, sell-side or
marketplace).

Using the recommended e-procurement solution, information should be used to research

current e-procurement offerings and determine which solution addresses the IT requirements
best. Should no solution adequately fit the requirements, the possibility of developing a new
system should also be considered.

8. FRAMEWORK COMPARISON

8.1 Existing Frameworks

Two frameworks assisting e-procurement implementation were encountered during research.

The first is a proprietary model used by Sasol during their CommerceOne implementation
(which was coined the Funnel Model) and the second a procurement transformation model
developed by Accenture (Laub et al. [18]).

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The Funnel Model had a similar approach to that of the proposed framework and had the
following mechanics:

• Prioritise commodity groups. Similarly to the proposed framework, it prioritises

commodity groups in terms of the savings potential through implementing
e-procurement solution, as well as the IT integration required.

• Rank business units. Each of the business units is ranked in terms of their
susceptibility to procurement using an e-procurement solution (taking cognisance of
aspects such as business readiness, commodities procured and current IT
infrastructure).

• Formulate roll-out strategy. Using the commodity group profiles and the business unit
sequence, a roll-out strategy is formulated. The commodity group sequence is plotted
against the business unit sequence and a high-level project plan is formulated.

• Supplier take-on. For the selected commodity groups, the suppliers are ranked taking
cognisance of price and quality, quality of business processes, catalogue quality and
the length of relationship with the buying company.

Although Sasol encountered more stumble blocks than initially expected, they have
successfully implemented the CommerceOne BuySite™ solution at three sites in the Sasol
group. Without the existence of some structure in strategising product, IT and supplier
adoption, the process would definitively not have realised the significant savings experienced
to date. Sasol will also use the model to prioritise further rollouts of the CommerceOne
e-procurement solution within the group.

The Accenture procurement transformation model, as discussed by Laub et al. [18], is a high-
level model that aims to ensure that the structures in place also support the transformation
necessary for an e-procurement purchasing approach. The model suggests that companies
should start off by first ensuring that highly skilled buyers with excellent category knowledge
should drive procurement and use the e-procurement system to deploy and enhance the
experts’ expertise. The model suggests a thorough analysis of each of the commodity groups
and identifying possible cost-saving areas. The model also suggests establishing best-of-breed
sourcing strategies and through the savings realised, develop capabilities such as the
implementation of a new system.

8.2 Comparison of the Proposed and Existing Frameworks

Although the proposed framework has similarities to the Funnel Model used by Sasol, the
Funnel Model is primarily an implementation tool whereas the framework developed in this
research is an evaluation tool.

Unlike the Funnel Model, the developed framework does not initiate with a set solution, but
rather analyses a company’s total procurement (focusing on aspects such as products,
processes and existing systems) to determine the susceptibility to e-procurement. Criteria
developed also assist in recommending the required integration as well as data format and
information architecture. The proposed framework establishes the most important criteria to

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evaluate e-procurement solutions. Should no “off-the-shelf” solution adequately fit the set
criteria, a new solution can be based on the specifications set out by the framework.

The choice of solution, as well as outputs from the proposed model, can be used as input to
the Funnel Model (removing the first product rating stage). This will enable the formulation
of a roll-out plan for the solution. The proposed framework therefore does not aim to replace
the existing Funnel Model, rather it aims to complement it and function as an extension in
choosing and rolling out the most feasible e-procurement solution.

The procurement transformation model is not an implementation or evaluation model, but

rather aims to ensure that procurement is business rather than system driven. With the model,
however, it is possible to derive a number of different systems for each of the different
commodities procured within a company. Although the proposed framework may set out with
an e-procurement system in thought, it ranks each of the commodity groups and will only
implement the system for the chosen groups with savings potential.

9. CONCLUSION

e-Procurement solutions present significant potential through a number of tangible and

intangible benefits and will also help drive on-line supply chain collaboration processes
between companies. A number of implementations have not achieved the promised results as
they considered e-procurement from a solution rather than a business and strategy point of
view. Before the e-procurement solution decision, companies should have a sourcing strategy
for each of the commodity groups they procure. The proposed framework will then assist in
aligning the susceptible commodity groups with a potential e-procurement solution and will
also assist in choosing the most suitable solution. An e-procurement solution should be
viewed as a catalyst to control and improve efficiencies of a category of a company’s
purchases.

South Africa, however, has a number of unique problems facing the implementation of a first-
world solution such as e-procurement. Aspects such as a limited and monopolised supply
base, limited bandwidth and BEE & SMME policies all complicate the feasibility and
achievability of savings and improvements generally accepted with the implementation of
such a solution. Companies opting for an e-procurement solution should therefore consider a
staggered-process automation approach. Starting with the implementation of procurement
cards (P-Cards) or on-line auctions for some of the commodities could be first steps before a
full-fledged e-procurement rollout.

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