Electronic Procurement in Supply Chain Management: An Information Economics-Based Analysis of Electronic Markets. (Summary)

By Essig, Michael; Arnold, Ulli | Journal of Supply Chain Management, Fall 2001 | Go to article overview

Electronic Procurement in Supply Chain Management: An Information Economics-Based Analysis of Electronic Markets. (Summary)


Essig, Michael, Arnold, Ulli, Journal of Supply Chain Management


Electronic procurement is currently one of the most discussed topics in supply management. Without doubt, it will dramatically change the way purchasing is done in the near future. Telgen (1998) calls it a "revolution through electronic purchasing." This article analyzes the possibilities of electronic marketplaces for buyers, primarily from a theoretical perspective. The article develops an analytical framework that is based on information economics theory, which may be the most important theory to analyze market problems in general. It is combined with a systematic approach for procurement transactions based on Williamson's (1985a) transaction theory. An e-procurement matrix is developed that could help to systematize different e-procurement instruments. Various data types available from electronic marketplaces are analyzed with a business model for electronic marketplaces. These business models show the real value added by e-procurement.

RESEARCH FRAMEWORK AND METHODOLOGY

According to Neef (2001), "E-procurement means a giant leap forward in the long sought-after development of the extended enterprise, where the supply chain becomes a continuous, uninterrupted process extending from buyer through selling partners." Neef regarded e-procurement as one of the major enablers for supply chain management. Breite and Vanharanta (2001) went a step further and stated that "information technology changed the supply chain management concept more radically than any other technology."

However, most research in the field of supply chain management is more descriptive than analytical. Croom, Romano, and Giannakis (2000) noted a "relative lack of theoretical work in the field when compared to empirical studies." This article strives to expand the theoretical base of electronic procurement as an integral part of supply chain management. The research framework is a nested approach following six steps (see Figure 1).

Step 1 analyzes the consequences of improved information and communication technology on a macro level. Based on the idea of coordination efficiency, new technology sets new standards for the way the economy is doing business. Step 2 takes a closer look at the transaction frame as a combination of macro- and micro-analysis. The problem of uncertainty is analyzed from a purchasing point of view. Regarding incomplete information as a general problem of business decisions, the analysis takes a closer look at the consequences for different purchasing situations (information economics -- Step 3) and purchasing transactions (transaction analysis -- Step 4). Combining both of these aspects, the e-procurement matrix helps to systematize different kinds of e-procurement instruments and gives general recommendations for their application (Step 5). Step 6 shows the consequences for electronic marketplaces in bringing together suppliers and customers.

IMPROVED COORDINATION EFFICIENCY IN THE ECONOMY: THE INFORMATION TECHNOLOGY REVOLUTION (STEP 1)

The data on the development of electronic commerce on a macro level show a bright future for e-procurement. Studies forecast a growth in e-commerce volume (B2B) in Europe from US$73 billion in 2000 to US$727 billion in 2003 and in the United States from US$251 billion in 2000 to US$1,331 billion in 2003 (Cleven 2000). However, another perspective is that in 2003, e-commerce will not be more than about 15 percent of the total transaction volume. This ratio varies between 4 percent in agriculture and 28 percent in the automotive industry (Boston Consulting Group 2000).

These data lead to the conclusion that not all procurement problems can be solved by Internet technology. Specifically, the extended flow of information through the Internet has to be analyzed carefully to generate useful recommendations on how to implement e-procurement successfully.

The major changes in information and communications technology are considered to be the second economic revolution.

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