Academic journal article Journal of Supply Chain Management

An Empirical Examination of Reverse Auction Appropriateness in B2B Source Selection

Academic journal article Journal of Supply Chain Management

An Empirical Examination of Reverse Auction Appropriateness in B2B Source Selection

Article excerpt

INTRODUCTION

Sourcing continues to become more strategic in nature because: (1) it is a key link between an organization and its suppliers that "play a critical role in supporting a firm's competitive strategy, whether it be cost leadership, differentiation, or a mixed strategy" (Ellram and Carr 1994, p. 17), and (2) the explosive increase in outsourcing goods and services. Therefore, sourcing innovations that enhance the organization's competitive advantage and financial performance (Ellram and Carr 1994; Ittner, Larcker, Nager and Rajan 1999) are receiving increased attention in business and academic literature.

One sourcing innovation receiving increased attention is the use of electronic reverse auctions (e-RA). An e-RA is an online, downward bidding event that links supply managers and suppliers in real time (Beall, Carter, Carter, Germer, Hendrick, Jap, Kaufmann, Maciejewski, Monczk and Petersen 2003). In an e-RA online market, supply managers post bid schedules for products or services they are purchasing (or plan to purchase over a prescribed timeframe), and multiple suppliers bid to win the purchase business. In a number of cases, e-RAs are substituting for traditional, asynchronous, paper-based or email-based requests for proposals and subsequent face-to-face negotiations.

Currently, e-RAs are the focus of much discussion among academics and practitioners. E-RAs are viewed as having the potential to reduce the price of purchased goods and services as much as 5-40 percent (Tully 2000) with an average of 15-20 percent (Cohn 2000; Guillemaud, Farris, Hawkins and Roth 2005). Researchers suggest that e-RAs provide an opportunity for firms to contribute to a position of competitive advantage by reducing the price and the transaction costs associated with purchasing goods and services (Reck and Long 1988; Monczka 1992; Ellram and Carr 1994; Cohn 2000; Tully 2000). E-RAs have also been cited as a means to reduce procurement lead time allowing sourcing professionals to concentrate on strategic issues (Carbone 2005; Pearcy, Giunipero and Wilson 2007). However, e-RA use is also criticized because it may negatively affect relationships with suppliers (e.g., Jap 2003; Emiliani and Stec 2005; Carter and Kaufmann 2007; Losch and Lambert 2007; Pearcy et al. 2007). Some suppliers may view supply managers that use e-RAs as opportunistic (Jap 2003) resulting in lower levels of trust and greater dysfunctional conflict (Carter and Kaufmann 2007). If e-RA use damages relationships with strategic suppliers, the long-term negative consequences may outweigh any short-term benefits. Thus, research that examines how sourcing professionals reach the conclusion that an e-RA is appropriate for a particular procurement situation is important. Given the fact that e-RA research is still new, it is not surprising that there is relatively little empirical research exploring the appropriateness of e-RA use (Beall et al. 2003; Joo and Kim 2004; Kaufmann and Carter 2004; Wagner and Schwab 2004). The strategic implications of e-RA use necessitate that researchers and practitioners increase their understanding of how sourcing managers determine e-RA appropriateness.

This work represents a logical next step in e-RA research by moving beyond description and initially developed constructs to provide an initial validation of correlation (Burrell and Morgan 1979; Eisenhardt 1991; Charmaz 2006). Previous e-RA research has been either qualitative or based on small samples as shown in Table I. In framing this research along the research evolutionary model (Burrell and Morgan 1979), our investigation builds on initial categorization to validate proposed theoretical associations. To do so, we examined 27 studies that identified antecedents of e-RA appropriateness. These studies were generally qualitative, conceptual, or, when quantitative, based on small samples. Therefore, the field needs confirmation from a quantitative test of hypotheses using a large, diverse sample of practitioners. …

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