current trends and challenges in electronic procurement...

A b s t r a c tThis paper presents results from a longitudinal

study on the use of ICT for B2B-related

business processes in large Swiss companies.

In an empirical survey, 68 questionnaires

were personally collected from procurement

heads and subsequently analysed. The study

was initiated by industry partners who

wanted to gain more detailed knowledge

about the maturity of e-procurement in the

Swiss market. Based on an extensive litera-

ture review and previous empirical studies, we

developed a research framework addressing

strategic as well as operational issues. The

findings show that reduction of purchase

prices is the top priority when setting

procurement goals. For 78.2% of the respon-

dents IT makes an important contribution to

successfully carrying out the procurement

function. Nevertheless, these companies are

striving for further optimization and improved

process integration. Electronic exchange of

invoices (e-invoicing) is a current key topic for

over 70% of the companies. Procurement

heads sense a lack of supplier involvement,

which makes the realization of balanced B2B

solution scenarios difficult. The study shows

that IT, without doubt, plays a significant role

in everyday procurement, but that the

expectations of IT are rarely completely

fulfilled.

Keywords: empirical study, survey, SME, e-

procurement, B2B e-commerce

A u t h o r s

Christian Tanner([email protected]) is Professorfor IT Management and e-Business atthe University of Applied SciencesNorthwestern Switzerland, School ofBusiness in Basel, at the Institute forInformation Systems. His researchfocuses on the management and designof interorganizational systems andbusiness processes (e-Procurement, B2Be-Commerce, Electronic Markets).Ralf Wolfle([email protected]) is Professor forIT Management and e-Business at theUniversity of Applied SciencesNorthwestern Switzerland, School ofBusiness in Basel, at the Institute forInformation Systems. He is head of theCompetence Centre e-Business, Basel.His research focuses on the managementand design of e-business concepts andthe dissemination of ICT and e-businessknowledge.

Current Trends and Challenges in Electronic

Procurement: An Empirical Study

CHRISTIAN TANNER, RALF WOLFLE, PETRA SCHUBERT AND MICHAEL QUADE

INTRODUCTION

E-procurement, the electronic sup-port of the professional buyingprocess, which addresses the rela-tionships of a business with itssuppliers, has gained increased atten-tion in academic work in recent years(Carter and Monczka 2005,Crossgate 2007, Nagle et al. 2007,Palma dos Reis and Soares Aguiar2006, Williams and Hardy 2007).Around the year 2000 and in thefollowing years, online marketplaces,reverse auctions and desktop pro-curement systems were among thevarious e-procurement-related topicsof interest (Eyholzer 2002, Segevet al. 2000). Now that the euphoriasurrounding e-business has abated,more research is needed on thesuccessful use of e-procurement sys-tems (Knudsen 2003).

This study addresses the role ofinformation technology in the pro-curement function of the Top 200companies in Switzerland today. Foryears, the research group behind thispaper has been conducting a long-term study of the use of ICT forB2B-related business processes. In2003, an initial, small scale e-pro-curement study was carried out(Tanner 2003). It was embedded inthe so-called ‘E-Supplier Initiative’and showed the need for action inthe area of electronic invoice

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Petra Schubert([email protected]) isProfessor for Business Software at theDepartment of Computer Science of theUniversity of Koblenz-Landau. Herresearch focus is the area of enterpriseinformation systems with a focus onbusiness collaboration and the use ofICT in SMEs.Michael Quade([email protected]) is a ResearchFellow in IT Management and e-Business at the University of AppliedSciences Northwestern Switzerland,School of Business in Basel, at theInstitute for Information Systems. Hisresearch focuses on the management anddesign of inter-organizational systemsand business processes and on thepersonalization of e-commerceapplications.

FOCUS THEME SECTION: ‘eMERGENCE: MERGING AND EMERGING TECHNOLOGIES, PROCESSES AND INSTITUTIONS’

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exchange. The research group subsequently launchedthe swissDIGIN initiative, a consortium of industrypartners developing standards, common procedures anda public knowledge base in the area of e-procurementand e-invoicing in Switzerland.

This paper presents the most recent study, which aimsto capture the current status of market development,identify progress and show current topics requiringattention in future research projects. In this study, wefocus on major companies, because they have in the pastset the tone for the whole market, authoritativelydefining, for small- and medium-sized suppliers, boththe rules of the game and the instruments to be used.

The paper is structured as follows: The next sectionprovides a literature review including a reference tosimilar studies and describes the research objectives. Theresearch design and the characterization of the sampleare then presented. The main section contains adiscussion of the trends and challenges in e-procurementdrawn from the empirical survey. The paper concludeswith a discussion of the results and the survey’slimitations.

LITERATURE REVIEW AND OBJECTIVES OF THE STUDY

This section presents an overview of basic concepts andprevious research in the area of electronic procurement,and it outlines the objectives of the study. The numberof academic publications on e-procurement hasincreased in the past two years. This increase made itpossible to review previous results from four differentcountries: Portugal (Palma dos Reis and Soares Aguiar2006); Ireland (Nagle et al. 2007); Germany (Crossgate2007, Kutschera and Tittel 2005); and Australia(Williams and Hardy 2007).

Current research in e-procurement

There are two different types of procurement processes,the first and most often discussed being MaterialRequirements Planning (MRP) and the second referringto products for Maintenance, Repair and Operations(MRO). MRP, the procurement of direct goods neededfor the company’s own production process, is usuallycharacterized by standardized processes and was tradi-tionally supported by systems for enterprise resourceplanning (ERP). With the advent of Internet technol-ogy, the area of MRO, the procurement of indirectmaterial such as office supplies and services, also becamefeasible for electronic support.

Direct procurement is often characterized by long-term supplier relationships, defined purchasing pro-cesses, rather unmodified material master data, call-offorders and planned quantities. Indirect procurement, onthe other hand, is based on ad-hoc activities which are

difficult to put into an electronically supported work-flow. Since the products needed in this area are lessfrequently bought and usually of low value, companiesshy away from maintaining material master data forindirect products. The study of Subramaniam and Shaw(2004: 15) showed that indirect procurement especiallycan benefit from electronic support: ‘From our analysis,it is clear that the use of Web is beneficial for unstructuredprocurement, such as unplanned purchases.’

The term e-procurement gained popularity aroundthe year 2000 with the emergence of the twocompetitors Ariba and Commerce One, companies thatspecialized in the support of electronic procurement forMRO products (Segev et al. 2000). With the help of so-called ‘buy-side solutions’ large companies started tobuild up their own electronic multi-vendor catalogues.The introduction of Internet-based procurement appli-cations induced a shift from a centrally organizedprocurement (central buying) department to a so-called‘desktop procurement’ environment, where theemployee in need of a product would initiate thepurchase transaction electronically. With these twotrends, ‘decentralized purchasing’ and ‘multi-vendorcatalogues’, the path toward increased electronic sup-port of the MRO buying process was paved.

In our study, we analyse procurement for direct as wellas indirect products. Figure 1 shows the different levels(strategic and operational) and the processes andfunctions on which we focus our discussion (Schubertet al. 2002). At the strategic procurement level weexplore the relevance of IT for identifying the rightsuppliers and supporting the subsequent negotiationprocess. Once the basic conditions of purchasing aresettled they need to be managed by the system. The aimis to control the supplier’s compliance with the contractand to avoid purchasing transactions, by employees,outside the contracts (maverick buying). On theoperational procurement level we explore the utilizationof IT for functions and processes supporting the day-to-day operations of procurement departments. Theyinclude collaboration with suppliers in terms of planningand forecasting but also in the field of product

Figure 1. Research framework: procurement levels and activities

Electronic Markets Vol. 18 No 1 7


development. We put a special focus on the electronicexchange of business documents (EDI) between com-panies from the placement of an order to the finalsettlement of an invoice. In this context, we refer toSupplier Relationship Management as the closed-loopwithin a buying organization that deals with relation-ships and processes with suppliers (Wolfle and Schubert2006). In doing this, we are in accordance with the mainvendors of IT procurement solutions which use this termfor broad electronic support of the buyer–supplierrelationship including strategic as well as operationalprocesses.

As for many other areas of electronic business, theearly literature especially points to the fact that electronicprocurement systems are likely to lead to cost reduction(Bakos 1997, Williamson 1996) and increased efficiencyon inbound logistics (Subramaniam and Shaw 2004). Asa core function procurement is, however, subjected tothe mega trends of the market. Its day to day existence isvery much defined by growing procurement volumesdue to greater concentration of business on corecompetences, globalization of procurement markets,growing market dynamics as well as the ever shorterproduct lifecycle (Belz and Muhlemeyer 2001,European Commission 2007).

For a procurement organization to operate bothefficiently and effectively in such a complex environmentuseful structures need to be created and suitableinstruments put to use (Eichler 2003, Mohrstadt et al.2001). Information technology can have an importantfunction in this regard (Segev et al. 2000, Kearney2004). Used appropriately it can offer:

N smoother and faster process flow;N efficient distribution of information;N decentralization of tasks and decisions; andN increased transparency and better control.

In addition, information technology helps not only tosupport internal processes, but also those involvingbusiness partners (Minahan 2005). In this way informa-tion technology grows in importance in the dailybusiness of procurement managers (Aberdeen Group2003, 2005).

In a recent survey, Palma dos Reis and Soeares Aguiar(2006) studied the factors leading to the adoption ofelectronic procurement systems in Portugal. Theirrespondents were people in management positions from240 large companies in manufacturing, commerce andservices. The authors built their hypotheses on theframework of Tornatzky and Fleischer (1990), whichdescribes three aspects of a firm’s context that caninfluence the adoption of technological innovations:organizational context; technological context; and envir-onmental context. The authors found positive relation-ships among firm size (organizational context),technological capabilities (technological context), the

extent of adoption among competitors, and tradingpartner readiness (environmental context).

In a field study in Ireland, Nagle et al. (2007)explored the effects that B2B relationships have one-procurement systems. The authors performed an in-depth field study in six selected companies and success-fully showed that adversarial type relationships influencee-procurement systems around the sourcing phases(information gathering, supplier contact, backgroundreview and negotiation). They demonstrated that incomparison, collaborative relationships tend to affect thefulfilment and consumption phases more than otherprocurement activities.

Electronic Data Interchange (EDI), applications canbe seen as the first wave of e-procurement systems(Chaffey 2002, Schubert et al. 2002). EDI, and with itthe streamlining of the purchasing process, has been aresearch topic for almost 20 years. Many studies of theeffects of the electronic support in business processeshave been published in leading journals (e.g., Beck et al.2005, Dai and Kauffman 2002, Iacovou et al. 1995, Leeet al. 2004, Lim and Palvia 2001). Due to the significantinvestments required for building up an EDI system(converter, contacts, VAN setup), many ‘old-fashioned’EDI software interfaces are still in use and have not beenreplaced with XML-based technology. A recent EDIsurvey performed in Germany (Crossgate 2007)addressed 5,000 companies from different industries.Of the 891 respondents 50% reported that EDI still has ahigh priority in their procurement processes. This is alsoreflected in the fact that the order is the number onebusiness document exchanged electronically by 76% ofthe responding companies.

A survey on e-procurement in Australia (Williams andHardy 2007) showed that e-procurement has become anincreasingly strategic topic in companies. Like theothers, this study addressed top management and isbased on responses from 139 organizations in differentindustries across the public and private sector.Compared to a similar survey conducted two yearsbefore, e-procurement implementations had increased inboth reach and scope. More companies were investing inthe electronic support of procurement functions andprocesses. However, none of the respondents who hadimplemented e-procurement reported major or signifi-cant benefits. This is in line with findings from Germany(Crossgate 2007, Kutschera and Tittel 2005) and ourown results from Switzerland (Tanner et al. 2007).

Research objectives

The study presented in this paper was initiated byindustry partners who had specific questions regardingthe e-procurement maturity of the Swiss market. Basedon the situation described above, the study had thefollowing objectives:

8 Christian Tanner, Ralf Wolfle, Petra Schubert and Michael Quade & Current Trends and Challenges in Electronic Procurement


N Describing the significance and the current status ofthe use of IT in procurement;

N Identifying the challenges involved in using IT inprocurement; and

N Identifying priorities in the further development of ITfor procurement.

Four topics are covered in depth: (1) trends andchallenges in procurement; (2) challenges in the utiliza-tion of IT for procurement; (3) further development ofthe use of IT in procurement; and (4) hot topics for thefuture.

RESEARCH DESIGN AND CHARACTERISTIC OFCONTROL SAMPLE

The following section explains the method of investiga-tion and shows the response and characterization of therespondents.

Method of investigation

The population for this study consists of the 200privately owned companies that are the major employersin Switzerland according to the listing entitled ‘Top2004 – the largest companies in Switzerland,’ publishedby the Swiss business magazine Handelszeitung(Handelszeitung 2004). The company names were takenfrom the corresponding database. We first telephonedthe companies and identified the people in charge ofprocurement in the company or group. Once we had thename of the responsible person, we sent a personal letterexplaining the study objectives and the link to the onlinequestionnaire. The questionnaire was available inGerman and English.1 After a pre-test with fiveprocurement professionals the collection of data wascarried out in November 2005. Following this, theresults were evaluated and analysed.

Response and characterization of the participants

The return rate from the 68 companies, who took part inthe study, was 34%. Four of the questionnaires had to bediscarded, these had been completed by small groupcompanies whose procurement function did not exhibitthe characteristics of a large company procurementdepartment and did not play a major role within thegroup. The participants in the study were categorized bythe size of their company, their sector and theirprocurement volume and job function. As the studyfocuses on the large companies that are believed to be e-procurement leaders, the study cannot be consideredrepresentative for Switzerland as a whole.

Company size. Of the participating companies, 76.6%employed more than 1,000 staff (calculated as full-timeequivalents). Companies with fewer than 500 employeeswere subsidiaries of groups of companies that wereeither responsible for most of the company’s purchasingor else had the highest procurement volume in thegroup. In total, 28% of the respondents indicated thatthey were answering from the perspective of a subsidiary.The remainder answered the question from the perspec-tive of the procurement organization of an independentcompany or from the perspective of the corporate group.

Sector affiliation. The distribution of participatingcompanies with more than 500 employees by sectorwas compared with data from the latest Industry Censusof 2001 of the Swiss Federal Statistical Office. The tradesector was underrepresented in our study while themachine industry was overrepresented.

Job function of the respondents. People with a leadingrole in the procurement organization provided 85.9% ofthe responses. In five cases the questionnaire wascompleted by respondents in charge of IT and in afurther four cases by respondents who had a supportingrole in procurement.

E-PROCUREMENT: TRENDS AND CHALLENGES

Before the use and role of IT in procurement can beexamined, the respondents’ main procurement goalsshould be highlighted. The major emphasis in theutilization of IT in procurement is very much dependenton procurement objectives, the particular sector and thecore business. The latter two criteria influence to a largeextent the volume of procurement and the requirementsof a company.

Main goals in procurement

Reduction of purchase prices is the top priority whensetting goals for procurement (see Figure 2). Thistraditional goal is given very high priority, with 56.3%of responses. Reduction of prices was also the numberone factor for adoption of e-procurement systems in theAustralian study (Williams and Hardy 2007). Thiscontrasts with the more comprehensive managementapproaches that should be adopted by the procurementfunction to deal with the increasing market dynamics(Boutellier 2003). The broad objective of optimizingthe total costs of procurement is, with the exception offour companies, ranked as rather high or very highpriority.

The internal optimization of processes plays animportant role in the total optimization of purchasingcosts, 48.4% of participants granted it very high priority,



and they seem to identify untapped potential. Incontrast, B2B process optimization was only given highpriority by 17.2%. Outsourcing of strategic or opera-tional processes did not seem to be an important issuefrom the procurement perspective.

Electronic data interchange with suppliers

Much of the purchasing potential of informationtechnology lies in the design of processes beyond thecompany’s borders (CAPS Research 2003, Carter andMonczka 2005). Therefore, the investigation examinedthe extent to which the Top 200 companies inSwitzerland exchanged structured, electronic businessdocuments, such as orders, despatch advice or invoices,with their suppliers.

Low penetration – greatest volume with electronicorders and invoices. Of the companies, in the study,53.2% reported exchanging business documents com-pletely electronically with their suppliers (i.e. transmis-sion or receipt of documents takes place in structuredform without renewed manual data entry) and only14.6% reached a penetration of more than 100 suppliers.It seems that only a few companies achieve a widespreadroll-out integrating their suppliers into their electronicprocesses. In addition it can be ascertained that fewcompanies consistently use the electronic route. Themajority of respondents exchange less than 20% of alltypes of documents electronically with suppliers. This isconfirmed by the German study (Crossgate 2007) which

shows that on average only half of the respondentsexchange between 100 and 5,000 transactions permonth electronically – a mere fraction of the totalamount of transactions. The level of ‘electronification’ isstill very low.

The following listing shows the extent to which theelectronic exchange of specific business documents issupported by the respondents. The values in parenthesesshow the corresponding values from the German EDIstudy mentioned above (Crossgate 2007).

1. Purchase order 84.8% (76%, no. 1)2. Invoice 57.6% (73%, no. 2)3. Order confirmation 57.6% (45%, no. 5)4. Request for quote and bid 57.6% (–)5. Despatch advice 48.5% (65%, no. 3)

As can be seen in the comparison, the purchase order isthe most electronically exchanged business document.Whereas in Switzerland the electronic purchase orderreaches a higher penetration the electronic invoice lagssomewhat behind the German figures.

Lack of supplier involvement and balanced B2B solutionscenarios. In order to get to the root of why integratedB2B solutions have only penetrated to a small extentwith suppliers, study participants were confronted with avariety of statements and asked to what extent theyagreed (see Figure 3). Over 60% of procurementorganizations judge suppliers’ lack of awareness andinfrastructure to optimize B2B processes as a hindranceto integrated B2B solution scenarios. Again, theAustralian study showed a similar picture. ‘Lack of

Figure 2. Reduction of purchasing price has highest priority



supplier readiness’ was mentioned as the number oneinhibitor to adoption of e-procurement systems(Williams and Hardy 2007). However, 48.4% of therespondents in the Swiss study admitted that suppliersare not always offered appropriate or affordable integra-tion solutions. ‘Systems integration issues’ was also thenumber two inhibitor in Australia (Williams and Hardy2007). In addition, the majority of the companies agreewith the statement that the current B2B scenarios arenot balanced and the position of the suppliers isinsufficiently considered, although only 4.7% of respon-dents agree completely with the latter.

Over 40% of the companies see the varying require-ments of the procurement organization to their suppliersas a hindrance. Almost as many lack accepted andwidespread B2B standards for business documents andprocesses. B2B marketplaces could accelerate the inte-gration of suppliers with the procurement system ofcompanies. In the study 57.8% of the participants tendto agree or agree completely with this statement.

Noteworthy in Figure 3 is the high proportion ofcompanies who did not comment on the statements.The proportion of companies who did not respond tothe statement about the balance of current B2Bintegration scenarios was just over 20%. This may reflecta lack of knowledge on the part of procurementexecutives about the available integration options.

Overall, these answers do not provide a clear picture ofthe views of the Top 200 companies. This area requiresadditional investigation.

Challenges in the utilization of IT for procurement

The study shows without doubt that IT plays asignificant role in everyday procurement, but it alsoshows that the expectations of IT are rarely completelyfulfilled. We investigated what procurement managerssee as the most significant current challenges.

High costs, few suppliers and deficient masterdata. One of the biggest difficulties seems to be thehigh introduction costs for new IT solutions forsupporting e-procurement (see Figure 4). This pointwas named by 61.3% of the study participants.Closely connected is the statement of 48.4% of thecompanies that the benefit and the potential of newIT solutions are difficult to appraise. The Australianstudy similarly revealed that managers’ inability to justifycost and benefits was the number three inhibitor(Williams and Hardy 2007). This should lead solutionproviders to give high priority to cost and benefitconsiderations and, in relation to this, to transparent,open communication.

Figure 3. Lack of involvement of suppliers, as well as inadequate solution scenarios as a hindrance to increased B2B integration



As shown earlier, it was ascertained that EDI withsuppliers is only at an advanced stage in a few companies.One of the main difficulties described by 54.8% ofrespondents was the slow integration of suppliers to theprocurement system as in effectively using appropriateIT solutions. Poor quality of master data remains anongoing issue (Leukel 2004) with 51.6% of companiesstill seeing a problem here. Four out of ten studyparticipants see a further difficulty in the use of IT in thelack of user-friendliness and user acceptance.

In the responses 38.6% of companies assess problemsin process support, because only some of the procure-ment processes can be covered by IT solutions, and30.6% believe that IT solutions do not address thecomplexity of purchasing processes. However, only22.6% of respondents are of the opinion that a majordifficulty lies in the lack of fully integrated softwaresolutions.

The lack of qualified staff is (fortunately) a problemfor only few of the Top 200 companies in Switzerland.Only 14.5% of the respondents see a problem here. Thiscontrasts with the results of an international study by theEconomist (Economist 2005: 23) commissioned bySAP, which was conducted with 350 management boardmembers. Of the participant 58% reported that the lackof qualified staff and training was the greatest challengeto achieving maximum efficiency in procurement. It isquite possible that, in comparison, companies inSwitzerland can rely on better educated staff.

Consultant expertise does not seem to cause abottleneck for further development of IT for procure-ment, as only 6.5% see any difficulty in this area. Thestudy participants were also asked to what extent theyagree that the quality of data on expenditure in the

company is insufficient, 39.1% agreed completely ortended to agree. 28.1% of companies reported inaddition that many orders were placed outside thenegotiated contracts, described as maverick buying(Hartmann 1999: 47, Neef 2001).

Further development of the use of IT in procurement

Lastly, the procurement heads were asked: 1) how theyestimated the prospects for their further utilization ofIT; 2) who the driving force in the company was in thisregard; 3) what the main focus of future IT use wouldbe. They were also asked to make statements regardingtheir planned expenditure for the next two years.

Strategic level: optimization of transparency andreporting in focus. The companies were asked wheretheir priorities lie in the enhancement of IT in their owncompany to support strategic and also operationalprocurement processes (see Figure 5).

In the case of strategic processes it is striking that themain focus is on reporting and analysis functions. Nearly70% of the companies give high or very high priority tooptimizing the analysis of expenditure. IT support ofsupplier assessment is also given above average priority,mentioned by over 60% of respondents.

It may come as a surprise to find that furtherdevelopment of IT in the areas of sourcing processes(supplier identification, negotiation) does not receivehigher priority. In view of the efforts made to reduceprices and the low usage of online auctions andinvitations to tender (sourcing tools), higher valueswould have been expected here. It would be interesting

Figure 4. Main difficulties in the use of IT for procurement



to test the results reported in the Irish study by Nagleet al. (2007) on this phenomenon. Following Nagleet al. we would expect to find that Swiss B2B relation-ships in the Top 200 companies are characterized bycollaborative rather than adversarial relationships. Thiswould explain the lack of interest in electronic support ofsourcing activities.

The potential of electronic sourcing remains to berealized. Only 30% of the Top 200 companies reportedcurrently using online sourcing tools. As shown in thelatest e-business W@tch report (European Commission2007), use of online sourcing tools in Europe is farbehind other e-procurement tools.

Operational level: Optimization of order and invoiceprocessing in focus. In the further development of IT

support for operational processes, order and invoiceprocessing are at the top of the list of priorities (seeFigure 6). The optimization of order processing of directgoods takes priority over indirect goods, services andinvestment goods. If the answers with high priority andfairly high priority are added together, the introductionor enhancement of automated invoice entry processingattains the highest value with 68.8%.

With regard to the exchange of electronically struc-tured business documents such as orders, invoices anddispatch advices, the companies tend to be lessenthusiastic. In only 8.1% of the responding companiesis the this issue given high priority. Considering thatcooperational disposition and planning with suppliers isnot important to all companies and sectors, 42.2% ofcompanies still attach fairly or very high priority to

Figure 5. Further development of IT to support strategic procurement processes

Figure 6. Further development of IT to support operational procurement processes



developing this area. This corresponds with findingsabout unfulfilled expectations in the use of these ITtools.

Hot topics: SRM and e-invoicing

Finally, survey participants were asked to estimate theimportance of nine pre-selected topics in the comingyears (see Figure 7). The broadly diversified potential ofthe comprehensive ‘Supplier Relationship Management’concept (SRM) will make it the main topic of attentionin the years ahead. Of the companiessurveyed, 30.1%rate SRM as very important, a further 32.4% as fairlyimportant. This shows that buying organizations arestriving for holistic solutions, but we feel that this resultmay be influenced by leading software vendors who arestrongly promoting SRM. The question as to whetherstrategic or operational functions are more in theforeground is not answered.

Electronic exchange of invoices (e-invoicing) is a topicfor the future in over 70% of the companies. Almost 30%rate it as very important. This may be due, on the onehand, to the potential for optimization of theseadministrative processes, but on the other hand it couldbe due to the Swiss ordinance on e-invoicing thatbecame effective in 2002.2 With the application of thisordinance, the validity of electronic invoices is put on parwith paper-based invoices, which could have led to theincrease in acceptance of electronic invoicing as well asadvanced offers of provision of services. A similarsituation can be observed within the EuropeanCommunity where numerous initiatives aim for astronger dissemination of electronic invoicing(European Commission 2007).

The optimization of the Product Supply Chain isjudged as slightly more important than that of theFinancial Supply Chain. Along with the highly ratedimportance of SRM, this underlines the intention of thecompanies to tackle process improvements comprehen-sively and beyond company borders. Although batchtracing is primarily a central requirement in processindustries (e.g., for consumer goods and pharmaceuti-cals), this topic was also rated as important or veryimportant by companies in other sectors. It is to beassumed that some study participants equated this withthe tracing of orders.

B2B marketplaces were rated as a very important orfairly important topic for the coming years by 45.3% ofprocurement organizations. The topic of outsourcing ofprocurement applications receives little attention fromthe study participants. It could be assumed that thesupply of supported processes is not consolidatedenough to delegate them to a third party (Carr 2005).Again, this is in line with another earlier Swiss study(Tanner 2003). Only 12.5% of respondents classify it asfairly important or very important.

RFID as a new technology for identification of goodsis a focal point for providers, science and media.However the survey shows that in procurement organi-zations the topic is only judged very important by 6.7%and quite important by a further 23% for the comingyears. In the questionnaire, we did not ask for reasonsfor not using RFID. However, discussions with man-agers revealed that their current (bar code, EAN)systems work fine and that they do not see how a largeinvestment in RFID technology could be economicallyfeasible from today’s point of view. Their focus forprocurement is on cost reduction and smooth businessprocesses and not on the use of latest technology.

Figure 7. Importance of topics for the coming years



DISCUSSION OF RESULTS

The past few years have been rather quiet in the area ofe-procurement. Online marketplaces, auctions andInternet-based tendering have not revolutionized pro-curement, at least in Switzerland. (Editor’s note: SeeSmits and Janssen, this issue, for a highly innovative useof auction mechanisms in health care.) As in other fieldsof application of e-business, however, one should notassume that nothing is happening in the procurementdepartments in the IT field. Over the past five years, halfof the responding companies have invested more than aquarter of a million Swiss francs in the furtherdevelopment of IT for procurement. This investmentwill increase even more in the future: although largeprojects are not planned, half of the respondingcompanies will invest an annual sum of more than100,000 Swiss Francs (62,500 euros) over the next twoyears.

Procurement goals remain stable

Goals in procurement have largely remained stable in thepast few years as compared to a previous study onprocurement (c.f. Tanner 2003). From the currentstudy, the following big picture can be deduced (seeFigure 8).

The guiding theme in procurement departments iscost reduction, most importantly of purchasing pricesbut also of total costs, including internal process, logisticand quality assurance costs. This is fully in line with thefindings from the Australian study where ‘improveefficiency’ and ‘reduce purchasing cost’ came out asthe main drivers for the future adoption of e-procure-ment (Williams and Hardy 2007). The second issue istransparency and control. It is no longer sufficient inmost fields that, in the vast majority of cases, purchasing

goes well and that procurement is well organized.Instead, purchasing must achieve its optimum levelacross the board. Three-quarters of the participants inthe study ranked information technology as important.The first task of IT is central coordination and demandaggregation, which was named a very high priority bythe majority questioned.

Whoever expects a push toward auctions as a result ofincreased cost pressure will learn better from this study.The companies optimize their procurement from theinside out. On the strategic level, spend analysis, supplierassessment and contract management are the key areas offocus for the majority of the companies. On theoperational level, automatic invoice entry processing aswell as order processing for direct and indirect goodshave high rankings, followed by order processing forservices. The situation observed in Switzerland is similarto that identified by the latest European E-BusinessReport (European Commission 2007).

Information technology should enable topperformance

The heterogeneity of processes and systems due tohistorically evolved decentralized procurement struc-tures makes not only transparency more difficult toachieve but also makes it difficult to detect the weakpoints in the aggregation of demand. The increasedcontrol of central procurement should counteract thistendency, which is not to say that procurement as awhole should be centralized. Complete transparencytracks down the remaining weak points both internallyand externally. Investment in IT should lead to theelimination of these weaknesses. IT investment pays foritself more quickly when used in a broader way, wherepossible with company-wide application. It furtherincreases transparency because performance indicators

Figure 8. Functional chain of optimization in procurement



are uniformly raised and benchmarks can be set. Newprocesses can be designed and, as far as possible,standardized. These processes include the suppliers, atleast insofar as the suppliers must agree to definedprocesses and IT interfaces. Of course, renegotiationhappens too, in which conventional negotiation proce-dures will, in the next five years, continue to overshadowthe potential of online auctions. Where it is worthwhile,internal optimization will also be invested in – theautomatic processing of incoming invoices being themost prominent example at present.

If procurement focused on direct goods in the past,procurement today has indirect goods squarely in itssights. Order processing of services is also becoming apriority for half the responding companies.

It seems as though procurement in Switzerland hascompleted a stringent fitness programme. Project goalshave largely been achieved and 80% of respondingcompanies are largely satisfied with their current systems.The fact that they continue to invest in e-procurementshows that procurement functions are striving for peakperformance.

Suppliers will feel the squeeze. They are affected bypractically all the current operational issues revealed inthe study. The number of companies that alreadyexchange business documents electronically is approxi-mately as large as the number of companies thatcomplain about the sluggish integration of suppliersinto the procurement system. Only 20% of procurementheads report sufficient awareness of their suppliers aboutthe need for optimizing B2B processes. Suppliers’ needfor a B2B integration infrastructure is not rated higher.Just half of the responding procurement organizationsadmit that B2B integration scenarios do not consider thesupplier’s situation enough and that their companiescannot always offer suitable and financially acceptableB2B integration solutions. Two-thirds of the companiesthat offer their suppliers Web-EDI make use of a B2Bmarketplace or a transaction platform.

All involved parties are called upon to act

In addition to the difficulties with supplier integration,there are further problem areas in the roll-out of IT.High installation costs and problems in the quality ofmaster data are also a concern for the majority ofrespondents. To ensure that procurement’s fitnessprogramme is effective and that all the involvedcompanies can withstand global competition, thefollowing prescriptions can be derived from the study:

N Procurement organizations must improve the qualityof their master data and test whether their procure-ment processes really need to be so multifaceted andcomplex. They must also build bridges for theirsuppliers. In many cases, their own particular ideas

cannot be carried through on purchasing power alone– balanced B2B integration scenarios are a necessity;

N Suppliers must also work on their B2B fitness. Aretheir awareness and competence really as bad as theirpartners suggest? This study argues that suppliersneed to build up the competence and be proactive inshowing customers what a balanced integrationscenario could look like for their own productsegment; and

N Providers of procurement solutions should have a vitalinterest in developing founded arguments for defend-ing the difficult-to-appreciate benefits of their solu-tions. Insufficient user-friendliness and poor useracceptance must also be addressed. The main objec-tion of procurement organizations, i.e. the highinstallation costs of new solutions, must also be takenseriously. The cause of high implementation costs liesto a decisive extent in buyer and supplier companies –above all in the heterogeneity of their IT environ-ments, organizational structures and processes – butvendors may well be able to do something about this.With better practices, a certain degree of openness,cooperation in standardization and support of inter-operability, some of the complexity can be reducedand the pace of market development can be acceler-ated, to the benefit of providers as well as of theircustomers.

CONCLUSIONS

This paper reports on the state-of-the-art of e-procure-ment in large Swiss companies, grounded in a long-itudinal investigation. Although the Swiss economy isunusual in some aspects (e.g., very high IT penetration,high IT skills in companies, high potential of ITinvestments) (Dettling et al. 2004, Schubert andLeimstoll 2007), the results we report here are quitesimilar in many respects to findings documented forGermany (Crossgate 2007, Kutschera and Tittel 2005),Australia (Williams and Hardy 2007), Portugal (Palmados Reis and Soares Aguiar 2006) and Ireland (Nagleet al. 2007).

The adoption of electronic procurement systems hasbeen argued to lead to significant cost reductions (Bakos1997, Williamson 1996). However, studies fromGermany (Crossgate 2007, Kutschera and Tittel2005), Australia (Williams and Hardy 2007) and ourSwiss study show that cost reductions are to date lowerthan expected. The 2005 German study showed that theinitial outlay on ongoing operational costs of an EDIinfrastructure for area-wide use in the automotiveindustry are simply too high to promote widespreadadoption (Kutschera and Tittel 2005). German respon-dents agreed that operating an EDI system (without thehelp of intermediaries) is not economically feasible. In



consequence, a later study (Crossgate 2007) identified atrend toward further outsourcing to specialized servicecompanies (such as providers of Value Added Networksand other e-procurement services).

Regarding future research topics, supplier relationshipmanagement takes first place. All other topics of greatprospective interest similarly necessitate solutions thatgo beyond the borders of a single organization. If allmarket participants need to develop supplier relation-ships individually, one will have to wait a lot longer forany substantial progress. However, three-quarters ofresponding companies are prepared to tackle thechallenges of supplier integration in cooperation withother procurement organizations and partners. We areguardedly optimistic about the future prospects inSwitzerland, as well as elsewhere, for further IT-enabledprogress in e-procurement.

Notes1. The questionnaire is available from the authors on request.

2. Verordnung des Eidgenossischen Finanzdepartements

uber elektronisch ubermittelte Daten und Informationen

(ElDI-V) vom 30. Januar 2002, possible translation:

Ordinance of the Federal Finance Department on electronic

transfer of data and information (EIDI-V) dated 30 January

2002.

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