5.3 Model 3: Impact of a successful project organization on the fit between purchase
5.3.4 Impact of the procurement strategy on the fit between purchase
Not only the project success and the project management have a significant impact on the appropriate fit, the author also assumes a strong positive correlation between procurement strategy and the right fit between purchase situation and B2B E-marketplace. She has grouped her arguments in four categories:
(1) The understanding of the purchase situation is determined by the procurement strategy.
(2) The procurement strategy eventually restricts the selection process of the appropriate E- procurement solution.
(3) Based on a clear procurement strategy the B2B E-marketplace concept seems not to be interesting for all product categories.
(4) The characteristics of the B2B E-marketplace can be limited by the procurement strategy.
Ad1: The procurement strategy influences the interpretation of the purchase situation.
Along with Dobler and Burt (1996, p. 41) the objectives of purchasing management can be viewed from three levels: a very general managerial level, a more specific functional or
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operational level and a detailed level at which precise strategic buying plans are formulated.
From a top management perspective six elements are expected to be achieved by the procurement organization. They have to buy the right quality from the right supplier in the right quantity at the right time at the right price with the right service (Monczka et al. 1998, p.
18). From a more operational perspective the procurement organization has to support company's operations with an unintenupted flow of materials and services. They have to buy competitively. Buying wisely involves a continuous search for better opportunities. fuventory investments and inventory losses should be kept at minimum. The procurement managers should develop effective and reliable sources. The procurement function needs to be handled proactively in a cost-effective manner. The overall procurement strategy defines the importance of the different tasks (Saunders 1997, p. 10, van Weele 2000, p. 8). Firms with major focus on cost cutting emphasize price more than service, which increases the risk of material flow intenuption. On the other hand firms, which emphasize the service and quality reliability, have often to accept a compromise concerning price. Depending on the strategic orientation of the company the purchase situation may be seen differently. Low supplier market competitiveness is more critical to firms focusing on quality than on price. The relationship attractiveness is higher valued by firms focusing on service and reliability of suppliers.
Ad2: The procurement strategy gives directions for selecting the appropriate B2B E- marketplace concept.
Due to the challenges caused by new information technologies, the enterprises are under great pressure to act. At the same time the uncertainty has never been greater than today, since the changes are becoming increasingly more radical (Leifer et a!. 2000). The ability to identify chances at an early stage is key, as well as understanding the rules of business in the information age and formulating procedures to ensure a successful transformation (Osterle &
Reisch, Alt 2000, p. 19). Finding the right position in the new E-procurement environment goes hand in hand with the procurement strategy (Rodin & Hartmann 1999, p. 156). If the procurement strategy emphasizes the development of long-term relationships regardless the cost disadvantages the E-opportunities might be less meaningful. Then aspects as product quality and reliability of the supplier are more in focus. The procurement strategy can restrict the potential optimization opportunities of the new E-procurement environment.
Ad 3: The procurement strategy determines, which products should be transferred to the new procurement environment.
Taking the existing procurement strategy in a company, the author has already shown that companies differentiate their product portfolio by different measurements, such as ABC- analysis (chapter 2). Bakos (1998, p. 40) shows that lower buyer search costs in electronic marketplaces promotes price competition among sellers, which will have most dramatic effects in the commodity markets, where intensive price competition can eliminate all seller profits. If no relationship is required by the existing strategy, a company may choose to source all commodity products through the B2B E-marketplace. For those product categories, where a closer relationship is required by the procurement strategy, the procurement professionals need to have a close look, whether they find a B2B E-marketplace concept that supports the sourcing of these materials.
Ad4: The procurement strategy influences the openness of the chosen B2B E-marketplace.
Eisenhardt (2001) proclaims that in former times, when the business landscape was simple, companies could afford to have complex strategies. Nowadays, with business being that complex, they need to simplify. She suggests three approaches to strategy. First companies might establish their position by focusing on profitability. Another solution might be to leverage resources by establishing a vision, building resources and leveraging them across markets. This approach follows the performance goal of long-term dominance in moderately changing, well-structured markets. Her third strategy suggestion goes along with the strategic logic of flexibly pursuing opportunities in rapidly changing and ambiguous markets with the performance goal of growth. In stable markets, managers can rely on complicated strategies built on detailed predictions of the future (Eisenhardt 2001, p. 116}, but in complicated, fast- moving markets due to new opportunities based on the internet unpredictability reigns.
Depending on the procurement strategy the E-procurement solution should follow the same guidelines. "When business becomes complicated, strategy should be simple" (Eisenhardt 2001, p. 116). If organizations focus on cost cutting, the business model and order processing of the used E-marketplace have to support this goal. On the one hand the implementation cost of such an E-procurement solution has to be minimized and prices reductions need to be realized. For realizing only process cost reduction with minimum implementation cost an E-
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catalog might be the appropriate solution by leasing an internet-based software. Decentralized purchasing enables process cost savings and due to pre-negotiation material costs can also be reduced. A company focusing not only on process cost reduction, but also on price reduction, may focus on auctions, where within a limited time frame the products can be purchased for the cheapest market price. For companies, which want to access new suppliers exchanges, might be more appropriate, since time is not limiting, but they can gain market transparency on diverse suppliers. Firms, which want to be leading edge and want to actively develop the market, may build their own B2B E-marketplace.
The appropriate procurement strategy is essential for selecting the appropriate B2B E- marketplace concept. "Creating a sense of purpose, focus, and clear goals and objectives is critical for the success of any organization" (Raisch 2001, p. 306). Companies, which have already focused on strategic sourcing activities, are used to analyzing the underlying cost structure of the goods and services bought. Working to rationalize the supplier base is part of a standard process of their procurement activities. They are already managing their costs and trying to maximize use of suppliers (Avery 2000, p. 111). Those companies are ready forE- procurement, as long as the E-procurement strategy supports the normal business approach.
Proposition 10: The clearer the procurement strategy is understood, the better is the fit between purchase situation and B2B £-marketplace.