An Optimization Model For Phased Supplier Integration Into E-Procurement Systems

Investment in e-procurement technologies has steadily increased in the past few years. Companies view these technologies as solutions to the problem of how to streamline the procurement process. Most companies find it necessary to integrate e-procurement technologies with their supply-base in a stepwise manner due to a large number of suppliers, varying levels of capabilities and the importance of suppliers, constrained resources, and the need to integrate various levels of e-procurement systems. However, research in e-procurement lacks a systematic tool to help firms to optimally integrate suppliers over a multiperiod horizon. This paper fills this gap by developing a multiperiod integer-programming model that assists managers to optimally integrate their supply base by considering a variety of factors that include integration costs, purchase amounts, purchase order frequencies, in addition to other constraints. We consider two scenarios that a firm can face: (i) the firm has all e-procurement technology levels in place before integrating with its suppliers; and (ii) the firm is still acquiring e-procurement technologies during the integration process with its suppliers. Results and sensitivity analyses from the two models are discussed and managerial implications are addressed.