Emerging Technologies to Support Indirect Procurement:Two Case Studies from the Petroleum IndustryJudith Gebauer, Arie SegevFisher Center for Management and Information TechnologyHaas School of BusinessUniversity of California, BerkeleyBerkeley, CA 94720-1930{gebauer|segev}@haas.berkeley.eduAbstractThispaperdiscussestheuseofemergingInternettechnologiestosupportindirect(non-productionoriented)procurementprocesses.Weprovideanoverviewofobjectivesandavailabletechnologiesandoutlinesomeofthecriticalsuccessfactorsandkeydecisionpoints. Two case studies from the Petroleum Industry help demonstrate the concepts.Keywords: Electronic Commerce, Procurement, Outsourcing, Internet, Petroleum Industry,Case StudiesIntroductionTheInternetandInternet-basedtechnologiesareimpactingbusinessesinmanyways.Newtechnologiesarepromisingtosavecosts,toimprovecustomerandsupplierrelationships,businessprocesses,andperformance,andtoopennewbusinessopportunities.Theyallowfirmstorespondbettertoexistingchallengesandimprovetheanticipationoffuturedevelopments.Ashasbeenthecasewithearlierinnovations,richmulti-facetted interactions are occurring between developments in the marketplace, globalbusiness environment, work environments, and technical innovations (Carter et al. 1998).Oneareathathasrecentlygainedinattention,isBusiness-to-Businessprocurement,whichencompassesthepurchasingofgoodsandservicesaswellashigher-levelmanagement tasks andlogistics. Whiletraditionaluseofinformationtechnology(IT)hasbeencomplexback-endapplicationssupportingproduction-orientedprocurementandsupply-chainsoflargecompanies(thetraditionalareaofEDI-systems),arecenttendisfocusingonuser-friendlyfront-endapplicationssupportingnon-production-orientedprocurement by non-purchasing experts. A variety of systems have emerged that promisesignificant benefits to buying firms, such as streamlining purchasing processes, increasingcontract buying and improving the leverage of corporate buying power as well as spendinginformation and control.A closer look at the market of available solutions, however, reveals a certain immaturity aswellasrapidevolution.Vendorstrategiesareoftenpoorlydefinedandconstantlychanging. The number of operational customer implementations is limited, albeit growing.Individual attempts to connect inter-organizational business processes and to interchangeinformationareoftenundertakenindependentlyfromeachother,and,duetoalackofcommonly accepted standards, lead to incompatible results.Thispaperaddressestheuseofelectroniccommercetechnologiestosupportindirect(nonproduction-oriented)procurementprocesses.WediscusstheimplicationsofEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 2emerginge-procurementsystemsoninternalpurchasingprocessesandexternalrelationships, and outline some of the critical success factors and key decision points thatfirms have to consider in order to utilize the technologies in an optimal way. Two examplesfrom the Petroleum Industry are used as showcases to clarify the concepts. By presentingresultsfromcaseandfieldstudyresearch,weaddressresearchersaswellasbusinessmanagerswhowanttounderstandhowemergingtechnologiesareaffectingpurchasingpractices.Thepaperprovidesabasisforfurtherconceptualresearcheffortsaswellasquantitative studies.Thenextsectionpresentsageneraloverviewofthetechnologiesusedtosupportprocurement processes and highlights some of the benefits that early adopters are tryingto achieve. This provides the basis to identify a number of critical decision points that needto be considered in the context of designing and implementing an e-procurement strategy.In Section 4, we present two case studies from the Oil & Gas Industry that help point outtheimpactsofemerginge-procurementsystemsonpurchasingprocessesandorganizationalstructures.Section5outlinessomeofthelimitsofcurrentlyavailablesystems and provides an outlook.EmergingTechnologiestoSupportProcurementObjectivesandTechnology OverviewBased on the purpose of the acquired goods, procurement activities are often divided intodirect,production-relatedprocurementandindirect,non-production-relatedprocurement(Zenz 1994). Table 1 provides summarizes the characteristics of items usually associatedwith direct vs. indirect procurement.Table 1 - Direct vs. indirect procurement items - adapted from (Hough, Ashley 1992;Killen & Associates 1997)Direct, production-related materialsIndirect, non-production related items andservicesScheduled Not scheduledProduction items Miscellaneous itemsUsually no shelf items Usually shelf itemsInventory accounts Expense and asset accountsBuyers desktops only Everbodys desktopsNo approvals Approvals requiredBill of materials Aggregated catalogsDirectprocurementoccursinmanufacturingsettingsonly,anditencompassesallitemsthat are part of finished products, such as raw material, components and parts. Conceptsand practices such as material resource planning(MRP),supplychainmanagementandComputer Integrated Manufacturing gained much attention, in particular during the 1980sandasaresponsetotheleadershipofJapanesemanufacturersovertheirU.S.andEuropean competitors. Significant efforts in research and management practices resultedintheemergenceofinnovativemethodsinlogistics,capacityplanning,andinventorymanagementaswellassophisticatedITsystemstospanorganizationalboundariessupportingreplenishmentandlogistics(Dobler,Burt1996;Killen&Associates1997).TheyhelpedfirmsbecomeflexibleenoughtorespondtoconstantlychangingcustomerEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 3requirements,whilestillallowingthemtostaycosteffective,and,thus,toremaincompetitive in increasingly open markets.Indirect procurement activities concern all items and services that are not directly part of afinishedproduct.Comparedtoproduction-orientedprocurement,thepictureofindirectisusually much more diverse. Purchasing is often done by non-purchasing experts, as wellas by the central purchasing unit. Purchases include a broad variety of items, ranging fromsimple office products to parts formaintenance,repair, andoperations(MRO),such aslubricantsorspareparts,tocomplexconstruction-relateditemsandtovariousservices.Purchases usually occur on an infrequent basis and demand is difficult, if not impossible,to predict.Inordertokeepcontrolofthecomplexmatter,non-supplychainrelatedpurchasingprocesses tend to be organized in a particularly complex and inefficiently fashion, and untilrecently, IT support has played a minor role.Re-Organizing Indirect Procurement - the ObjectivesInrecentyears,firmshavebeendiscoveringthepotentialofindirectpurchasingasanarea that can help achieve cost cutting goals and improvecompetitiveness.Inparticular,since the early 1990s, business process analysts propagated a change from a purchasingfunctionthatismainlyclericalandtransaction-orientedtoamorestrategicone(Keough1993; Carter, Narasimhan 1995; Monczka, Trent 1995). It was not until recently, however,that supporting technologies became available that could help make this shift feasible andeconomically worthwhile on a broader basis.Caseexamplesaswellasindustrysurveysshowanumberofcommonobjectives,andbusiness practices that are frequently implemented in the context of re-organizing indirectpurchasingprocesses(Killen&Associates1997;Carteretal.1998;Segev,Gebauer,Beam 1998; Segev, Gebauer, Frber 1999; Whyte 1999). They are partly interrelated:Thedecentralizationofday-to-daypurchasingoperationscanhelpeliminatethepurchasing department as the "middleman" between end users in need of a particularitemorservice,andsuppliers.Intheprocess,endusersarebeingempoweredtoselectitems andservicesandtofollowrequisitionsthroughtheapprovalprocess.Byallowingthemtogeneraterequisitionsandpurchaseordersaswellastohandlereceiving and payment, process time and administrative overhead can be saved. As aresult, the availability of goods is improved, which, again, allows lower inventories and,thus, might hold additional cost savings.Throughtheinstitutionalizationofenduserpurchasing,companiesalsohopetoincrease contracted buying. Centrally stored multi-vendor catalogs can help guide enduserstowardasetofpre-contracteditemsandpreventthemfrom"buyingfromtheirfriends down the street." Cost savings occur from the discounts that are often reflectedin pre-negotiated arrangements.Increasingtheuseofsuppliercontractsthroughoutacompanybearspotentialtoincreasetheleverageofcorporatepurchasingpower.Large,decentralizedbuyingcompanies tend to rate this point as key and expect most significant savings from re-negotiating long-term contracts with their suppliers as a result.In many companies, indirect buying is not very well documented. Consequently, thereisonlypoorinformationaboutspendingpatternsandlittleprocesstransparency.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 4Similarly,supplierperformancecannotbeassessed.Monitoringbuyingpatternsaswellasimprovingsuppliermanagementthroughbetterperformanceinformationcanhelpidentifyadditionalareasforcostsavingsaswellasenablefastreactionstochanging business requirements.Finally,manyexamplesshowfirmstryingtodecreasetheir,oftenenormous,supplierbaseandtrytotightenthelinkswithasmallnumberofpreferredsuppliers.Inexchange for the promise to provide a supplier with an ongoing relationship and with asignificantamountofbusiness,pricereductionsand/orimprovedservicelevelsareexpected, as well as the willingness to participate in electronic procurement solutions.Atthesametime,andespeciallywhengettingonline,buyingcompaniesvaluethepossibility of being able to switch suppliers easily.Thenextsectionpresentsanoverviewofnewweb-basedtechnologiesdesignedtochangethepictureofcomplexandinefficientpurchasingprocessesandtoachievethegoal of a "strategic purchasing department."Technology OverviewAlthough the use of information technology (IT) has quite some tradition in purchasing, ithas often been limited to the support or automation of transactional operations within thepurchasing department like CD-ROM based catalogs or electronic forms. Electronic DataInterchange (EDI) systems support communication beyond organizational boundaries andautomatetheexchangeofstructuredmessagesbetweenindependentcomputerapplications, often over private networks (VANS) (Sokol 1995).TheadventoftheInternetand World WideWebopenedupmanynewopportunitiesforthesupportofprocurement(Burnham1997;Kalakota,Whinston1997a;Kalakota,Whinston 1997b; Mougayar 1998).Internet-basedonlinestoreshavebeenpopularsincetheearlydaysofcommercialInternet-use.So-calledmerchantserversaddressmainlythesell-side(providingsupport for sellers)and helpbusinessesset upstoreontheInternet,includingonlinecatalogsandorderingfunctionality(AberdeenGroup1998).Although,mostapplications,suchasAmazon.com,1-800-Flowers,orOpenMarketfocusonretailselling between business and end-consumers, the general concept also applies withinthe business-to-business context.InternetandWebbasedelectronicmarketplacesareextendingtheideaofonlinestoresandtrytobuildcommunities,ofteninverticalmarkets.Inadditiontosupplierdirectoriestheyofferindustrynewsandotherinformationofinteresttoparticipants,includingbuyersandsuppliers.Thedirectoriesofdifferentsuppliers,however,areusually not integrated with each other, displaying a yellow pages-type structure, whichmeansthatbuyershavetosearchthroughanumberofcatalogsinordertodocomparison-shopping. After early large-scale efforts failed (Industry.Net), more focusedenvironments have been initiated. So far, they proved somewhat more successful withtheelectronicsindustrybeingoneoftheforerunners:AsianSources,Manufacturing.Net, Digital Market, Chemdex. OilOnline provides information and newsforthepetroleumindustry.OccidentalChemicalrecentlyannouncedanonlineprocurementprojecttogetherwithsixotherpetrochemicalcompaniesandmanufacturersthatwillsupportcollaborationwithmaterialssuppliers(Wilder,Dalton,Sweat 1998).Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 5Severalcompaniesspecializeinmulti-supplieronlinecatalogservices.ExamplesareEDI-provider Harbinger and Thomas Register that is publishing its paper and CD-ROMbasedsuppliercatalogsontheWeb.Besidessupplierdirectories,italsoofferscustomizedcatalogsandhelpssuppliersgetonlineanduploadtheirdata.Inthiscontext,themanagementofcatalogcontentisoneofthemostcriticalissues.Itincludes the categorization of products and suppliers and the elimination of duplicatesin efficient ways. Although there are no uniform schemas today, a number of standardsenjoyrelativelywidespreaduse.AmongthemostimportantareDunandBradstreet,UniversalProductCode,andThomasRegister.CommerceNetiscurrentlyadministering a major project with the goal of developing astandard forinteroperablecatalogs (CommerceNet 1998).Thepracticaluseofonlinestores,electronicmarketplaces,andonlinecatalogsiscurrentlylimitedwithinbusiness-to-businessprocurementsettingsforseveralreasons.First,theirparadigmbasicallyconsistsofonesellerinteractingwithmultiplebuyers.Itdoesnottrulysupporttheinteractionbetweenonebuyeranditsmultiplesuppliers--acommon need, especially among large buying companies. In addition, support for internalbusiness processes is usually not included, and catalog content is mostly generic and notcustomizedtotheindividualbuyingcompany.Finally,theInternetaccesscannotbeconsideredagiven,yetitismandatorytoaccessthesystems;infact,somecompaniesinsist on intranet-based solutions for security reasons.In recent years, a new generation of purchasing systems has been introduced that appliesa different paradigm. Systems by companies such as Ariba Technologies and CommerceOne are specifically designedtoenableenduserrequisitionerstoordersuppliesdirectlyfromamulti-vendorcatalogand,thus,supporttheself-service(Segev,Gebauer,Frber1999).Compliancewithcorporatepurchasingrulesisensuredwiththehelpof,insomecasesquitesophisticatedandflexible,workflowsystemstosupportapprovalrouting.Integration with backend systems facilitates reporting and allows to track purchasing andspendingpatterns.Whilepurchasingoperationsareperformedbyendusers,centralpurchasingisusuallyresponsibleforsettingupandmaintainingthesystems,forincorporating suppliers into the network, and for negotiating blanket order agreements andlong-term contracts.Takingthisconceptonestepfurther,newformsofITalsosupportprocurementoutsourcinginvariousforms.CompaniessuchasIBMGlobalServices,EDS,orCorpro2000takeresponsibilityforprocurementactivitiesintheareaofnon-productionpurchasing and/or provide the IT applications to realize their automation (Wilder, Caldwell,Dalton 1998). In particular for smaller market players, outsourcing agreements promise ahighly welcome way to participate in Internet commerce. They are offered the opportunitytogetonlineatreasonablecostandsetupandmaintaincustomizedmulti-vendorcatalogs. Larger firms value savings inadministrativeoverhead,especiallyinthecontextof non-strategic procurement that full-service providers are offering.Finally,emergingtechnologiesstarttooffersupportforanarea,whichhasnotyetseenmuchautomation:negotiations(Oliver1996;Segev,Beam1997).Onlineauctions--avery simple mechanism of negotiation confined to price alone -- achieved much attention,especiallyinthebusiness-to-consumerarea(Onsale.com),aswellintheconsumer-to-consumer market (Ebay.com). Companies, however, are still hesitant to adopt auctions asawaytodopurchasing(Beam,Segev1998).Todate,morecomplexnegotiationprocessesarerarelysupportedbynewtechnologiesandinnovative,dynamicpricingEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 6schemesareevolvingveryslowly(Cortese,Stepanek1998;Beametal.1999;Bichler,Kaukal,Segev1999).Pittsburgh-basedFreeMarketOnline,Inc.isamongthesmallnumberoffirmsthatofferelectronicallysupportedRequestsforQuotes(RFQs)(Jahnke1998). While utilizing the Internet and related technologies, the process still involves much"manual" work by the service provider.Choosing an Electronic Procurement SolutionIn the preceding section, we introduced a number of IT solutions to support and automateindirectprocurement.Inordertoutilizethenewtechnologiesandrealizethebenefitstofullextent,however,anumberofdecisionsneedtobemade.Thefollowingsectionsketches out a number of decision points.Afteridentifyingtheobjectivesoftheproject(seeSection2),thescopeoftheE-procurement project needs to be determined, regarding the products and services as wellas the processes that are affected. Other points include vendor selection and choosing abusinessmodelforcatalogcontentandsuppliermanagementaswellasthedegreeofintegration with ERP and other systems.ScopeTwomaindimensionsdeterminethescopeofanelectronicprocurementsolution:therange of products and services that it covers and the functionality it provides.Not every category of goods and services is equally suited to be supported by electronicprocurementsolutions.Asanexample,goodsandservicescanbedividedaccordingtotheirlevelofcomplexity(risk)andtheirstrategicimportanceforthefirm(profitability)(Nenninger,Gerst1998).Variablestobeconsideredincludedeliveryterms,numberofavailablesuppliers,paceoftechnologicalchange,andcomplexityoflogistics.Lowhangingfruitincludestandardizeditemsthatdonotrequiremuchinformationandexplanation,that allowfordigitalhandling,andinvolvehightransactionvolumeandhighdegree of distribution, and for which the transparency of the supplier market is low.Similarly, a decision has to be made as to which parts of a purchasing transaction shouldbecoveredbythesystem.Eachbuyingactivityconsistsofseveralstepsincludinganinformationphase,negotiation,andsettlementincludingpaymentandafter-salesactivities. Upon the design of an electronic purchasing solution decisions have to be madeastowhichstepstoincludeandtosupportorautomate.Inadditiontoautomatingprocessesas-is,newprocessdesignsmightbecomefeasible,includingtheshiftofactivities between central purchasing and end user requisitioners, and the introduction ofinnovative forms of negotiations, pricing structures or payment methods.Vendor SelectionSimilartothedecisionprocessregardingthescopeofaproject,thevendorselectionprocess has several dimensions. Best-of-breed solutions by vendors, dedicated to a smallrangeofproducts,competewithestablishedmarketplayersofferingabroadrangeofproducts.Outsourcersprovidealternativestoin-housesolutionsforprocurementapplications and services.Sincethemid1990s,anumberofnewcompanies(Ariba,CommerceOne,Elekom,Netscape,Concur)startedtoexplorethemarketforself-serviceorientedtoolsandEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 7servicestosupportindirectprocurementandtappedinto nichesleftopenbyestablishedmarket players. Not much later, broader focused enterprise resource and planning (ERP)providers(Oracle,SAP),forexample,begantoviewtheprocurementfront-endsasanatural extension of their products and started to offer similar modules.Asaresult,twobasicoptionsareavailablebothofwhichhaveadvantagesanddisadvantages.Table 2 Vendor selection: Best-of -breed vs. comprehensive solutionsFeatureBest-of-breed/Sole solutionprovidersEstablished vendors ofcomprehensive solutions (ERP)Focus vs. VisionFocus on limited range ofproducts concentration on corecompetenciesNo constraints by previouslydefined IT architectures andunderlying business modelsNeed to support broad range ofproducts and large number ofinstallations can limit ability tofocusIntegration of applications into alarger whole helps realize abroader visionFlexibility vs. ExperienceSmall customer base allowsflexibility and responsiveness tocustomer needsRobust software developmentconcepts, experienceUser friendlinessFriendly user-interfaces as majorsuccess factorTook time to match requirementsregarding ease of use andintuitionBrand nameUncertain future early stages offinancing, tight competitionexpectedEstablished brand names, largecustomer bases, market powerImplementation efforts and real-time integrationStand alone solutions not alwaysavailable need to installbackend systems and databasesand establish additional links andinterfaces (Lundstrom 1997).Real-time integration not alwaysavailableBackend systems and front endapplications from one source.Number of additional links limitedIn addition to their software solutions, many vendors also featureadditionalservicesthatareoftenprovidedincollaborationwithstrategicpartners.Examplesarecatalogcontentmanagementandsupportforsupplierstogetonline,orimplementationservices.Thescope and intensity of its business partnerships can support the vendor selection processto the extent that it reflects some sort of quality assurance.TheoutsourcingofITsystemsaswellasprocurementtaskshaslongprovidedanalternativetoretainingresponsibilitiesin-house.TraditionalformsofoutsourcingtendtofocuseitheronITfunctionsorprocurementactivities,suchassourcingandvendormanagedinventoryconcepts.Inthecontextofemergingtechnologiesnewformsarebeing facilitated combining both approaches, e.g. application and catalog hosting (Segev,Gebauer, Frber 1999).Catalog content and supplier management: Internal vs. external solutionsMulti-vendorcatalogs,displayingitemsandservicesofdifferentsuppliercompanies,arecentraltoelectronicprocurementsystems.BlendingdatafromdifferentsuppliersintoaEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 8comprehensive catalog is critical to the success of most projects. Again, companies face arangeofoptionsreachingfromthedo-it-yourselfapproachtocompleteoutsourcing.Decisionshavetobemadewithregardstowherethecatalogdatawillbehosted(andcontrolled) and regarding the question of who is put in charge of content management anddataintegration.Again,eachsolutionhasadvantagesanddisadvantages(Ginsburg,Gebauer, Segev 1999).Do-it-yourself. Many large buying companies prefer to control the multi-vendor catalog.Theychosetheoptionofhostingthecatalogontheirsystems,sometimesshieldedfromtheircoreinternalfunctionsbyasinglefirewall.Thissolutionguaranteesmaximum control over the data including customized views on products, suppliers, andprices. It also provides a flexible basis for reporting on spending patterns and supplierperformance.Ontheotherhand,thissolutionrequiressignificantefforts,suchassettingupandmaintainingelectroniclinkswithsuppliers,integratingdataofdifferentdataformatsintoasinglemetastructure(orconvincingsuppliersthattheyhavetocomply to a certain standard), and creating a number of views on the catalog data fordifferent users.Catalogmanagementservices.Manycompaniesdecidetouseathirdpartyserviceproviderforcatalogdatamanagementandsupplierramp-up.Theservicesofcompanies such as Harbinger or TPN Register range from setting up electronic links tosuppliersandvendors,tocompletedatamanagementservices,toestablishinginitialcontactwithsuppliers.Thirdpartyvendorsareusuallyabletohandledatainmanyformats ranging from simple flat files to real-time links between ERP-systems.Pricingstructures vary according to individual requirements. In some cases, buying companiessubsidizesuppliersinordertohelpthemgetonline.Somecatalogprovidersarespecializing in certain industries, such as the petroleum or the manufacturing industry.Thismeansthatnewcustomerscantakeadvantageofanexistingonlinesupplierbase.Securityissuesplayaroleinadditiontothecostofthedifferentsolutions,especiallyincaseswherepaymentandothersensitiveinformationaresentovertheInternet.Notallcompanies are comfortable with using the Internet, some insist on intranet-solutions whichcan be shielded from the public Internet, and let third parties handle the connections withthesuppliers.Inothercasestheyletsuppliersuploadtheirdataviaftpontospeciallyassigned servers.Integration with other applicationsSeveralfactorsneedtobeconsideredinordertoanswerthequestionofhowtightlyelectronic procurement solutions should be integrated with existing ERP applications: theexisting IT environment plays a role as well as available IT capabilities. Not all of the smallvendors offer real-time links between their systems and major ERP systems. On the otherhand,notallusercompaniesrequiresuchtightlinks:insomecases,availabilitychecksareconsideredunnecessarysincesupplieragreementsareguaranteeing48to72hourdeliveries.Real-timeintegrationbetweensystemscanposeaperformanceproblemontheoverallsystem if the IT architecture is not built up to it, especially as soon as the number of endusers reaches beyond pilot stage figures.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 9Critical Success FactorsElectronicprocurementsolutionsshouldnotbeviewedasstand-aloneapplications,butrather aspart of alargerenvironment.Notonlydotheyhaveto beintegratedwithotherapplicationsinsidethefirm,theyalsoneedtoprovidesomeinteractionwiththeoutsideworld. Upon system design, user companies need to be aware of the current status of themarketandmonitoritsdevelopments.Wehaveidentifiedsevenfactorsthatcanhelpchoose a vendor and that might ultimately determine the success of a vendor.1.Content management - the ability to manage content in an efficient way2.Supplier connectivity - the ability to attract a significant number of suppliers, necessaryto create a critical mass3.Scalability - the ability to scale systems beyond pilot stage, including large numbers ofusers and line items4.Security - the ability to handle security issues efficiently and effectively5.Meeting functional requirements and responsiveness - the ability to respond quickly tocustomer requirements, in addition to providing a broadfunctional scope6.Development skills - theabilitytobuildrobustsystemsusinginnovativemethods andtechnologies7.Strategic alliances - the ability to partner with key market playersThe market of electronic procurement systems shows signs of immaturity. After a numberofsmallplayershavebeentryingtopositionthemselvesandtoestablishtheirideas,majorsoftwarevendorsarenowstartingtoenterthemarket,inducingchangestothemarketdynamics.Intheareaofcontentmanagementinparticular,nostandardshaveemerged yet and effective leadership has not yet been established (Sollish 1998).Two Case Studies from the Petroleum IndustryInordertoreorganizeprocurementwiththehelpofinnovativetechnologiesandtooptimizethebenefitsthattheycanprovide,thespecificsituationofafirmneedstobetaken into account. In the following, we use two examples from the petroleum industry todemonstrate the use and the impacts of electronic procurement systems.Market OverviewThebusinessinthepetroleumindustryisdividedintotwomaintypesofactivities:upstreamactivitiesincludeexploration,production,andprocurementofcrudeoil;downstream activities include refining, transportation, and sales of petrochemical productssuchasmotorgasoline,jetfuel,industrialoils,orlubricants.Bothtypesarecurrentlyfacing particular challenges.On the upstream side crude oil prices are falling steadily, especially since late 1997, andthetrendisexpectedtocontinue(Economist1999;OilOnline1999).ThereasonisthatmanyproducersintheMiddleEastandelsewhereneedtherevenuesfromoilforshorttermreasons,preventingasignificantreductioninsupply.Impactsofglobalcompetitionarequicklybecomingcommonplace,makingcutsinoperatingcostsimperative.Oneofthe result has been a reduction of employment in U.S. petroleum businesses of more than400,000jobssincetheearly1980s-aboutaquarterof1997sworkforceof1.5millionEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 10workers(AmericanPetroleumInstitute1999;IPAA1999).Insomecases,joblossesinNorth America are being compensated by new jobs overseas.Atthesametime,explorationandproductionprocessesarebecomingincreasinglycomplexandcapitalintensive.Advancementsintechnologyhelpexploitoilfieldsmoreefficiently than in the past and have lead to the discovery of more proven oil reserves thaneverbefore.Theseachievements,however,donotcomecheaplyandrequirecomplexresearchmethods,sophisticatedexplorationsetups,andexpensiveproductionfacilities.Technologyisfastbecomingoneoftheprimarysuccessfactorsoftheindustry.Companiesofferingseismic,sensing,andwell-managementservicesareontherise.TheyarebecomingasintegralpartoftheoilindustryasIntelandMicrosoftareofthecomputer industry.AmajorpartoftheupstreambusinessofU.S.oilcompaniesisbeingconductedinlessdeveloped countries such as the former Soviet Union, South America (Venezuela), Africa(Nigeria,Angola),andChina,oftenwithunstablepoliticalsituationsandpoorinfrastructure.Transferoftechnologyknow-howisusuallymandatoryandcontractsrequire extensive and complicated negotiations up front. Alliances are becoming commonplace, as are multi-billion dollar joint ventures ranging over several tens of years. In 1993,Chevron,numberthreeintheU.S.Americanoilindustry,starteda$20billion,40-yearjoint venture with the Republic of Kazakhstan. At the time, the project was the largest jointventure with a single western corporation in the former Soviet Union.Insummary,whilecrudeoilpricesarefalling,oilproductionbecomesincreasinglycomplexandrequiressignificantresearchefforts.Often,intensenegotiationsprecedealong-term contract.Thesituationatthedownstreamsideofthebusinessissimilarlycomplexandtight,asgasoline prices, especially, tend to reflect price changes of crude oil. Overall growth ratesarelowcomparedtootherindustries.Inits1996InternationalEnergyOutlook,theU.S.DepartmentofEnergyestimatedthatthedemandforoilwouldgrowatarateoftwopercentworldwideoverthenext15to20years.GiventhatthisfigureincludesfastgrowingdevelopingcountriesandwasestimatedpriortotherecenteconomicturmoilinSouthEastAsia,itmightevenhavetobeconsideredastoohigh.FortheU.S.,anincrease of 1.2% in the demand for oil is expected over the next 10 years (IPAA 1998).Throughoutthepetroleumindustry,complexregulationsrequiresubstantialeffortstoassure quality and compliance. As in many low growth industries, competition and marginsare tight. In order to maintain or even gain market share, industry players constantly havetodevelopnewproductsorimprovequalitystandards;inaddition,marketingexpensesare often substantial.To complicate matters, companies often face environmental concerns that can even leadto open rejection and boycott demands. This happened to Exxon with the Exxon Valdez oilspill off the Alaskan coast in 1989 or to Shell in 1995 as it faced a fierce debate over thedisposalofoneofitsredundantoffshorepetroleuminstallations.Theconsequencesarecostly,again,ascompaniesarespendingquitesignificantdollaramountsonpublicrelations1 including environmental or social programs. 1SeeforexampletheextensiveWebsitesthathavebeenestablishedbybothcompaniestocovertheeventsandtoprovideaplatformfordiscussion:http://www.oilspill.state.ak.us/exxon.htmlandhttp://www.shellexpro.brentspar.com/shell/brentspar/ respectively.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 11Finally,strategicallianceshavetobeconsideredacriticalissue.In1998,aroundofmarket consolidation was kicked off with the merger of British Petroleum and U.S. basedAmoco, and followed by the acquisition of Mobil Oil by Exxon (the two largest U.S. basedpetroleumcompanies),andthebuy-outofBelgian-basedPetrofinabytheFrenchTotal.These developments will sharpen the picture of an industry that already includes some oftheworld'slargestcompanies(Fortune1998).With$8.46billionofprofitsin1997and$120 billion in revenues, U.S. Exxon Corp. ranked number one globally. With $128 billionofsalesin1997,RoyalDutch/ShelliscurrentlyEurope'slargestcompanyandranks3rdon a global basis, while British Petroleum, the second largest British company ranks 26thgloballyintermsofmarketvalue(at$70billioninrevenues).Furthermergersareexpectedinthenearfuture.Potentialcandidatesaresecondtierplayers,whicharecurrently lacking large companies' economies of scale.Giventheirsize,manyplayersintheoilindustryareenjoyingmassivebuyingpower,althoughtheyarenotalwaysmakinguseofit.Instead,purchasingisoftenorganizedeitherinaverycentralizedwaywiththeresultofcomplexprocessesandenormousadministrative overhead. In other cases,aratherdecentralizedstructure failstoreapthebenefits from consolidated corporate buying power.Direct vs. Indirect ProcurementIn the petroleum industry, direct procurement consists of crude oil and natural gas and isusually not handled by Central Purchasing, but by specialized departments. It accounts fora significant share ofthe overallbusinessinanotherwiseverycapital-intensiveindustry,i.e., 30 to 40 percent of revenues. Like other commodities, crude resources are traded infuturesmarkets,wherepricesarehighlyvolatileandtimesensitive.Pricedeterminationinvolvesmacroeconomicvariablessuchaseconomicgrowth,weather,specificsofdemand and supply, and, very importantly, geopolitical factors. In many ways, the marketforoilandgasresemblesthe markets for foreignexchangeorgoldwithinterventionsbypublicinstitutionsandcompaniesdecidingontheirinventoriesnotonlyaccordingtodemand expectations but also based on expected price developments. Trades involve thephysicalpresenceofbrokers,speculation,optionsandhedgingmechanisms,contracts,andbids(Zenz1994;PurchasingMagazine1996).Inmanycases,pricesarefinalizedonly at the time when the oil leaves the harbor or according to similar variables.Withdirectprocurementofoilandothernaturalresourcesbeinghandledbyspecialdepartments,thepurchasingdepartmenthandlesindirectprocurement(materialandservices). Procurement underthesupervisionofthepurchasingdepartment accounts for14to16percent ofrevenues(PurchasingMagazine1996;CAPS1998).Ononehanditconcernsrelativelysimpleitemsintheareaofmaintenance,repair,andoperations(MRO),suchasvalves,pipes,andfittings,officesupplies,andcomputerequipment.Onthe other hand, it includes complex equipment, e.g., for exploration, drilling,andrefining,and,inparticular,servicessuchaspumping,drilling,andmaintenanceservices(Garcia,Sisneros 1993).Giventhesizeandorganizationalstructureofmanycompaniesintheoilindustry,sourcing, ordering, supplier management, as well as the monitoring of purchasing patternstendtobedifficulttasks,especiallyinthecaseofserviceprocurement.Contractsareusuallycomplexandnationallyandinternationallydispersed.PoorlyintegratedITinfrastructuresinhibitefficientcommunicationprocesses,especiallyacrossoperatingcompanies,andmakeafreeflowofinformationdifficult.Asaresult,companiesreportEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 12problems in leveraging their purchasing power through mechanisms like contract buying orblanketorders,especiallyintheareaofservicesprocurement.Overall,procurementprocesses tend to be cumbersome, slow and expensive - a benchmarking study by CAPSestimatespurchasingcostsof32centsforeachdollarofgoodsandservicesforthepetroleum industry (CAPS 1998).Emerging Technologies to Support Procurement in the Oil IndustryAs was pointed out in the preceding discussion, many players in the oil and gas industryare very large companies. This meansthat electroniccommerceapplicationsareusuallyin place for the communication of purchase orders, invoices, or payment. Frequently usedinter-organizational IT applicationsinclude EDI,EFT(electronic fundstransfer),barcodereceiving, and evaluated receipt settlement (CAPS 1998). The applicability of these links,however, is limited in several ways.EDI, for example, is expensive and setup costs of $100,000 per business partner are notuncommon.Asaresult,EDIlinksareonlyjustifiableforpre-definedsituationsandprocesses and for high transaction volumes. Especially small and medium businesses arehesitant to adopt EDI systems and in many cases only do so when forced by their (mostlylarger)businesspartners.Inaddition,EDItechnologyisnotverywellsuitedforthecommunicationofstructuredmessageswiththeneedforimmediateinteraction.Traditionally, EDI has been done over dedicated lines or using the services of VAN (valueaddednetwork)providers.Whilethissolutionallowsforhighsecurityandreliabilitystandards, it also adds significantly to the cost of EDI and makes it a non-flexible solution.CAPS1998benchmarkstudyidentifiedanumberofwayspetroleumcompaniesutilizeemergingtechnologies,includingtheInternetandintranetapplications,rangingfromindustry,supplier, andmarketresearch,support forpurchasingoperationsandstatistics,to asset recovery, external benchmarking, and Web pages displaying agreements.Inthefollowing,weusetwocasestudiestooutlinehowprocurementprocessescanbechanged with the help of Internet technology combined with sound management methods.WhileBPXAchoseanoutsourcingapproachtoloweritsMROsupplycosts,Chevronisinstalling a web-based desktop purchasing system in the context of a major overhaul of itsindirectprocurementfunction.Thecasestudiesdemonstratemuchofwhathasbeenoutlined above.Case 1: British Petroleum Exploration (Alaska)In1995,BritishPetroleum'sExplorationbranchinAlaska(BPXA)startedanoutsourcingprojectwiththeobjectiveofreducingthecostsformaintenance,repair,andoperation(MRO) supplies (Avery 1997). BPXA, which explores and develops oil and gas reserves inAlaska and manages the company's interest in the Trans-Alaska pipeline, is the largest ofBPsinternationalgroupofcompaniesbasedonreserves.Duringtheproject,BPXAhandedoverresponsibilityforMROsuppliermanagementandMROpurchasingoperations to Fairmont Supply2, a distributor of MRO supplies with an annual sales volumeof$256million(1998).Theoutsourcingagreementincludesallstepsfromrequisitiontopayables as well as warehouse operation. 2 http://www.fairmontsupply.comEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 13As a result of the new arrangement, the company is expecting cost savings of as much as$5.5millionannuallyfromprocessimprovementsandlowerprices.Inventoryreductionsmightaccountforanother$11million.AsashareofBPXAsoverallannualMROprocurement of $35 million these savings are quite significant. Although the figures are stillsmallcomparedtoBPXAstotalspendof$740million(seeTable3),thecasecouldbecome an example for other business areas.Table 3 - Annual Spend at BPXA - Source (Avery 1997)Type of Items and ServicesAnnual Spend(Million Dollars)Drilling, Maintenance, and Engineering 640Drilling and Well Services 40Chemicals and Fuels 17Equipment andservices, bought fromOEMsCompressors, Turbines, and Pumps 8Maintenance, Repair,Operating (MRO)SuppliesBuilding Supplies, Industrial Hardware, Instrumentation,Mobile Equipment, Pipe and Fittings,Telecommunications, Valves, Office Supplies35Total 740Procurement at BPXA used to focus primarily on securing low prices from a large numberof suppliers, not unlike other big organizations. Emphasis is now put on the elimination ofredundancies,processmanagementviaperformancemetrics,andprocessimprovementthroughintegratedsupply.FairmontSupplyadministersandexecutesagreementsofBPXA with a small group of MRO local suppliers. Since the beginning of the outsourcingagreement, the integrator has helped reduce BPXAs supplier base from more than 1,000MRO suppliers located all over the U.S. to less than 30, all of which are located in Alaska.As a result, transportation cost decreased, which, in the past, could add up to as much as12% of total MRO expenditures.Thesmallnetworkofcoresuppliershasbeenexpandedtothesecondlevel,includinganother250vendors.ThelocalcharacterofBPXAsnetworkhelpsstrengthenthelinksbetween the companies involved and further insures synergies.Inadditiontosuppliermanagement,BPXAsoutsourcingpartnerhandlesprocurementoperationsandinthatcontexthelpedunifytheprocesswhichusedtobedoneinsixdifferent ways. Although being one of the objectives of the re-organization project, not allsuppliersareEDIcapableasofyet.Ofthe24coresuppliers,onlythreearefullyEDIenabled;twelvereceiveordersviafax,someareevenunsurewhatEDIisallabout.Inordertoreachitsgoal,BPXAactivelyhelpssmallersuppliersgetonline.Apart fromEDIandotherelectroniccommercesystemsthismayalsoregardother,moregeneralsystems,e.g.,formaintenancemanagement.InadditiontoEDI,EFTandbar-codingsystems are introduced, as well as systems interfacing with logistics programs.As an outcome of the project, BPXAs procurement division can now concentrate on morestrategicactivitiessuchasplanning,innovation,andcontinuousprocessimprovement.For example, BPXAs buying team selects strategic suppliers and negotiates agreements,whicharethenusedbytheoutsourcerdistributor.Theeffortspromisetoresultinlowercostsforbothpartners,withpurchasinganditsinternalcustomersreceivingimprovedservice, and the distributor getting a greater share of BPXAs business.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 14MROwaschosenasanareaforimprovementbecauseitwasespeciallytransactionintensiveandthereforecostly.Besidespurecostreductions,thenewarrangementalsohelps suppliers and BPXAs buyers get closer and intensify information exchange.Savingsareexpectedfromproductstandardization,applicationimprovement,buyingpowerleverage,supplierconsolidation,andsuppliersfocusingoncorecompetencies.Inaddition, an inbound logistics program helps gain additional savings.Theperformanceoftheprocurementintegratorismeasuredinseveraldifferentterms.Measuresforinternalcustomersofprocurementincludedeliverydatesversuspromiseddates, fillanderrorratesoforders,andpriceviaa marketbasket.Meaningfulmeasuresfor managers include cost of goods, cost to buy, and inventory. BPXAs purchasing groupis developing performance standards that help secure project success and identify areasfor future improvements. Suppliers are actually rewarded a percentage of the savings thatBPXA incurs. The same is true for Fairmont Supply.Case 2: ChevronWith a total of $40 billion in revenues, San Francisco-based Chevron is currently the U.S.thirdlargestPetroleumCompany(secondaftersoon-to-be-mergedExxonandMobil).Operating in roughly 100 countries the company of close to 40,000 employees reported anetincomeof$3.2billionin1997.Chevronspurchasingbudgetamountsto$9.9billionper year (excluding raw materials, such as crude oil). Two thirds of the budget is spent forservices,includingpumpingandconstructionservicesandoilrigleases,onethirdformaterials and other supplies. Commodities such as valves, pipes, and fittings account forthe biggest shares in MRO purchases (Segev, Gebauer, Frber 1999).In 1994, Chevron started a major effort to overhaul its corporate procurement function. Inordertoimprovethebalancebetweencentralizedanddecentralizedsupplychainmanagementpurchasingwasrealignedbymovingmorethan400buyersouttotheoperatingcompanieswhicharedispersednationallyaswellasinternationally.Withthismove, decentralized order placement was facilitated as well as decentralized coordinationoflocalcontractsandalliances,localplanningandforecasting.Centralpurchasingwasputinchargeofmoregeneralfunctionssuchasalliancecontracts,identificationandimplementationofbestpractices,traininganddevelopmentaswellassystemsimplementation, support, and maintenance.In the same context, Chevron also started to consolidate its supplier base, which includedalmost60,000suppliersin1994.Threeyearslaterthenumberwasreducedto38,000.Two hundred of these suppliers are considered alliance partners accounting for as muchas27%($2.7billion)ofChevron'sannualspend.Althoughthepercentageofcontractedbuying has already more than tripled between 1994 and 1997, which allowed Chevron torealizesavingsof$400million,theprojectisstillfarfromitsmedium-termgoalof60%.Especially in the service area, contract spending is still very low.During the past years Chevron has been implementing several best purchasing practicesincluding:Alliances and supplier management initiativesPurchasing cards for low dollar transactionsAsset redeployment initiativesElectronic commerce applications (EDI, autofax, Internet)Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 15Small business programInformation technology has been identified as a key factor to help glue the different effortstogether.Since1993,ChevronstartedtoimplementERPsystemsfromSAPandJ.D.Edwardsforaccounting,materialandinventorymanagement.Later,anIntranetwasdeployedtohelpMRObuyerskeeptrackofpreferredsuppliers,allianceinformation,purchasing best practices, and sourcing information.However, when buying functions needed to be made accessible to the occasional user inaddition to the purchasing experts, both systems, SAP and J.D. Edwards turned out to betoodifficulttohandle.Userinterfacesweretoocomplexandtheprocessesoffindingmaterialsandissuingpurchaseordersweresocumbersomethatusersstartedtoinventworkarounds in order to make their lives easier.Soon, it became clear that the targeted increase in expenditures under alliance contractswas not achievable with the current ERP-based purchasing solution. In 1997, theprojectteamdecidedtoimplementanadditionalprocurementfrond-endspecificallydesignedtohelp end users perform purchasing activities and channel them to alliance suppliers. Thesystem included the following elements:Central database with information about materials, services, vendors, and contractsCustomized electronic catalogs, fully priced and accessible throughout the corporationElectronicformsandelectroniccommercesuchasEDIandEFTtosupportthesubmissionofpurchaseorders,invoices,priceupdates,andevaluatedreceiptsettlement, i.e., payment upon receiptThe project promised immediate cost savings in two ways through reduced administrativeoverhead and processing time and discounts from alliance buys compared to off-contractbuys. Future savings were expected from renewed contract negotiations, where Chevronwould be able to leverage its corporate purchasing power to fuller extent.The electronic procurement solution had to meet several requirements:Ease of use, especially for the occasional userIntegration with existing and projected enterprise resource planning systemsCompliancewithChevronsindividualpurchasingneeds,particularlyregardingservices and complex itemsIn1998,Chevronstartedtopilotadesktoppurchasingsystem.WhilefirstaimedathandlingChevronsbusinesswithcontractedsuppliers,thesystemwilleventuallybeenlargedtocoverallofthecompanysprocurement.Plansarethatduringthefirststages,400-450userswillbegivenaccesstothesystem,mainlybuyersofthedepartments. The next stage will include all buyers (about 2,000 people), and eventuallythesystemwillreachallenduserswithpurchasingauthority.Afterimplementationthroughout the U.S., international sites will also be included.Figure 1, depicts the scopeand the stepwise approach.Figure 2 shows the functional architecture.The system allows employees to source multiple supplier catalogs; to fill in a requisitionformandhaveitroutedthroughtheapprovalprocess;andtoissueapurchaseorder.Apartfrominformationaboutproducts,services,andcontracts,thesystemalsogivesaccess to compliance data of suppliers and other attributes.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 16Chevronchoseatwo-foldsolutioninvolvingsoftwareandservicesfromAribaTechnologies and Harbinger (formerly Acquion), aproviderofEDIand electroniccatalogservices.WhileAribasOperatingResourcesManagement(ORM)systemisusedasaWeb-basedfrontendanduserinterfaceforcatalogsearchandpurchaseorderandrequisitioncreation,Harbingerfacilitatestheinteractionwiththesuppliers.Itmanagescatalogcontentandtakescareofthecurrentcustomerbaseandsupplierramp-up.Theprocurement system will be integrated tightly with Chevrons two ERP systems, SAP andJ.D. Edwards.Aribas ORM system was chosen in part for its intuitive interface that makes it easy to usefor the occasional non-professional buyer. The system is flexible enough to display a largenumberofdifferentitems,includingservicesandthirdpartycatalogs.ThelatterisimportantasChevronplanstointegratethenewprocurementsolutionwithotherapplications such as its excess inventory management system, FasTrack.After the pilot phase, Chevron started to roll out system in early 1999. In the initial phase,threeoperationcompanieswereincluded:anupstreamproductioncompanylocatedinBakersfield,Houston-basedOverseasPetroleum,andtheITdepartmentlocatedinSanFrancisco. Theinitialgroupof 30 usersisscheduled toreach morethan200 byJune of1999and3,000bytheendof1999uponfullrollout.Additionalsuppliercatalogswillbeaddedasrequiredbytheindividualoperatingcompany;anestimated20supplierspermonth.ThiswillbedoneincooperationwithHarbinger,whichalreadyhasasignificantportion of Chevrons suppliers as customers.Chevronestimatesatotalof$10-13millionintangiblesavingsperyear,tobeachievedthroughsimplifiedsourcingandprocurement($3million),moreeffectivecatalogmanagement($0.5million),improveddataaccuracy,reconciliation,andreporting($2million), and increased alliance utilization ($5-6 million). The costs for the procurement andcatalogfront-endwereestimatedat$6-8million.Chevronessentiallyconsideredtheproject an incremental investment on a huge investment, i.e., an add-on to the three-digitmilliondollarERPimplementationstoachievetheexpectedbenefits.Itchosetwosole-solution suppliers, mainly because the ERP vendors were unwilling and unable to providethem with the required functionality.In addition to the IT system itself, the new system also lead to a number of organizationalandculturalchanges.Theprojectteamidentifiedthefollowingissuesasparticularlyimportant:Central ownership and control of catalog data and price updatesMaintenance of business rules for managing views of catalog dataRe-alignment of roles and responsibilities in the context of master data maintenanceIntroduce accountability for using the new system including rewards for usersRegarding the use of innovative technologies in procurement, Chevron is an early mover.Systemsavailableatthetimeoftheprojectdesignwerelimitedintermsofscopeandscale.Afterreapingthe"low-hangingfruit",supportfortheprocurementofsophisticatedEmerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 17technicalequipment,forcomplexserviceagreements,andforlarge-scaleprojectswillbecomekeyinordertoreachtheinitialvision.Sofar,thevendorsrespondedwelltoChevronsspecificneeds,e.g.,bydevelopingamoduletosupportserviceprocurement.Additional functions still need to be implemented such asreal-timeintegrationwithback-end systems.Summary & OutlookIn this paper, we provided an overview of how emerging technologies can impact indirectprocurement processes and pointed to the key decision points in the context of their use.Twocasestudiesfromthepetroleumindustryservedasshowcasestoillustratetheissues.Thepetroleumindustryischaracterizedbyrelativelylowgrowthrates,tightcoststructures,andincreasingcompetition.Theindustryisshiftingfromacommoditymarkettowards a high tech industry where the access totechnologies,knowledge,andservicesis key. Companies are internationally dispersed and, as a result, often not leveraging theirfull corporate power. This is especially true for procurement.Emerging technologies can help automate procurement operations and enable end userstosatisfytheirneedswithouthavingtogothroughcentralpurchasing.Thesystemscanalso help enforce corporate purchasing policies and monitor purchasing patterns centrally.This,inturn,enablestighterrelationshipswithsuppliersaswellasbetterleverageofcorporate buying power.Currentlyavailablesystemsdonotyetincludeallthefunctionalitythatisneededbyoilcompanies.Inparticular,supportfortheprocurementofserviceshasnotyetbeenaddressedextensively.Otherareasincludesupportforthemanagementofexcessmaterial (within and between companies), as well as support for the management of largeprojects. With the industry becoming more high-tech oriented, increasing specialization isalreadyvisible.Collaborationbetweenotherwiseindependentplayerswillbecomecommonplace and not be feasible without adequate IT support.Particularly in the area of desktop purchasing systems, developments are still in an earlystage. Startup companies such as Ariba Technologies and Commerce One dominate thescene, while the numbers of adopters are still very small. ERP vendors, such as SAP andOracle started to enter the market, tightening the competition. New niches are opening up,suchascontentorsuppliermanagement.Similarly,plugandplaysolutionsforsmallmarketplayers(buyersandsuppliers)arestillmissing,asaresophisticatedtoolstosupport negotiation and bidding processes.Likeinotherindustries,consolidationtrendsaswellastheavailabilityofelectroniccommerce systems point to an increase in power on the buyer side. On the supplier side,mergersandacquisitionsmightbecomethenecessaryanswerinordertomatchthecounterpartsinpowerandsize.Otherpossibilitiesincludealliances,whichcanwellbesupportedbyemergingtechnologies(virtualorganizations)andventuresintonewbusiness areas like MRO distributor W.W. Grainger that is offering purchasing outsourcingservices.Moreresearchonthecurrenttrendsisnecessarytocomprehendtheimplications to their full extent.Emerging Technologies to Support Indirect Procurement: Two Case Studies from the Petroleum Industry 18ReferencesAberdeenGroup(1998).InternetProcurementAutomation:SeparatingtheECWheatfrom the Chaff. Boston, Mass., Aberdeen Group. 11: 1-9.American Petroleum Institute (1999). Home Page, American Petroleum Institute. 1999.Avery, Susan (1997). Outsourcing the MRO Buys Slashes Cost at BPXA. Purchasing.Beam, Carrie et al. (1999). 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