The objective of the study was to investigate the role of procurement cost reduction strategy on e-procurement performance of state Parastatals in Kenya. In doing this, the study adopted the transaction cost theory of (Bakker et al, 2008). The theory explains how the use of information technology (IT) has facilitated the reduction of coordination costs. The study used a cross-sectional survey research design. Both qualitative and quantitative research methodologies were used in the study. The population of this study comprised of the ICT and Procurement managers at all the 190 state parastatals in Kenya comprising of a total of 380 respondents. Since the population was highly heterogeneous, a cluster sampling was used to select 380 respondents from 190 state parastatals. Primary data was collected using a questionnaire covering the role of E-procurement in state corporation performance. The questionnaire contained both structured and unstructured questions. Secondary data was gathered from existing credible and recognized source. Quantitative data was analyzed by employing descriptive statistics and inferential analysis using statistical package for social science (SPSS) together with simple graphics analysis, descriptive statistics form the basis of virtually every quantitative analysis to data). Correlation analysis was used to establish the relationship between the independent and dependent variables. The positive (H1) hypothesis testing was done at 5% level of significance and SPSS was used for this purpose. The data was then presented using frequency distribution tables, bar charts and pie charts for easier understanding. Procurement performance in the state parastatals was regressed against the variable of the role cost reduction. The study established that, procurement cost reduction strategy had greater influence on e-procurement performance in state parastatals in Kenya. It also revealed that, procurement cost reduction strategy has a direct relationship with e-procurement strategy and finally improving the e-procurement performance of state parastatals in Kenya. The study recommended holding of the key success for delivering cost effective services hence e-procurement performance. And also, target cost contracting (TCC), to be accompanied by a gain-share/pain share arrangement serving as a cost incentive mechanism in state parastatals in Kenya. In line with this state corporation must view the embracement of e-procurement as a tool that will support procurement cost and processes as it generally contributes partner relationships, information sharing, and supply chain integrations as e-procurement contributes to supply chain performance.
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