Procurement Performance Measurement System

Abstract: The procurement process can be defined as all the activities required in getting a product or a service from the supplier to a final destination. It encompasses the purchasing function, storing, transportation and manages the relations between suppliers and internal customers. It is a cyclical process involving the following activities: analysis, planning, implementation, and measurement. The performance measurement of the procurement process is probably the least explored activity of the four. The purpose of this thesis is to give guidelines as to how a procurement performance measurement system in public organisations should be designed. The literature study conducted at the beginning of the research process revealed that the literature about 'procurement performance measurement' was very scarce, whereas the individual terms 'performance measurement' and 'procurement' provided a vast amount of references. Empirical data was acquired via a case study conducted at a Swedish county's purchasing department. The main sources of empirical data came from interviews, direct observations and to some minor extent, data gathered during participatory action research. Documents, policies and correspondence have also been used as sources of empirical data. Systems thinking provided the methodological foundation for this research. The central concept 'system' embodies the idea of a set of elements connected together which form a whole, this showing properties which are properties of the whole, rather than properties of its components. The case study organisation was a Swedish county purchasing department. The purchasing department serves nine hospitals, and the hospitals are serving approximately 1,1 million people. The case study organisation is the largest employer in the county with approximately 30 000 people employed and with a total turnover of 17 billion SEK. The county organisation purchase products and services for approximately 3,3 billion SEK divided into 1,5 billion SEK on products, 1,4 billion SEK on services and finally 400 million SEK on investments. The purchasing department has co-ordinated contracts with suppliers for the value of 1,2 billion SEK (36% of total purchasing value). A large proportion of the purchasing department's internal customers are prone to act on their own and frequently bypass the purchasing department. A legal framework (LOU), established in 1994, concerning public sector procurement does to a large extent set the procedures of the procurement process. In brief, the fundamental issues of LOU are that public sector procurement should be conducted within the framework encouraging competition among the suppliers, the process should adhere to good business ethics and be free from discrimination. The LOU was established in response to the fact that public sector procurement was managed inadequately. Before LOU existed, a great majority of public sector purchases were from local or regional suppliers. The purchasing department's main problems were that it did not have enough information about the procurement process, its inputs, outputs, resource consumption and results, and therefore it was unable to determine the department's efficiency and effectiveness. These problems initiated a need to develop a performance measurement system. The performance measurement system must span over the same part of the supply chain as the purchasing department has control over. This part of the supply chain, spanning from supplier to internal customer, is labelled the supply link. The supply link must be measured in a way that lets the decision-maker comprehend how the efforts affect the results. The performance measurement system is believed to provide the purchasing department with unbiased and objective information regarding the performance in the supply link. The analysed information constitutes a powerful source for improving the purchasing department's operations.

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