Developing procurement performance measurement practices for a manufacturing company

This master’s thesis investigates procurement performance measurement in a global manufacturing company. Procurement itself is seen as a growing trend in traditional manufacturing industry. It provides many opportunities for companies but also brings new challenges. Performance measurement offers tools to manage procurement risks and to further improve its performance. The research is conducted as a case study for an organization aiming to develop company’s procurement performance measures and measurement practices. Company’s many procurement performance measures have become obsolete and thus not used anymore. The measures used were perceived to be unreliable by many means, which indicates that the examination was needed around the topic. First, the current state of procurement performance measurement in the company was examined, followed by recognizing different needs and expectations towards procurement, and finally designing new performance measures to respond the identified needs. The data was mainly collected via half structured theme interviews, but some background material was also gathered via observing and examining case company’s explicit material. The developed procurement performance indicators were divided into three categories: supplier performance measures, daily purchasing performance measures and overall procurement performance measures. The measures used in evaluating supplier performance are used in supplier relationship management and supplier selection purposes, for example. Again, the daily purchasing performance measures guide the everyday activities of the operative procurement and help them to improve their performance on an operational level. In turn, the overall procurement performance measures illustrate the lag outcome of the procurement function. Many challenges in the procurement performance measurement were recognized during the research. Procurement performance measurement were left with minimal attention, because the employees focused on serving the material needs of the company instead of getting reliable information from the performance measures. The existing measures collected data from the information system, where the purchasing information was usually out of date. Many pitfalls were also recognized in the current measures, but so far, the unreliability of the measures was rather accepted than fixed. The opportunities of the performance measures were discovered to be minimally recognized inside the case organization. The unmaintained measures indicate that the performance measurement was underrated among the procurement. Procurement’s internal stakeholders named many needs that they have for the procurement, and many of the interviewees had a clear vision of what measures procurement should utilize. Many types of performance information were perceived to be interesting, but the measurement purposes have so far been left undefined. The link between company strategy and the procurement performance measurement was left thin, because the company strategy wasn’t available at the time the research was conducted