EVALUATING PURCHASING PERFORMANCE
Four dimensions are suggested on which measurement and evaluation of purchasing
activities can be based;
 Price /cost dimension
 Product /quality dimension
 Logistic dimension
 Organizational dimension
a) Purchasing price/cost reduction
This dimension refers to the relationship between standard and actual prices paid for materials and
services.
i) price/cost control
It refers to continuous monitoring and evaluation of prices and price increases as they are
announced by the suppliers.
Examples of parameters and measures to be used are return on investment measures material
budgets; price inflation reports variance reports etc
The main objective here is to monitor purchasing prices in order to control them and to prevent
getting out of hand.
ii) price/cost reduction
It relates to continuous monitoring and evaluation of activities initiated to reduce cost in a
structured way associated with purchased materials and services. Cost reduction may be the result
of searches for new suppliers or substitute materials, value analysis and coordination of purchasing
requirements among biz units. The main objective here is to monitor those activities which have
been initiated to structurally reduce material cost.
b) Purchasing product/Quality dimension
Purchasing responsibility with regard to quality of purchased materials should not be defined too
narrowly. A distinction should be created between purchasing role in new product development
and purchasing role in total quality control this. This dimension should ensure that products are
delivered by suppliers in conformance to organization’s specifications and requirements.
c) Purchasing Organizational Dimension
This dimension includes major resources that are to achieve the goals and objectives of the
purchasing function namely;
I) purchasing staff
This relates to the background, level, training and development and motivation of purchasing
personnel.
ii) Purchasing management
This refers to the way the purchasing debt is being managed. It encompasses the quality and
availability of purchasing strategies, action plans, reporting procedures est. it relates to mgt style
and communication structure.
iii) Purchasing procedures and guidelines
This refers to the availability of procedures and working instructions for purchasing staff and
suppliers in order to make sure that work is done in the most efficient manner.
iv) Purchasing information systems
This subject relates to the efforts made to improve the information systems which are required to
support purchasing and other employee in their daily activities and to generate necessary
management information on purchasing activities and performance.
D ) Purchasing logistics Dimension
This dimension deals with purchasing role to contribute to an efficient incoming flow of purchased
materials and service. This dimension includes the following major activities.
i) Control of the timely accurate handling of material requisition
The measures used here are;

Average purchasing administration lead time

Number of orders issued

Order backlog etc
Important measures to improve purchasing performance in this area are;

Electronic ordering system

Introducing e-commerce solutions to internal customers and suppliers

Use of electronic data interchange
ii) Control of timely delivery by suppliers
Measures which can be used here are;

Supplier delivery reliability

Material shortages

Over/ under delivery

Number of JIT Deliveries
These measures indicate the level of control over the incoming material flow;
iii) Control of quantities delivered;
In some cases, purchasing function has the responsibility for the determination and control of cost
effective inventory levels. Measures used here are;

Inventory turn over ratio

Number of over/ under deliveries

Average order size

Pipeline inventory