Performance evaluation of purchasing and supply management using value chain DEA approach

Abstract

Purchasing and Supply Management (PSM) today is increasingly becoming more important to senior management due to its potential to strategically influence both operational performance as well as financial performance outcomes. However the cross-functional nature of many PSM activities has led to inadequate data collection and performance measurement resulting in weak performance evaluation methodologies and mixed results. We address this gap in the current study, firstly by using an external assessment survey methodology that complements the internal perceptional measures of PSM performance, to collect data for a sample of over 120 firms across the globe with more than 3 billion US dollar turnover, representing seven industry sectors. Next, we develop a comprehensive performance measurement framework using the classical and two-stage Value Chain Data Envelopment Analysis models, which make use of multiple PSM measures at various stages and provide a single efficiency measure that estimates the all-round performance of a PSM function and its contribution to the long term corporate performance in each of these seven industry sectors. The relevance of this measurement methodology is demonstrated through an in-depth analysis of the distribution of efficiencies within and across industry sectors and through the estimation of target PSM performance levels.