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Understanding the Measurement Process
In 1947, the then National Association of Purchasing Agents completed a long-term study concluding that "it is impos-sible to establish an absolute yardstick for measuring the efficiency of all purchasing operations." Until recently, other studies have not added much to this conclusion. Yet, a key objective of purchasing and supply management is to evaluate and direct the efforts of the purchasing function, while reassuring senior management that the organization funds are being spent in the best manner.
Measuring Desired Results
The numbers orientation of business can also be its Achilles' heel. When the desire to attain the numbers supersedes their appropriateness and continued validity when they are not tested or checked an organization can put itself at risk. Hitting yesterday's target is meaningless if it is the wrong target for today, and new behavior cannot be promoted with yesterday's measures and information base.
In a traditional American business, senior management is measured and rewarded based on their contribution to profit, while the rest of the organization is measured and rewarded based on their ability to control costs. For example, the cost-driven optimum for purchasing is price; for production it is labor; and for operations it is budget. The consequence of these optimums is often an "organizational anorexia," wherein resources are cut off and the organization begins to starve itself. This results in downsizing in an acute attempt to reduce costs.
Michael Harding, C.P.M., CPIM
Michael Harding is a principal of Harding & Associates of Bristol, Vermont. His area of expertise is helping Fortune 500 companies and other organizations reduce cycle times and inventories, while improving product quality and cash flow. Mr. Harding has 26 years of experience, including positions with Digital Equipment Corporation as a former corporate manager of JIT education and training, and with RCA, TRW, General Electric, and Hercules. He is the author of Profitable Purchasing and Service Velocity, co-author of Purchasing, and has published many articles in a variety of business publications. A presenter at several NAPM International Purchasing Conferences, Mr. Harding also conducts seminars at Clemson University, the University of Wisconsin, Incolda (Columbia, South America), and the National Productivity Board (Singapore). He holds degrees in business and law, and a master's degree in purchasing.
- Business Week, November 15, 1993
- Harding, Michael, and Harding, Mary Lu. Purchasing. Barron's Educational Series, 1991
- NAPM 81st Annual International Conference Proceedings, April 1996, "New Purchasing Measures Produce Better Results"
- NAPM Insights, May 1995, "Building Better Performance Measurements"
- NAPM Insights, May 1995, "Setting the Stage for New Performance Evaluations"
FOR FURTHER READING
- International Journal of Purchasing and Materials Management, Summer 1996, "Motivating the Purchasing Professional"
- International Journal of Purchasing and Materials Management, Spring 1994, "Moving Toward Value-Based Purchasing"
- Management Review, June 1995, "Benchmarking: People Make the Process"
- NAPM 81st Annual International Conference Proceedings, April 1996, "Achieving Legitimate Purchasing Process Improvement"
- NAPM Satellite Seminar Series, November 7, 1996, "Purchasing Performance Measures: Effective Measures for Improvement" (video with user's guide; question and answer booklet)
- Purchasing, September 7, 1995, "What's Measured Gets Done"
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