In this world of globalization and constant changes, nearly all organizations institutions are operating in an environment characterized by fierce competition, innovation, flexibility and knowledge. In such a context organizations require to set up strategic plans to be able to combat all the challenges and capitalize on all the opportunities presented to them. Globalization and technology shifts require organizations to reengineer their operations if they want to maintain competitiveness. These dynamics of the market economy call for a shift in business focus to consumer responsiveness and innovative solutions which deliver value to the consumers profitably. In order to ensure customer loyalty and customer satisfaction, businesses have to work not only with their suppliers but the customers as well ensuring delivery of desired goods just in time.
Procurement encompasses the whole process of acquiring property and/or services. It starts when an agency has been able to identify a need and decided on its procurement requirements. Procurement continues through the processes of risk assessment, seeking and evaluating alternative solutions, contract award, delivery of and payment for the property and/or services and, where relevant, the ongoing management of a contract and consideration of options related to the contract. Procurement also extends to the ultimate disposal of property at the end of its useful life (Project Management Institute, 2014).
It is now a perennial topic in the executive suite to measure performance in board meetings, and at meetings of management scientists. Authorities like Dr. Deming; measuring performance is good; measuring the right things is the trick executives must learn. Today’s demanding business environment requires executives to regularly evaluate how they measure their company’s performance. Many CEOs spend significant time asking themselves what is the proper performance measurement process and structure, and what measures should we be using to drive business success (Minerich, 2008).
Performance has been described as the degree of achievement of certain effort or undertaking. It relates to the prescribed goals or objectives which form the project parameters (Chitkara, 2005). From project management perspective, it is all about meeting or exceeding stake holders’ needs and expectations from a project. It invariably involves placing consideration on three major project elements i.e. time, cost and quality (Project Management Institute, 2004).
Regular measurements of a system’s services and programs are important from an agency or municipality’s manager’s perspective because he or she is looking to measure progress towards managing for results; which is a customer oriented progress that focuses on maximizing benefits, and minimizing the negative consequences of service programs. Performance measurement is key in ensuring that an organization’s strategy is successfully implemented. It is about monitoring an organization’s effectiveness in fulfilling its own predetermined goals or stakeholder requirements.
A business has to perform well in terms of cost, quality, flexibility, value and other dimensions. A performance measurement system is what enables businesses to meet these demands successfully. It helps to ensure better informed and more effective decision making at both strategic and operational levels.
Performance measurement has evolved from purely financial performance measures such as profit, cash flow or the return on capital employed. Today there is greater emphasis on non-financial and multi-dimensional performance measures to understand and manage the performance of the organization to achieve its goals. Procurement performance refers to how well procurement objectives are attained.
The main procurement performance indicator is the extent to which the procurement function enables the organization to get best value for money spent on purchases and supplies. Traditionally, costs were the major measure of procurement performance, measuring procurement performance currently requires paying attention to more variables. In modern organizations, procurement performance measurement, involves going beyond costs to consider quality, inventory, supplier relations, risk and customer satisfaction. Value for money in the procurement procedures is determined by cost of procurement process, price of commodities, timeliness of procurement and quality of goods or services procured. While cost is an important measure of procurement efficiency, least cost without delivering quality goods renders the procurement process ineffective.
Procurement Performance Measurement System is designed to make it possible to measure procurement performance, throughout the procurement cycle, allowing for tracking of progress over time. In this way, the system enables the management to analyze performance related strengths and weaknesses throughout the procurement cycle (for example weaknesses related to procurement planning, bid evaluation, or contract management practices), to support such weaknesses through targeted capacity development interventions, and to report on progress to different stakeholders.
Organizations which do not have performance measurement means in their processes, procedures, and plans are bounded to experience lower performance and higher customer dissatisfaction and employee turnover over the years. In fact, measuring the performance of the purchasing function brings in many benefits to organizations such as cost reduction, enhanced profitability, assured supplies, quality improvements and competitive advantage as was noted by. The use of performance measurement systems is normally recommended in order to facilitate strategy implementation and enhancing organizational performance. Nowadays, performance measurement comprises of both the use of financial as well as non-financial performance measures linked to the organization’s business strategy. For instance, balanced scorecards (BSC) and multi-criteria key performance indicators (KPI) are considered performance measurement systems.
The need for performance measurement has increased enormously with changing business environments, leading to more rapid changes in business strategy (Nelly, 1991). Regarding this, many organizations have had to change their performance measurement systems, dimensions and indicators so as to align them with their strategy (Nelly, 2001).