savings measurement for capital equipment purchasing speaker...wenn sie diesen text lesen können,...
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Savings Measurement for Capital Equipment Purchasing CIPS - Chartered Institute of Procurement & Supply CAPEX Value, Solutions and Examples
Dr. Daniel Maucher Zürich, 04.02.2015
Agenda
06.02.2015 Seite 2 WCM bei der Schweizerischen Post - Daniel Maucher
Introduction and research overview Research methodology and key research findings Conclusion
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Introduction and research overview
In order to get attuned for the investment budget planning,
please tighten your belts three holes further …
Savings measurement for capital equipment purchasing Procedures, challenges, contingencies and behavioral Aspects
Due to the features of capital equipment purchasing there arise challenges in savings measurement.
Purchasing process Players
Product
Often high financial stakes
High variability of prices and delivery times
Industry is very sensitive to business cycle Often related to services
Technical expertise required to assess
proposals
Interdependences with existing CE have to be
considered
Rate of technological obsolescence often high
Risks can be high
Payment flows are uncertain
TCO may far exceed the purchase price
Importance of international relations
Often several authority levels are involved
Required capabilities are hard to acquire, develop
and retain
Long-term business relations are important
Often low degree of standardization
Manufacturing lead time can be long
Purchasers are typically less experienced in CEP
Often not purchased frequently
Often purchasing department is not
involved
Purchasing department as coordinator and
consultant
Formation of a buying center
In many cases personal negotiations
Capital equipment purchasing
Challenges in savings
measurement
CE: capital equipment; TCO: total cost of ownership; CEP: capital equipment purchasing
Features of capital equipment purchasing (CEP) Challenges in savings measurement
The research project applies triangulation with a combination of descriptive, exploratory and experimental research.
Research phase 1
Main objective Descriptive and exploratory analysis
Main methods of data collection
Qualitative interviews, literature review
Primarily addressed RQs
RQ1 and RQ2
Research phase 2
Main objective Testing contingencies
Main method of data collection
Qualitative interviews
Primarily addressed RQ
RQ2
Research phase 3
Main objective Testing of behavior-specific aspects
Main method of data collection
Laboratory experiment
Primarily addressed RQ
RQ3
RQ: research question
RQ1: How do companies measure savings for CEP and what are the main challenges? RQ2: How do contingent factors influence savings measurement for CEP? RQ3: How does the applied savings calculation method influence behavior in CEP?
Research overview Research questions and phases
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Research methodology and key research findings
In research phase 1, descriptive case studies and a literature review are applied to answer RQ1 and to form the basis for the analysis of RQ2.
Research questions
• RQ1a: How do companies measure savings for CEP and which methods are used?
• RQ1b: What are the main challenges for companies with savings measurement for CEP?
• RQ2a: Which determinants influence and what are the effects of savings measurement for CEP?
Case study (RQ1a, RQ1b, RQ2a)
• Multiple-case design with "savings measurement for CEP within a company" as the single-unit of analysis.
• Data collection method was semi-structured, face-to-face interviews. • Five interviews with three companies.
Literature review (RQ2a)
• Included research fields: procurement management accounting, procurement performance measurement, behavioral management accounting, procurement organization.
• Iterative process using Google Scholar, EBSCOhost and ProQuest.
CEP: capital equipment purchasing; RQ: research question
Research phase 1: Descriptive and exploratory analysis Research questions and research methodology RP1
Challenges in savings measurement for CEP can be categorized in procedure-specific and behavior-specific challenges.
Procedure-specific challenges
• Definition of the correct reference price. • The TCO of capital equipment are rarely
included in the calculation, • The benefit of capital equipment is
usually not considered. • The pure involvement of costs in the
savings measurement disregards critical qualitative aspects of CEP (e.g. time, quality, interdependences).
• Price changes after placing an order are often not considered for the savings measurement.
• If considerately fewer orders are placed, savings targets cannot be reached.
CEP: capital equipment purchasing; TCO: total cost of ownership
Behavior-specific challenges
• Sometimes purchasers violate savings guidelines.
• Purchasers only book savings into the system until they have reached their yearly target.
• Often only positive savings are reported.
• In some cases the superior conducts the control, even though his bonus also depends on the savings measurement.
• Savings that are reported to the management are often not trusted very much.
• Often the savings measurement process is perceived as a tedious task.
• If several performance dimensions are reported, a holistic evaluation of the purchasing performance depends on the individual judgment.
Research phase 1: Descriptive and exploratory analysis Challenges RP1
In order to improve accuracy, constancy and behavioral aspects of savings measurement for CEP, the depicted measures should be implemented.
Savings measurement for
CEP
TCO, benefits and qualitative aspects should be considered in the calculation and aggregated to one single measure.
Savings should be calculated at different phases of a CEP project.
Guidelines on how to proceed in savings measurement should be established.
Audits of results should be performed by an independent party.
Realistic savings targets – as a function of realized purchasing spend
– should be formulated.
Dependency between personal performance and personal outcomes
should be increased.
CEP: capital equipment purchasing; TCO: total cost of ownership
Research phase 1: Descriptive and exploratory analysis Managerial implications RP1
The goal of the study is to examine how the challenges and characteristics of performance and savings measurement for CEP influence contingency-based relationships.
Research questions
• RQ2b: How do contingent factors influence performance and savings measurement for CEP?
• RQ2c: How do contingent factors differ between MCS in general compared with performance and savings measurement for CEP?
Case study
• Multiple-case design with "performance and savings measurement for CEP within a company" as the single-unit of analysis.
• Data collection method was semi-structured, face-to-face interviews. • Interviews with 18 companies and 32 respondents.
CEP: capital equipment purchasing; MCS: management control systems ; RQ: research question
• Chenhall (2003) provides a meta-analysis of contingency MCS studies and formulates 25 propositions.
• Performance and savings measurement for CEP have some special characteristics and face some special challenges.
Research phase 2: Testing contingencies Research questions and research methodology RP2
From the 22 analyzed propositions a majority was confirmed: 10 confirmed, 1 mostly confirmed, 3 partially confirmed, 2 mostly not-confirmed and 6 not-confirmed propositions.
Area Confirmed Mostly
confirmed Partially
confirmed Mostly not confirmed
Not confirmed
External environment 1 1 1
Generic concepts of technology and MCS 2 1
Advanced technologies and MCS
1 1
Organizational structure and MCS 2 1 3
Size and MCS 3 Strategy and MCS 1 3 Culture and MCS 1
The confirmation differences point to the propositions’ validity in the analyzed contingent areas.
For unconfirmed and mostly unconfirmed propositions, adapted propositions for the case of purchasing and savings measurement for CEP are presented.
CEP: capital equipment purchasing; MCS: management control systems
Research phase 2: Testing contingencies Overview of the analyzed research areas RP2
In order to improve accuracy, constancy and behavioral aspects of savings measurement for CEP, the depicted measures should be implemented.
Savings measurement for
CEP
Participative budgeting is more likely to be applied in an uncertain environment. Because groups tend to make riskier decisions than individuals, one could expect that groups determine riskier (lower) budgets that are more difficult to meet.
If historical values are not available, it is often possible to split the products and services into components for which historical values exist.
Especially smaller companies should establish performance-linked payment in CEP.
In supplier partnership practices, non-financial measures and
personal interactions should be used to manage these partnerships
successfully for both parties.
The use of methods, instruments, and guidelines in performance
measurement for CEP should fit the size and the strategy of the
company.
The different company functions involved in CEP should also be involved in the
budgeting process through the application of participative budgeting.
CEP: capital equipment purchasing; TCO: total cost of ownership
Research phase 2: Testing contingencies Managerial implications RP2
Laboratory experimental research seems to be an appropriate method to analyze behavioral aspects of savings measurement for CEP.
Research questions
• RQ3a: How does the applied savings calculation method in CEP influence the weighting of qualitative and monetary criteria in supplier selection, the negotiation success and the final price in CEP?
• RQ3b: What are the key success factors in CEP negotiations? • RQ3c: What influence does negotiation success have in the evaluation of
CEP projects?
Experi-ments
Background • Experiments allow to observe economical decision making of human subjects
under controlled and replicable conditions.
Methodology • Two experiments: savings measurement and negotiations in CEP / evaluation
of CEP projects • In each of the two experiments, 114 students participated. • Within subjects design with two treatments.
CEP: capital equipment purchasing ; RQ: research question
Research phase 3: Testing behavioral aspects Research questions and research methodology RP3
Savings measurement for CEP
Common used methods in corporate practice:
H1a: When applying PQM-SIO in CEP, more expensive offers and higher quality offers are selected, compared to BCM.
H1b: When applying PQM-SIO in CEP, purchaser’s performance in supplier negotiations is higher compared to BCM.
Analyzes how the used savings calculation method influences the final price in CEP ?
Negotiations in CEP
H2: Making the first offer in the negotiation has a positive influence on the outcome of negotiations in CEP.
Evaluation of CEP projects
H3: When CEP projects with the same user value and same final price are being evaluated, the projects with a higher negotiation success are more positively evaluated.
Initial offer of the
selected supplier
Final price
Savings
Price quotation method – single initial offer (PQM-SIO)
Budget Final price
Savings
Budget comparison method (BCM)
CEP: capital equipment purchasing
In addition to savings measurement for CEP the hypotheses also concern the related areas of CEP negotiations and evaluation of CEP projects.
Research phase 3: Testing behavioral aspects Hypotheses RP3
1. Classification of the participants in 3 groups: purchasers, technicians, suppliers
2. Explanation of the task and the payment scheme for each group :
– Purchasers: Buying a good excavator for the cheapest possible price
– Technicians: Buying the best excavator within the given budget
– Suppliers: Bargaining the highest possible sales price for the excavator 3. Two treatments
– "Price quotation method – single initial offer" for purchasers (3 rounds) – "Budget comparison method" (3 rounds)
4. Common selection of one from ten offers through purchaser and technician (3 minutes time limit). Pattern of the offers:
5. Final negotiation between purchaser and selected supplier (3 minutes time limit).
* User value: compound of product performance, product quality, service quality, delivery time
Offer 1 2 3 4 5 6 7 8 9 10
Price [800,000-1,200,000 €]
€ 800,000 € 845,000 € 887,500 € 932,500 € 982,500 € 967,500 € 1,067,500 € 1,107,500 € 1,155,000 € 1,200,000
User Value [60-100%] *
60.0% 64.4% 68.9% 73.3% 77.8% 82.2% 86.7% 91.1% 95.6% 100.0%
The purchaser and the technician have to select an offer which is then negotiated between the purchaser and the supplier.
Research phase 3: Testing behavioral aspects Experiment 1 (H1a, H1b, H2) – Procedure RP3
Procedure: The task is to make a holistic evaluation of 8 different capital equipment purchasing projects, based on the given data.
Project number
User value [1-5]* Final price Percentage of
negotiation success Your evaluation
[%] 1 2.5 1,236,253 € 3% 2 3.5 1,068,019 € 7% 3 1.5 872,193 € 3% 4 5.0 1,175,227 € 0% 5 3.5 1,068,019 € 3% 6 1.0 1,050,257 € 7% 7 2.0 1,162,924 € 3% 8 3.0 915,445 € 3%
The experiment is used to depict how user value, negotiation success and final price are evaluated in CEP.
50% 0% 100%
Average Very good Good Poor Very poor
* compound of product performance, product quality, service quality, delivery time5 = best possible user value; 1 = worst possible user value
Research phase 3: Testing behavioral aspects Experiment 2 (H3) – Procedure RP3
The results support the formulated hypotheses except of hypotheses H1b.
Savings measurement for CEP
PQM-SIO BCM Sig. (2- tailed) Hypotheses
Selected offer 7.42 6.47 .000 H1a – supported
Initial offer price € 1,085,232.14 € 1,043,209.82 .000 H1a – supported
User value 88.5% 84.3% .000 H1a – supported
Discount 3.38% 3.18% .348 H1b – rejected
Final price € 1,053,347.02 € 1,012,846.93 .000 No hypotheses
Negotiations in CEP
Above average
Below average Sig. (2- tailed) Hypotheses
Number of first offers
3.49 2.89 .097 H2 – supported
Evaluation of CEP projects
Project 2 Project 5 Sig. (2- tailed) Hypotheses
Evaluation 78.8% 67.0% .000 H3 – supported
CEP: capital equipment purchasing; PQM-SIO: price quotation method – single initial offer, BCM: budget comparison method
Research phase 3: Testing behavioral aspects Savings measurement for CEP – Results – Hypotheses RP3
Purchasers’ negotiation success is much lower than that of suppliers and technicians.
• Further success factors in CEP negotiations:
o Number of semesters (p < 0.01)
o Ambition (p < 0.05)
o Need for power (p < 0.05)
• Evaluation difference between project 2 and 5 (p < 0.05):
o Technicians 6.6%
o Purchasers 13.0%
o Suppliers 15.8%
• Correlations between the participants’ evaluation and user value:
o Technicians 0.526
o Purchaser 0.329 (p = 0.003)
o Suppliers 0.380 (p = 0.024)
Negotiation success of purchasers, technicians and suppliers
Purchasers Suppliers Technicians Sig. (2- tailed)
Negotiation success
33.9% 65.0% 66.3% .000
CEP: capital equipment purchasing; PQM-SIO: price quotation method – single initial offer, BCM: budget comparison method
Research phase 3: Testing behavioral aspects Evaluation of CEP projects – Results – Supplemental analyses
RP3
In order to improve accuracy, constancy and behavioral aspects of savings measurement for CEP, the depicted measures should be implemented.
Savings measurement for
CEP
The applied savings calculation method has an influence on the offer selection and on the final price in CEP.
Procurement attention should be placed primarily on the specification of requirements and on offer selection in CEP.
Making the first offer in a CEP negotiation has a positive influence on
the outcome of the negotiation.
Purchasers should be aware of anchors in CEP negotiations.
Purchasers should take their time and should prepare every CEP negotiation thoroughly.
CEP: capital equipment purchasing; TCO: total cost of ownership
Research phase 3: Testing behavioral aspects Managerial Implications RP3
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Conclusion
• There exist many different procedures and calculation methods for savings measurement for CEP.
• Savings measurement for CEP is associated with procedure- and behavior-specific challenges.
• Preliminary conceptual model concerning savings measurement for CEP:
o Savings measurement for CEP is influenced by company-internal and company-external contextual factors
o Savings measurement for CEP affects behavior-specific aspects in savings measurement for CEP (e.g., manipulation, trust and judgment) as well as performance of CEP.
• Findings emphasize the importance of MCS contingent factors concerning performance and savings measurement for CEP but also indicate special characteristics of the topic.
• Findings point to the validity of the general proposition for the different contingent areas.
Research phase 1
Research phase 2
CEP: capital equipment purchasing; MCS: management control systems; PQM-SIO: price quotation method – single initial offer; BCM: budget comparison method
Conclusion Theoretical implications (research phases 1 and 2)
• Company-internal performance measurement has an influence on inter- and intra-organizational negotiations.
• Purchasers are willing to invest more effort in a negotiation although this does not necessarily lead to a higher personal benefit.
• Incentivizing of purchasers in CEP with multiple goals has only minimal impact on the negotiation success.
• CEP projects with the same benefit and the same price are evaluated differently depending on the negotiation success, although theoretically negotiation success should not be taken into account.
• Evaluators of CEP projects put more emphasis on those criteria that are important in their own work.
Treatment 1 (PQM-SIO) Treatment 2 (BCM) Theoretical
equilibriums Experimental
results Theoretical
equilibriums Experimental
results Step 1: offer selection
= (8.5+10) / 2 = 9.25 7,4 = (1+10) / 2
= 5.5 6.5
Step 2: price negotiation
approx. 5% discount 3.4% approx. 5%
discount 3.2% Research phase 3
CEP: capital equipment purchasing; MCS: management control systems; PQM-SIO: price quotation method – single initial offer; BCM: budget comparison method
Conclusion Theoretical implications (research phase 3)
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WCM performance excellence study Content of the study
Aim of the study: • Determine sector-specific, but also more general WCM benchmarks. • Gain an understanding of excellence in WCM and formulate potential influencing factors, such as
the sector and size of the company. • The study identifies the strategies pursued by good practice companies in working capital
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