Possible Kinds of Values Added by the Purchasing Department

Value–based purchasing focuses the decisions of purchasing professionals on the creation of value, rather than on the traditional objectives of cost savings and efficiency. Most of the purchasing researchers see purchasing as a strategic contributor to the added value of the organizations. But only a few contributions discuss the possible kinds of values that the purchasing department could actually add to the organization. This paper tries to fill this gap and reviews the traditional and strategic concepts of values added by purchasing and the factors affecting value added. Furthermore the paper presents a conceptual model of factors affecting value added by the purchasing department. In order to discover the influence of these factors on the capacity of the purchasing department to add value to the organization, we conducted an empirical study. The preliminary findings of the empirical research are presented at the end of the paper. Value is becoming more important to the organization Driven by the fearful competition on the marketplace, organizations are giving more attention to the ‘value’ concept. They are attempting to increase the value of their products and services and reduce non-value-added activities, both in terms of cost and in number. One function that has a tremendous impact on these efforts is purchasing. The role purchasing plays in the organization is crucial, and the outcome of the purchasing decisions made can have a profound impact on the value of the organization. In the value chain analysis developed by Porter (1985), procurement is viewed as a support activity, that contributes to the competitive advantage of a business unit by adding value. The purchasing function uses various inputs to perform value-adding processes (market and value analyses, sourcing, negotiation, etc) and to provide output like quality, services, materials, etc. If purchasing performs these activities effectively, this output provides the organization with a competitive advantage (see figure1). The value-chain demonstrates that the purchasing function has a major role in adding value to the organization. Most of the purchasing researchers see purchasing as a strategic contributor to the added value of the organizations. But only a few articles/researchers discuss the possible kinds of values that the Purchasing Department could actually add to the organization.