Public procurement:
A performance management
perspective
A case study at Swedish Defence
Materiel Administration
Master Thesis: Business Administration with specialization in
International Logistics and Supply Chain Management, 30hp
AUTHOR: Johan Klevensparr, 11531882, kljo1109@student.ju.se
SUPERVISOR: Per Skoglund
EXAMINER:
JÖNKÖPING 0516
Abstract
Master Thesis in Business Administration
Title: Public procurement: A performance management perspective
Author: Johan Klevensparr
Date: 2016-05-22
Subject terms: Public procurement, performance indicators, purchasing, strategic
procurement, categorization, dimensions
Purpose - The purpose of this thesis is to explore what performance indicators that exist within
public procurement in defence sector context and how such performance indicators can be categorized.
Methodology - For the purpose of this thesis, an abductive approach was applied. This thesis is
characterized as an exploratory multimethod qualitative research, which emphasize a single case study and a comprehensive research literature review. The empirical data was collected using semi-structured interviews, observations and documentary. The empirical data was analyzed using a data display and analysis, whereas a descriptive and content analysis was used for the research literature review.
Findings - Initially, a comparison between the conducted research literature review and the
empirical study resulted in 117 performance indicators were abled to be identified. Furthermore, with support from the research literature review, the empirical study and the frame of reference, categorizations of performance indicators were possible. Through research literature review, the author were able to identify eight dimensions cost, quality, time, flexibility, sustainability, innovation, risk and compliance, all of which can be aligned to public procurement. Through the empirical study, seven elements were identified as categories. These elements include business strategy and development, operations management, category management, supplier management, customer management, procurement and expert and system support, all of which with aligned performance indicators. Through the frame of reference, three decision-levels were used as categorization of performance indicators. The decision-levels could either be strategic, tactical or operational. Finally, a merger of decision-making levels and elements resulted in a conceptual model, visualizing how elements with aligning performance indicators within public procurement could be organized and structured.
Research limitations - At first, this thesis uses only one database for the research literature
review, limiting the search result of publications concerning the research topic of this thesis. Secondly, single cases study within the defece sector, which limits the amount of information and may prevent transferability possibilities for other public procurement organizations.
Future research - From the result of this thesis, several potential research opportunities has
been discovered. First, following-up and measure PIs in public procurement in order to justify the “real” compliance to rules and regulation. Another one is possible challenges with implementing PIs in public procurement organizations. Lastly, measuring process maturity in public organization would allow benchmarking possibilities among public organizations and defece sector procurement.
TABLE OF CONTENT
1 INTRODUCTION ... 2 1.1BACKGROUND ... 2 1.2PROBLEM FORMULATION ... 3 1.3PURPOSE ... 3 1.4DISPOSITION ... 4 2 FRAME OF REFERENCE ... 6 2.1PUBLIC PROCUREMENT ... 6 2.2PERFORMANCE MANAGEMENT ... 12 3 METHODOLOGY ... 14 3.1RESEARCH PROCESS ... 14 3.2RESEARCH APPROACH ... 14 3.3RESEARCH DESIGN ... 15 3.4RESEARCH STRATEGY ... 15 3.5DATA COLLECTION ... 17 3.6DATA ANALYSIS ... 22 3.7RESEARCH QUALITY ... 234 RESEARCH LITERATURE REVIEW ... 26
4.1DESCRIPTIVE ANALYSIS ... 26
4.2CONTENT ANALYSIS ... 30
5 EMPIRICAL DATA ... 36
5.1CASE COMPANY ... 36
5.2EMPIRICAL FINDINGS ... 38
6 RESULT AND ANALYSIS ... 42
6.1WHAT PERFORMANCE INDICATORS CAN BE IDENTIFIED WITHIN PUBLIC PROCUREMENT? ... 42
6.2HOW CAN PERFORMANCE INDICATORS WITHIN PUBLIC PROCUREMENT BE CATEGORIZED? ... 54
7 DISCUSSION ... 63
7.1RESULT DISCUSSION ... 63
7.3LIMITATIONS ... 64
8 FINAL CONCLUSION ... 65
8.2THEORETICAL AND PRACTICAL CONTRIBUTIONS ... 65
8.3FUTURE RESEARCH ... 66
REFERENCES ... 67
BIBLIOGRAPHIC (RESEARCH LITERATURE REVIEW) ... 69
APPENDIX ... 73
TABLE OF FIGURES
FIGURE 1 THESIS DISPOSITION ... 4
FIGURE 2 FIVE FORCES OF THE PROCUREMENT SYSTEM ... 8
FIGURE 3 PURCHASING PROCESS ... 11
FIGURE 4 PUBLIC PROCUREMENT PROCESS ... 12
FIGURE 5 RESEARCH PROCESS ... 14
FIGURE 6 RESEARCH APPROACH ... 15
FIGURE 7 THE LINKED BETWEEN DATA COLLECTION METHOD AND RESEARCH QUESTIONS ... 17
FIGURE 8 DATA ANALYSIS PROCESS ... 22
FIGURE 9 FMV HIERARCHAL STRUCTURE ... 36
FIGURE 10 FMV PERSPECTIVES ... 38
FIGURE 11 PUBLIC PROCUREMENT PERFORMANCE MODEL (PPPM) ... 62
FIGURE 12 PUBLIC PROCUREMENT PERFORMANCE MODEL (PPPM) ... 65
LIST OF TABLES
TABLE 1 LIST OF CONCEPTS AND SEARCH WORDS ... 18TABLE 2 SAMPLE GENERATION ... 18
TABLE 3 SCREENING PROCESS AND FINAL SAMPLE ... 19
TABLE 4 LIST OF INTERVIEWS ... 21
TABLE 5 LIST OF OBSERVATIONS ... 21
TABLE 6 DISTRIBUTION OF PUBLICATIONS OVER TIME ... 26
TABLE 7 DISTRIBUTION OF JOURNALS ... 27
TABLE 8 DISTRIBUTION OF DOCUMENT TYPE ... 28
TABLE 9 DISTRIBUTION OF PERFORMANCE DIMENSIONS OVER TIME ... 28
TABLE 10 CLASSIFICATION OF PUBLICATIONS WITH SUITABLE DIMENSIONS ... 29
TABLE 11 COST DIMENSION ... 30
TABLE 12 QUALITY DIMENSION ... 31
TABLE 13 TIME DIMENSION ... 32
TABLE 14 FLEXIBILITY DIMENSION ... 32
TABLE 15 INNOVATION DIMENSION ... 33
TABLE 16 SUSTAINABILITY DIMENSION ... 33
TABLE 17 RISK DIMENSION ... 34
TABLE 18 COMPLIANCE DIMENSION ... 35
1 Introduction
This chapter introduces the thesis concerning public procurement. Initially, the background to the purpose will be presented, which will consecutively lead to the problem formulation. This is followed by the purpose, which previous sections have set a foundation for. Finally, the chapter ends with a disposition of the thesis.
1.1 Background
New Public Management (NPM), as its known today, was introduced already in the 1980s, causing reforms and changes that echoed throughout public organizations across the world (Hood, 1991). According to Schedler, Lawrence and Mussari, (2004), was NPM combination of models and a wide range of practices including performance measurement, program evaluation, resource management methods and other techniques tested in the 20th century. The ambition of
NPM was to improve the overall performance of public organizations by focusing on professional management, performance methods, output controls, decentralization, competition, private-sector management and accountability (Hood, 1991; Fryer, Antony and Ogden, 2009). However, this thesis instigates in the modern public management reforms and strategies, addressing performance management and measurement in public organization (Schedler, Lawrence & Mussari, 2004). More precisely, this thesis is directed towards public procurement. In recent years, the role of public procurement gained interest among researchers due to its complexity, aiming to fulfill politic, economic and social objectives (Flynn and Davis, 2014; Murray, 2009; Thai, 2009). This implicates on covering a wider range of public services such law and order, health services, social services, education, defence, transport and environmental impacts (Thai, 2009; Albjörn and Freytag, 2012; Ùbeda, Alsua & Carrasco, 2015), all of which are subsidized by public money (Flynn and Davis, 2014; Arrowsmith, 2010b; Murray, 2009; Thai, 2009; Knight, Harland, Telgen, Thai, Callender & McHen, 2007).
In the last couple of years, the public sector has experienced extensive management and financial restructurings due to social and economic pressure at both national and global level in order to “do more with less” (Schapper, Veiga Malta & Gilbert, 2006). Budget constraints (Richart, 2015; Albjörn and Freytag, 2012), government downsizing, public demand for increased transparency, fairness and equity have forced public organizations improving their procurement efficiency, effectiveness and outcomes (Thai, 2009). Correspondingly, public organizations are facing a rapid development of emerging technologies, implying wider range of products and service, environmental concerns and increased complexity of trading agreements and regulations (Thai, 2009). As a result, public organizations have re-directed their aim from being primarily ad-hoc oriented to take on a more strategic role, improving the overall organizational performance (Poister, 2010; Richart, 2015). However, aligning the organizational strategic objectives with organizational and operational performance has been difficult (Poister, 2010; Hoque, 2008). The lack of reliable performance indicators covering public procurement has caused public organizations to explore performance indicators used in private organizations. Although the differences between sectors are well recognized in research (Knight et al., 2007), learning cross sectors can be of great value since they are becoming more and more alike (Albjörn and Freytag, 2012). Recent research conducted by Bemelmans, Voordijk & Vos, (2013); van Weele, (2014) and van Lith, Voordijik, Castano & Vos, (2015), have recognized performance indicators as essential enablers for the development of the procurement function in becoming more strategic. A study conducted by Rendon, (2015), reveals that public procurement in defence sector are reaching low level of maturity in their procurement function, primarily involving monitor and measuring performance.
Considering previous reasoning, it is of great interest to further explore public procurement and what performance indicators are currently being assessed. A case study has been conducted at a public procurement organization in Sweden that is currently looking over their performance indicators, aligning it to the overall organizational strategy.
1.2 Problem formulation
The current economic environment followed by political and social-economic pressure, such as limited budgets, creates both challenges and opportunities for procurement organizations in their transformation in becoming more strategic (Richart, 2015). To be able to meet the needs of all stakeholders involved in public procurement, and given the strategic role that public procurement nowadays plays, performance measures have become essential in order to determine and evaluate the overall performance of an organization (Caniato, Luzzini & Ronchi, 2014; Gunasekaran and Kobu, 2007). Previous research on procurement as a strategic function has been conducted in literature, addressing the complexity of public procurement (Flynn and Davis, 2014; Diggs and Roman, 2012; Murray, 2009; Thai, 2009), benchmarking of public procurement processes (Schapper et al, 2006; Rendon, 2015) and procurement processes maturity (Bemelmans et al., 2013 and van Lith et al., 2015). However, less extensive research addressing public procurement performance indicators and incorporated categorizations is documented. Furthermore, Rendon, (2015) argues that there is a need for measuring procurement process and outcomes, as well as the development of such indicators. This is in line with Murray (2009), who states that here has been a gap in public procurement performance. Thus, it is of interest to explore what performance indicators that exist in public procurement and how performance indicators can be categorized.
1.3 Purpose
It has been stated in the problem formulation that there has been limited research addressing public procurement performance indicators, specifically, the lack of incorporated alignments of such indicators. Consequently, there has been a challenge for public procurement organizations making strategic decisions for the organization. Therefore, it is important for public procurement organization to identify appropriate performance indicators that could demonstrate the direction of the organization, expose areas of improvements and support managers supervising the public procurement processes. Thus, the purpose of this thesis has been formulated as followed:
“The purpose is to explore what performance indicators that exist within public procurement in defence sector context and how such performance indicators can be categorized”.
To achieve this purpose, it has been broken down into two research questions. In order enable categorization of performance indicators within public procurement, performance indicators needs to be identified. Thus, the first research questions is formulated as followed:
1. What performance indicators can be identified within public procurement?
In order to be able to categorize performance indicators, it is essential to know what performance indicators there are. Thus, will the result from the first research question make it possible to categorize performance indicators within public procurement. Hence, the second research question is formulated as:
The purpose of the thesis is answered once the first and second research question is responded to, e.g. the combined result of the first and second research question contribute to answer the purpose of this thesis.
1.4 Disposition
The content of this thesis is divided into seven chapters, where each chapter describes its content more in-depth. The illustration of the following Figure 1 will clarify how each chapter is linked throughout the thesis.
Figure 1 Thesis disposition
Chapter 1: The introduction chapter presents the background of this thesis, followed by the
problem formulation regarding performance indicators within public procurement. These two section results in a purpose, which is broken down into two research questions. The chapter ends with a thesis disposition.
Chapter 2: The methodology chapter explains how the research for this thesis has been
conducted. Initially, the research process is described, followed by research approach, research design and research strategy. The middle section of this chapter presents how data have been collected and analyzed. The chapter ends with a discussion regarding the quality of this thesis.
Chapter 3: The frame of reference chapter address the main theories used in this thesis. This
chapter presents two theories, public procurement and performance management.
Chapter 4: This chapter presents the results of the conducted research literature review for this
thesis. At first, a descriptive analysis is presented which is then followed by a content analysis.
Chapter 5: The empirical data chapter presents the case company and the empirical findings of
this thesis. The findings include performance indicators and categories within public procurement.
Chapter 6: The result and analysis chapter present the result and analysis conducted in order to
answer the research questions. Initially, the result from the research literature review and the empirical study is presented. This is followed by a combined analysis of the research literature review and the empirical findings, resulting in a final sample of performance indicators. This chapter ends with categorization of performance indicators within public procurement. Thus, answering the second research question.
Chapter 7: The discussion chapter is divided into two discussion sections. The first addresses
discussion regarding the result of the thesis. The chapter ends with a limitation discussion.
Chapter 8: The final conclusion chapter is the last chapter presented in this thesis. This chapter
involves fulfillment of purpose, theoretical and practical contributions, followed by suggested further research.
2 Frame of reference
This chapter presents theoretical information regarding public procurement and performance management. Initially, a comprehensive description of public procurement will be presented. This is followed by a theoretical perspective on performance management.
2.1 Public procurement
Public procurement can be referred to a government’s activity of purchasing the goods and services needed to carry out its functions (Arrowsmith, 2010b). Furthermore, Prier and McCue, (2009) defines public procurement as:
“the designated legal authority to advise, plan, obtain, deliver, and evaluate a government´s expenditures on goods and services that are used to fulfill stated objectives, obligations, and activities in pursuant of desired policy
outcomes”
According to Arrowsmith, (2010b), the concept of public procurement can be described in three phases; (1) determining which goods or services are to be bought and when (procurement planning), (2) the process of placing a contract to acquire those goods or services which involves, in particular, choosing who is to be the contracting partner and the terms on which the goods or services are to be provided and (3) the process of administrating the contract to ensure effective performance. In order to illustrate the diversity of public procurement, Arrowsmith, (2010b) argues the transactions of procurement can be categorized in three types:
Goods - supplies or products, which can either be simple items such as office furniture, or very complex items such as missiles or tanks.
Works - primarily construction, involving building roads, railways, bridges, and government buildings.
Services - emphasizes on manual services such as maintenance of government buildings, cleaning of roads, professional services such as architects or engineers for construction, legal services or consultancy services.
2.1.1 Public procurement system
Public procurement system´s ability to achieve policies and objectives is influenced by the environment, simultaneously as it influences its environment (Arrowsmith, 2010b). As each country has its own culture, laws and regulations, economic and social conditions, the procurement system as such is therefore exclusive to that particular country (Thai, 2009). However, all procurement systems, independent in which country its located at, is somewhat exposed to environmental forces. The environment consists of five major forces; (1) market forces, (2) political forces, (3) legal forces, (4) social, economic and other forces, and (5) internal forces.
(1) Market forces
The market forces is primarily represented as market competition, which determines whether or not the objectives of the procurement are achieved regarding socio-economic objectives, if governmental entity can fulfill its needs in dimensions of timeliness, quality and cost of purchased goods, services and capital assets (Thai, 2001). Due to globalization, procurement has become more complicated and challenging concerning communication, currency exchange rates and payments, customs regulations, lead-time, foreign government regulations, trade agreements and transportation (Thai, 2001; Thai, 2009). Furthermore, Thai (2001) argues that procurement professionals are torn between free trade agreements and their countries´ economic
development/stabilization policies implying that the choice between selecting domestic or foreign firms becomes difficult.
(2) Political forces
The political forces can be described by the concept of the iron triangle, which is very popular in the area of defence procurement (Thai, 2001). The iron triangle is a coalition of three cornerstones; interests groups, bureaucrats and legislative body, all of which creates a triangle of relationship, influencing one another (Thai, 2001). The interest groups can represent a group of individuals and organizations in the private sector, trade associations, professional associations and business firms or companies within a democracy (Thai, 2001). These interest groups are influencing the procurement system in several ways such as lobbying legislative bodies to authorize or change procurement acts, influence budget authorization and appropriations processes (Thai, 2001). Usually, a government program is a compromise among different interest groups, policy makers and management (Thai, 2001). Following the procurement program authorization and appropriations stages, the iron triangle immediately shifts (Thai, 2001). According to Thai (2001), public procurement professionals are having trouble making “right” decisions as they are confronted by political pressure, subsequently assuring value for money. An example, provided by Thai (2001) concerns whether or not a procurement professional should maintain future business competition by keeping weak companies in business or let these go out of business and leave a few specialized firms to compete for contracts?
(3) Legal forces
In opposition to public procurement rules and regulations, the legal forces refers to a broad legal framework that governs all business activities (Thai, 2001). According to Thai (2001) these activities, primarily includes research and development (regulations addressing the safety and health of new products), manufacturing (emphasizing with safety and health regulations at workplace and pollution control), marketing (regulations stressing the deception of advertising, disclosure or product characteristics), personnel (regulations addressing the equal opportunity for women and minorities), and contracts (stresses both private and public contract requirements, disputes and contract violation, which are governed under the same contract law).
(4) Social, economic and other forces
The social forces are primarily represented by free media, civil societies, engaged local communities and independent citizens, all of which are key components for good governance. Additionally, these social forces support the governance, intentionally or not, by holding procurement officials accountable for transparency, fairness and efficiency, enabling participation, oversight and proactive engagement (Thai, 2009). This could include creating concrete opportunities for participation and oversight thorough participatory development of procurement regulations and policies, procurement budget allocations, monitoring income and asset declarations, enable the development of independent and competitive media that can investigate and report on procurement process and corruption (Thai, 2009). Other forces that influence the procurement system are culture and technology (Thai, 2001). Within certain cultures, a gift is a common public relation practice, however, distinguishing a gift from a bribe is difficult and thereby challenging for procurement practitioners (Thai, 2001). Furthermore, due to the rapid development of new technology such as e-signature and procure information technology, public procurement has been forced to adopt new methods aligning such change (Thai, 2001).
(5) Internal forces
The public procurement system’s, ability achieving procurement policies or goals is highly influenced by the internal forces (Thai, 2001). According to Thai (2001), these internal forces can be descried as followed:
• The interaction between elements of the public procurement systems, various officials and organizations in the three branches of government (executive, legislative and judiciary), actors and sub-agencies within a department or executive agency and actors and organizations external to sub-agencies
• Type of goods, services and capital assets required for an agency´s missions • Professionalism or quality of procurement and procurement-related workforce
Figure 2 Five forces of the procurement system
2.1.2 Public procurement objectives
There are numerous of objectives within in Public procurement and even though objectives may differ, it is essential to understand these objective and how they interact with one another (Arrowsmith, 2010b). Arrowsmith, (2010b) has identified eight key objectives, all of which is briefly described below.
Value for money (VfM): Value for money is commonly defined by the concepts of economy, efficiency and effectiveness (Erridge and Nondi, 1994). Furthermore, Arrowsmith (2010a) and Arrowsmith (2010b) adds that "value for money" is the efficiency in acquisition of required goods, works or services by ensuring that the goods, works or services are suitable e.g. meet requirements for the task in question and that they are not over specified. In addition, "value for money" concludes an arrangement to secure what is needed on the best possible term as well as ensure that the contracting partner can delivery what was agreed.
Integrity: Integrity emphasizes on the idea that public procurement organizations is expected to carry out procurement without any influence of corruption such as bribes (Arrowsmith, 2010b), and to avoid improper, wasteful or fraudulent practices (Knight et al., 2007).
Accountability: “Accountability encompasses the idea of conducting public procurement in a manner that can be traced and defended, is transparent and consistent, satisfies and manages stakeholders’ expectations, is fair and equitable, and follows ethical norms set within
organizational and societal contexts in order to maximize the benefit obtained from spending public funds" Diggs and Roman, (2012).
Equality: Equality refers to equal treatment for those participating in the procurement system and have two roles; (1) serve to achieve other objectives of the procurement system such as value for
money, prevent corruption or open up markets for competition securing the best possible offer, and (2) serve as an objective of the procurement process in its own right (Arrowsmith, 2010b).
Fairness: Fairness refers to fair treatment of suppliers and emphasizes on procedural fairness (e.g. "due process") according to which suppliers have a right to have their case heard before a decision that may adversely affect them such as excluding them from a possible contract (Arrowsmith, 2010b).
Horizontal policies: Horizontal policies refer to efficient implementation of industrial, social and environmental policies in procurement (Arrowsmith, 2010b). Furthermore, these policies could include improving access to procurement for SME´s by providing training on public procurement procedures or better information, resulting in a wider participation by additional firms leading to improved quality tenders, hence enhancing value for money (Arrowsmith, 2010b).
Opening up public markets: Opening up public markets emphasizes on international trade and the fact that governments have deliberately favored domestic industry in awarding contracts (Arrowsmith, 2010b). Public procurement organizations are achieving their objectives through the development of trade rules. These trade rules includes; (1) prohibiting discrimination against the suppliers, goods and services of other countries, (2) requiring the adoption of transparent procedures for awarding procurement contracts, (3) standardization of procedures for awarding public procurement contracts and (4) addressing corruption.
Efficiency in the procurement process: Efficiency in the procurement process refers to how the procurement process itself should carried out without unnecessary or disproportionate delay or waste of resources and unreasonable costs for suppliers (Arrowsmith, 2010b).
According to Arrowsmith, (2010b), "both the objective of value for money in acquiring the goods, works or services and the objective of equal treatment (in the sense of equal access to the opportunities of government business) might suggest that contracts should generally be awarded by open tender in which any qualified firm may participate; but the costs of submitting and evaluating a large number of tenders may be considered to be disproportionate to any benefits to these objectives, with the result that a selective tendering procedure (limited to invited firms only) is considered more appropriate".
2.1.3 Procurement process
The public procurement process as such, is comparable to the private purchasing process due to common routines and similar steps (Knight et al, 2007; Murray, 2009). However, despite the similarities, this sub-section will briefly cover both public and private procurement process in order to provide readers with sufficient information and to expose the complexity of public procurement processes.
2.1.3.1 Purchasing process
The purchasing function traditionally encompasses the process of buying and is considered as an operational activity (van Weele, 2014). Further more, Van Weele, (2014) defines purchasing as: “ The management of the company´s external resources in such as way that the supply of all goods, service, capabilities and knowledge which is necessary for running, maintaining and managing the company´s primary and support activities is secured at the most favorable conditions”.
In the purchasing process, in which activities occur, van Weele, (2014) emphasizes on six distinct phases; (1) determining specification, (2) selecting supplier, (3) contracting, (4) ordering, (5) expediting and evaluation and (6) follow-up and evaluation. However, before the purchasing process begins, the process is initiated with a need or a problem that needs to be solved or fulfilled (Knight et al, 2007).
(1) Determining specifications
This phase emphasizes on specifying the need of a good or a service, by determine the functionality. However, before determining specifications, the organization is confronted with a make or buy decision. This decision concerns the organization ability to determine if the product/service or parts of it can be produce or developed in-house or if they should be contracted out. Furthermore, this decision is also supported by the specification, which includes both functional and technical specifications, which can be referred to as the purchase order specification. The purchase order specification contains a set of documents that encompasses quality specifications, logistics specifications, legal and environmental specifications and a target budget.
(2) Supplier selection
Once the purchasing requirements have been defined and transformed into functional or technological specifications, a supply market exploration is performed (van Weele, 2014). According to Knight et al., (2007), this phase is normally occurs correspondingly with the specifications. The supplier selection phases include four sub-phases; (1) method for sub-contracting, (2) preliminary qualifications of suppliers and drawing up the “bidders” list, (3) preparations for the request for quotations and analysis of the bids received and (4) selection of supplier. Where the last step is the most important involving tender and “bidder long list”, which becomes “bidders short list”.
(3) Contracting
This phases emphasizes on the contract and potential negotiations of terms and conditions such as price, delivery terms (incoterms), terms of payment, penalty clauses and warranties. However the purchasing agreement naturally depends on the product, project or service that is to be purchased (van Weele, 2014).
(4) Ordering
The ordering phase includes establishing the routine in which the order should be placed, usually electronically. Furthermore, order routines needs to be developed, as well as the order handling process, which is determine in earlier phases but executed in this phases (van Weele, 2014). (5) Expediting and evaluation
The expediting phase emphasizes on whether or not the supplier live up what was agreed upon. There are approaches to expediting, all of which stresses in what stage the purchasing organization prevents errors form occurring. “Exception expediting”, awaits the feedback from customer regarding delivery delays and than takes immediate action. A “Routine statues check” is where the purchasing organization contact the supplier a few days post delivery with a request to confirm delivery date, preventing unexpected surprises. The “advanced statues check” is primarily used for critical purchased parts and critical suppliers. This stages involves continuous progress check and on-site visits e.g. “field expediting”.
(6) Follow-up and evaluation
This phase emphasizes on the buyer’s role post the customer delivery such as warranty claims, penalty clauses and administrative work, involving archiving. In addition, vendor rating is also included in this phase since it adds value to both the purchasing organization as well as the
supplier in terms of re-selection of supplier. Vendor rating can involve documenting experiences of the supplier such as supplier´s quality and delivery record, competitiveness and innovation
Figure 3 Purchasing process
2.1.3.1 Public procurement process
As seen in Figure 3 above, Skoglund, (2012) has pointed out the processes and limitations included in public procurement based on van Weele. However, in comparison to van Weele´s, (2014) description of the procurement process, the Swedish Competition Authority, (2016) has divided the public procurement process in in three phases; preparation phase, execution phase and the contract management phase. Based on the Swedish Competition Authority, (2016), the phases can be summarized as followed:
Preparation phase:
Demand and need analysis: The purpose of this step is to identify what is needed and when it is needed. This step includes early involvement of the customer, identify the need for the entire authority and analyze previous contracts, consider environmental and social aspects in the specification and the total value of what is needed since the threshold value determines the tendering process.
Supply market research and analysis: The purpose of this step is to acquire sufficient knowledge regarding market availability (e.g. what the market has to offer) and what suppliers exist on the market. However, equality and treatment among supplier are essential and it is therefore important not to provide any information that could result in advantages for a particular supplier. A market analysis should answer the following questions. (1) What does the market offer with regard to the need intended to procure? (2) What suppliers exist on the market? (3) Is the specifications reasonable? (4) Can the supplier meet the specifications? (5) Is it price or quality that creates the competition on the market? (6) What is the threshold value of the need?
Strategy development: This step is the finally step in the preparation phase which summarizes the previous two steps, resulting in a strategy. In addition, this step includes the choosing of procurement procedure and as well as what law to apply (LOU1 and LUFS). In addition,
determining if the value is above or beneath the threshold value needs also to be considered. Below the threshold value, simplified, selection, direct award and competitive dialogue procedure are the alternatives.
1 LOU is an abbreviation for Swedish Public Procurement Act (2007:1091) whereas LUFS is an
abbreviation for Defence and Security Procurement Act (2001:1091) all of which are derived form the EU-‐ directives and basic principles of Union Law
Whereas above the threshold values, open procedure, restricted, negotiated and competitive dialogues are the alternative procedures. Furthermore, construction of specification and preparations for the tendering process are also handled. To ensure that all that’s is needed is included, the following questions needs to be answered, (1) Does LOU comply with the procurement procedure? (2) Is there a framework agreement that complies with the actually need? (3) Is the procurement within the budget? Has the specification been constructed in such a way that it encourages innovation?
Execution phase:
Tendering and supplier selection: The preparation phase should have provided sufficient information concerning the product or service intended to procure enabling the tendering process. The tendering processes which is also known as the solicitation process, primarily involves the execution of already decide things in the previous phase. This phase includes; request for tender, evaluate tender, qualifications of supplier, supplier selection and awarding contract.
Contracting: The final step is to sign the contract and contract closeout.
Contract management phase:
Expediting and evaluation: This step emphasizes on contract briefing, regulate the co-operation, assure a point-of-contact and develop routines.
Follow-up and evaluation: This step address whether or not the supplier actually live up to what was agreed upon. It involves monitoring the performance of the supplier such as on-time deliveries, the right quality and quantity of delivered goods or services and that price taken by the supplier is actually according to the contract. Lastly, an evaluation of the whole procurement process is conducted, in order to utilizes “lessons learned” and improve the process when receiving a new procurement assignment.
Figure 4 Public procurement process
2.2 Performance management
The strategic approach on performance management encompasses strategic frameworks, performance indicators, methodologies and processes, all of which enable employees to gain significant insights of the overall organizational performance (Poister, 2010). According to Poister, (2010), performance management can be defined as:
“the process of setting goals for an organization and managing effectively to achieve those goals and eventually bring about the desired outcomes. In that sense, strategic management can be viewed as a performance management at a strategic level”. (Poister, 2010. pg 251)
In the following sections, performance measures will be presented and also a method on how decision-levels can be used to categorize performance measures.
2.2.1 Performance measures
Performance measures (PMs) are used to determine the efficiency and effectiveness of an action (Gunasekaran and Kobu, 2007) and as Kaplan (1990) states: “No measure, no improvement”. In order to completely understand PMs and metrics, one has to clarify and define the difference between a measure and a metric. According to Coyle, Langley, Novack and Gibson, (2012), a measure can be defined as a simple quantitative reading such as an output originated from an activity or process involving no calculations whereas a metric on the other hand, involves calculations or combinations of measurements, often a ration. Nevertheless, Gunasekaran and Kobu (2007), states that performance measures and metrics are not solely measuring performances since they are embedded in within politics, emotions and behavioral matters. Performance measures enable a more open and transparent communication between people, which enhances co-operative supported work. Hence, improving organizational performance (Gunasekaran and Kobu, (2007). The purpose of measuring organizational performance can be summarized to six principles (Gunasekaran and Kobu, (2007); (1) identify success; (2) identify whether customer needs are met; (3) help the organization to recognize its processes and distinguish what they know or what they do not know; (4) identify areas where difficulties, bottlenecks and wastes are located as well as areas of improvement; (5) ensure that decisions are based on facts, not assumptions, emotions, faith or intuition and (6) expose if planned improvements actually were executed.
2.2.2 Performance levels
Gunasekaran et al., (2001) states that performance measures that are used in all organizations influence decisions in different levels. According to Gunasekaran et al., (2001), there are three decision levels that performance indicators can be categorized into; (1) strategic, (2) tactical and (3) operational. The strategic category emphasizes typically on performance indicators reflected by top management decisions regarding financials (Gunasekaran et al., 2001; Gunasekaran and Kobu, 2007), organizational goals and objectives (Neely et al., 1995; Meybodi, 2013; Caniato et al., 2014, development core competencies, understanding external environmental factors such as the state of competition, technology and globalization (Meybodi, 2013; Nair, Jayaram and Das, 2015). The tactical category address performance indicators influence by middle management (Gunaserakran and Kobu, 2007) allowing the strategic ones to be achieved (Neely, Gregory and Platts, 1995). The tactical performance indicators concerning indicators that are appropriate in both the strategic category, as well as in the operational category. This primarily involves planning of the day-to-day operations as well as specific and technical perspectives regarding cost, quality, cycle time and delivery (Gunasekaran, 2001; Meybodi, 2013). The operational category focuses on the day-to-day operations that can be monitored and measured such as productivity of employees, lead-times and inventory (Gunasekaran et al., 2001; Caniato et al., 2014). The choice of which category a performance indicator (e.g. strategic, tactical and operational) should be aligned to is determined by which category is considered to be the most appropriate (Gunasekaran et al., 2001; Gunasekaran and Kobu, 2007).
3 Methodology
This chapter presents research methodology and methods used to achieve the purpose of the thesis. Initially, a brief introduction will be given regarding the work process, as well as the linkage between research questions and methods. This is followed by research approach, research design, research strategy, collection and data analysis. The chapter ends with a discussion regarding research quality.
3.1 Research process
The research process, in which this thesis has followed can be divided into seven steps, see in
Figure 5. The research process was initiated by a company visit where “surprising facts” from
observations concerning performance indicators in public procurement were identified. Following this, a brief literature review within public procurement was conducted where a gap was identified. Thus, justifying what was observed during the company visit actually was of interest. Based on the company visit and the brief literature review, a problem formulation and research questions were formulated. In order to answer the research questions and fulfill the purpose, a research strategy was chosen by the author.
Figure 5 Research process
For this thesis, a case study was considered to be an appropriate research strategy for the empirical study, providing a more in-depth understanding of a phenomenon. Correspondingly to the case study, a research literature review was conducted in order to gain knowledge and to explore the phenomenon that has previously been observed. The data collection techniques used in the empirical study includes semi-structured interviews, observations and documentary. When relevant data had been obtained from both the empirical study and the research literature review, two separate data compilation were conducted. Based on the data analysis, the research questions were abled to be answered. Thus, fulfilling the purpose of the thesis.
3.2 Research approach
Conducting research will involve the use of theory, whether it is used in the design of the research may not be clear, however, during the presentation of the findings and conclusion it tends to be more obvious (Saunders, Lewis and Thornhill, 2012). The extent to which the author is well aware of theory in a research can be exposed based upon the reasoning in which the study adopts. According to Saunders et al., (2012), there are three research approaches: inductive, deductive and abductive.
The research approach, which underpins this thesis, is primarily an abductive approach which is a combination of an inductive and deductive approach. The process of which this thesis have been exercising an abductive research approach is in line with Saunders et al., (2012) and Patel and Davidson, 2011), and can be described in three major steps; (1) ideas were formulated where “surprising facts” was discovered through observations (inductive), (2) based on that, a theoretical framework was developed through a extensive research literature review (deductive),
correspondingly as a case study was conducted (inductive) and (3) the final conclusions were developed combining the result of both approaches (abductive). Hence, it cannot be stated that this thesis is entirely inductive. An illustration justifying the selected research approach can be seen in Figure 6.
Figure 6 Research approach
3.3 Research design
The research design refers to the general plan how researchers intend answering their research questions in order to fulfill their purpose (Saunders et al., 2012). This includes selecting the methodological choice of a research design, as well as deciding the nature of the research design (Saunders et al., 2012). The methodological choice of a research, includes selecting a quantitative, qualitative or multiple methods research design (Saunders et al., 2012). Whereas the nature of a research design concerns the way in which you intend to ask your research questions, which either is of exploratory, descriptive or explanatory character (Saunders et al., 2012).
As this thesis has applied more than one qualitative data collection technique with associated data analysis procedures, the methodological choice of this thesis is what Saunders et al., (2012) refers to as a multimethod qualitative study. Furthermore, this methodological choice is according to Saunders et al., (2012) preferable since it allows researchers to conduct a more comprehensive data collection, analysis and interpretation. Lastly, due to the fact that that the collection of data are derived from interviews, observations and a research literature review, and the findings and result will not be presented in numbers, this thesis is according to Wilson, (2010) and Saunders et al., (2012) characterized as a qualitative.
The nature of this thesis can, according to Saunders et al., (2012) and Yin, (2014), be seen as exploratory since the purpose of this thesis is to explore, which allows the author to gain insight about the research topic and discover what is happening. In addition, by conducting an exploratory research, the possibility of being flexible and adaptable to change enables the author to answer the research questions, thus fulfilling the purpose of this thesis.
3.4 Research strategy
A research strategy emphasizes on the overall plan on how you intend to encounter your research questions, e.g. where to retrieve data, how to collect and analysis data, as well as ethical issues and constraints that might arise performing a research (Saunders et al., 2012). Furthermore, the choice of research strategy is essential achieving coherence throughout the entire research (Saunders et al., 2012). Therefore, this section presents the research strategies of this thesis. Initially, a systematic literature review is presented which is followed by the case study.
3.4.1 Research literature review
For this thesis, a research literature review has been conducted in order to describe existing knowledge, justify the need for new research, explain research findings and quality of available research, all of which are in line with Fink, (2010). Du to the fact that the body of public procurement is well covered in literature, this strategy will enable possible answers to the research questions in this thesis, thus fulfilling the purpose and contributing to already existing literature. In addition, the definition provided by Fink, (2010) aligns with the author´s perception and aim for a research literature review. Thus, the definition of a research literature review is:
“ A systematic, explicit, and reproducible method for identifying, evaluating and synthesizing the existing body of completed and recorded work produced by researches, scholars, and practitioners.”
There are several ways of conducting a research literature review, which derive from authors such as Esterby-Smith, Thorpe and Jackson, (2015), Savin-Baden & Major, (2013) or Fink, (2010). However, this thesis undertakes the seven steps by Fink, (2010). These steps can be briefly described as followed: (1) selecting a research questions, (2) selecting bibliographic or article database, (3) choosing search terms, (4) Applying practical screening criteria, (5) applying methodological screening criteria, (6) doing the review and (7) synthesizing the results. How these steps have been applied to this thesis will be more in detail described and illustrated in
chapter 3.5.1.
The conducted research literature review contributed to several areas within this thesis. Initially, the research literature review contributed to justify the research gap acquired through observations (e.g. the purpose of the thesis) resulting in refining the research questions, which is line with Flink, (2010). Secondly, the research literature review provided a more in-depth knowledge within the topic of this thesis. Lastly, the research literature review was a research strategy within this thesis in order to obtain acceptable knowledge within the body of public procurement, which was used to answer the research questions, thus fulfilling the purpose of this thesis.
3.4.2 Case study
In this thesis, a case study has been conducted in order to collect empirical data. The reasons for choosing a case study as a strategy for this thesis have been many. First, conducting a case study enables answers for research questions built on what and how (Saunders et al., 2012). As this thesis is built on such research questions, Saunders et al., (2102) and Yin, (2014) states a case study is considered be the most appropriate strategy. Since this thesis of exploratory character, conducting a case study allowed the author to explore the research topic (public procurement) and the phenomenon (performance indicators) in real-life context, which is in line with Saunders et al., (2012) and Merriam, (2009). In addition, a case study allowed the author to gain richer understanding of a particular phenomenon (performance indicators in public procurement), which is strengthened by Saunders et al., (2012) and Merriam, (2009) who both argue that for such purposes, a case study is considered the appropriate choice. Saunders et al., (2012) also states that conducting a case study allows researchers to be flexible since the initial boundary set might not be the appropriate one. Therefore, a case study allowed the author to be flexible depending on what information was retrieved and based on that provide high-quality answers to research questions, thus fulfilling the purpose of the research.
In order to gain more in-depth data about a particular phenomenon, rather than a wider range of data, exercising multiple cases, a single case study was selected. The case company, situated in Stockholm, Sweden, was chosen due to the author´s interest of the industry, and the fact the company specializes in public procurement, procuring goods and services for inter alia Swedish Armed Forces (FM).
3.5 Data collection
This section presents the procedure in which data were collected for this thesis. Initially, the linked of how the data collection methods have been applied to answer the research questions are illustrated. This is followed by a more in-depth description on how data were collected with support from a research literature review. Finally, this section ends with a case study description on how data were collected through interviews, observations and documentation.
The linked in which data collection methods have been applied to answer the research questions can be illustrated in Figure 7 below.
Figure 7 The linked between data collection method and research questions
3.5.1 Research literature review
The database used to retrieve data for this thesis was ABI/INFORM Global, which is also known as ABI (ProQuest). The choice of this particular database was based two statements; (1) the fact that this database is considered to be a bibliographical database, covering a broad range of context (Esterby-Smith et al., (2015) and (2) the university library argued that this database was considered to be suitable since it involves significant scholarly journals addressing the topic of this thesis. The first step of the research literature review was to summarize search terms (e.g. key words) and concepts that frame the research questions. Since search terms and concepts were discovered through observations, no exploratory “pre-search” was needed to justify several searches in order to gain initial understanding of the research topic. The list of concepts with belongings search terms is illustrated in Table 1.
Table 1 List of concepts and search words
The second step was to generate a large enough sample that includes a manageable number of appropriate publications. As seen in Table 2, this sample generation was conducted by entering search terms and Boolean operators in the database, as suggested by Esterby-Smith et al., (2015) and Fink, (2010). The search was conducted in four separate rounds; (1) initially, a single search covering only the procurement concepts was conducted which generated 174 960 hits, (2) the second single search covering the performance measurement concept, generated 3 423 436 hits, (3) the combined search, which included both previous searches, targeted the purpose of the thesis and generated 86 326 hits, and (4) the combined search with added delimitations such as language, and by the author chosen journals generated 7843 hits. The last search round (4), was considered to include a large enough sample for a research literature review while still being manageable. A more comprehensive and detailed information, concerning the distribution of publications in the final round search, can be found in Appendix 1.
Table 2 Sample generation
Even though the initial sample, derived from the sample generation, is recognized as manageable, the sample needs further screening. The additional screening allowed the sample to be reduced by eliminating publications that did not match the purpose of this thesis, as well as justify a
well-constructed analysis. Consequently, the screening process is divided into three steps: (1) Title review emphasizes on the titles of all research in the initial sample. Articles that did not align with the purpose were eliminated. Thus, 7 438 articles were eliminated, leaving 405 hits to be further analyzed. (2) Abstract review stresses the abstract of the 405 articles, allowing further analysis of each article, which resulted in 286 eliminations, leaving 119 articles. (3) Article review was the final screening step, emphasizing on a more in-depth analysis, incorporating sections such as result, conclusions, implications and figures. The result of this step generated a final sample of 46 articles, which sets the foundation of this research, hence provides information that allows the first and second research question to be answered. The screening process can be seen in Table 3.
Table 3 Screening process and final sample
The screening process has been conducted by the author, and since appropriate journals was set as a delimitations in the sample generation, the inclusion criteria for the screening process could be more specific. This allowed the screening process to be more efficient and credible, despite the relative large sample. The screening process was based on the following inclusion criteria:
1. Publications focusing on procurement indicators or measures 2. Publications focusing on purchasing indicators or measures
3. Publications focusing on public procurement indicators or measures 4. Publications addressing public procurement objectives
5. Publications addressing performance dimensions 6. Publications examining strategic procurement
In addition to the final sample, nine other publications have been added. These publications were obtained through other databases such as SciencDirect, Taylor & Francis, Cengage Learning and from two webpages; NIGP2,CIPS3 and OECD4. Publications that were obtained from
SciencDirect consist of three journals whereas publications obtained from Taylor & Francis consists of one journal and two books. Cengage Learing contributed with one book and lastly, two webpages were used as a source of information. All nine publications were considered important as they all contained complementary information which provided the author more in-depth information of the research topic.
3.5.2 Interviews
Interviews are considered primary data since it allows researches to collect qualitative information for a specific study (Saunder et al., (2012). There are several techniques of conducting interviews and in this thesis semi-structured interviews have been conducted since that technique is favorable for both an exploratory and explanatory study (Saunders et al., 2012). All interview conducted were face-to-face interviews. However, one interview was conducted in a group of three (author included), which is according to Sunders et al., (2012) referred to as a “group
2 The Institute for Public Procurement
3 Chartered Institute of Procurement & Supply
interview”. Despite the difficulties addressed in Saunders et al., (2012) of conducting a “group interview”, the conducted group interview contributed to richer discussion among the respondents which resulted in more in-depth explanations and allowed the author to further explore new concepts within the topic within this thesis, which according to Saunders et al., (2012) are seen as advantages of conducting a group interview. All interview were conducted in Swedish, which allowed a more qualitative discussion since people tend to have a difficult time express them selves in a foreign language. In addition, by conducting the interview in Swedish, potential misunderstandings were prevented. However, additional work had to be done to translate and transcribe the information obtained. During all interviews conducted notes were taking by the author. These notes was then compressed into shorter summaries, which according to Saunders et al., (2012) is referred to as “transcript summaries”. Furthermore, these “transcript summaries” were performed shortly after each interviews while the information was still up to date and “fresh in mind”, in order to reduce the possibility of information loss (Saunders et al., 2012).
The author had a set of key questions in order to explore the research topic and the research questions. According to Saunder et al., (2012), these key questions can be referred as “open questions”, encouraging more in-depth answers. Furthermore, the author used “probing questions”, which according to Saunders et al., (2012), allows the researcher to follow up on pointers to further explore responses that were of significance for the research questions. The “key questions” used in all interviews can be seen in Appendix 2. The list of interviews can be seen in Table 4.
Table 4 List of interviews
The respondents of the conducted interviews are scattered across the different divisions in the organization. The selection of these respondents was based on observations performed by the author and in consultation with assigned supervisor at FMV. Furthermore, the chosen respondents were considered experienced within the topic of this thesis and therefore the possibility of retrieving qualitative and valuable information was considered high which is in line with Saunders et al., (2012).
The collected were personal opinions on performance measures within public procurement, definitions of such measures and how the procurement process is currently functioning. In addition to the interviews, conversations with category leaders, purchasing coordinators and strategic buyers have been iterative procedures throughout the thesis ensuring that the information retrieved has not been misunderstood.
3.5.3 Observations
Observations within research are considered primary data since the information is retrieved directly at site, without any interference of the data intended to collect (Saunders et al., (2012). Yin, (2010) describes an observation as followed, “an invaluable way of collecting data because what you see with your own eyes and perceive with your own sense is not filtered by what others might have self-reported to you”. Moreover, observations can be performed in various ways and for this study observer-as-participant has been conducted. Observations have been performed in order to create a holistic view of public procurement, procurement process and how performance measures are applied within a public organization. In addition, the conducted observations resulted in opportunities for complementary questions and explanations from respondents for in-depth understanding of public procurement, processes and performance measures. Lastly, the observations exposed which potential employees that are were significant for interviews conducted in this thesis. The list of observations can be seen in Table 5.
Table 5 List of observations
3.5.4 Documentary
Documents acquired from a case study are considered as secondary data since such documents have been constructed and affected by someone else with another purpose (Saunders et al (2012). According to Saunders et al., (2012) secondary data are primarily used both in a descriptive and explanatory research associated to business and management research. Furthermore, documentary can either be collected through text materials, which includes shareholder reports, email conversations, or any documentation, provide by the case company or non-text materials which mainly include video recordings, pictures, drawings and webpages (Saunders et al., 2012). For this thesis, documentation has primarily been collected through statically reports, annual reports, PowerPoint presentations, PDF-files, internal webpage and previous strategy work conducted by employees. The documentation that has been shared primarily consists of information regarding public procurement in defense sector, organizational structure, supply flow, ERP-system functions, procurement processes and performance measures for the organization. The information retrieved have been studied and then analyzed in order to complement and support information gathered from interviews and observations.
3.6 Data analysis
This section describes the process of which information has been analyzed in this thesis. Initially, the analysis process of the research literature review will be presented, followed by a description of the analysis of on the case study. Lastly, a discussion how quality has been considered for this thesis is presented.
3.6.1 Data analysis process
The process of how to conduct a data analysis may vary depending on research. Nevertheless, the aim of the data analysis is to interpret data and draw meaning from it (Saunders et al., 2012). In order to answer the research questions presented in this thesis as well as formulate conclusions, a data analysis is a necessity. In this thesis, two types of data were analyzed separately and simultaneously. While the research literature review was analyzed, summarized and visualized, the empirical data where following the same procedures as the literature review. According to Merriam, (2009) this procedure is a way of acquiring more reliable data. The author intended to use the analysis to explore key themes and create a conceptual framework (Saunders et al., 2012). The process in which data have been analyzed within this thesis can be illustrated in Figure 8.
Figure 8 Data analysis process
