Through this measure, the necessary attention is paid to the reduction of purchase costs. In assessing the performance of the purchasing and supply function, cost changes and cost avoidance are used. The cost change represents either a decrease or an increase in the purchase cost as a result of a change in the purchasing practice. On the other hand, cost avoidance refers to that extra cost that an entity fails to pay after making a certain effort or action. The cost measure is important as it shows that there is a purchasing efficiency and the available powers that an organization can use to avoid some costs.These measures show the behavior of the entity’s revenues as a result of purchasing and supply strategies as well as actions. Such revenues are earned from the royalty agreements that have been negotiated with suppliers. The revenue measurement is important as it links the purchasing and supply strategies to the revenue items of economic value-add (Kshitij Global Education, 2014).According to Murray (2015), increased quality is a measurement approach that is manifested through wastage reduction or reduction of production resources. This can be established in parts per million, which expresses a maximum number of defects level that is allowable for any particular product. It can also be established from a customer defects per supplier and is the measure of a certain number of defects from individual suppliers. This measure is important as it assists in supplier evaluation and also in the establishment of some possible failures.Through this measure, the purchasing and supply department assesses the degree and ability of suppliers to meet its scheduled requirements. This involves the assessment of the due dates either promised or scheduled, acceptable early or late arrivals, and the delivery windows. An introduction of a new product and the ability of the purchasing and supply chain management and suppliers’ ability to meet the necessary available volume goals is another measure of responsiveness. This metric is important as it assists in evaluating the reliability of suppliers in meeting some demands. In addition, it indicates their ability to respond timely to schedule changes, design or mix changes.The performance of purchasing and supply chain is evaluated based on the contractual agreements whereby, suppliers are
Kshitij Global Education. (2014). Price Performance Measures. Retrieved April 16, 2015, from Kshitij Global Education Private Limited: http://kshitij-help.com/Knowledge-Base/Supply-chain-management/Performance-measurement-and-evaluation/Price-performance-measures.aspx
Monczka, R., Handfield, R., Giunipero, L., & Patterson, J. (2015). Purchasing and Supply Chain Management. Boston, Massachusetts: Cengage Learning.
Murray, M. (2015). Purchasing Performance. Retrieved April 17, 2015, from http://logistics.about.com/od/strategicsupplychain/a/measure_purchasing.htm
Williams, A. J. (2000). Purchasing Efficiency vs Effectiveness: Millennial Thoughts and Strategic Implications. 85th Annual International Conference Proceedings - 2000. Hattiesburg: University of Southern Mississippi.
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