TOOL FOR MONITORING PROCUREMENT

PROCESS FOR PERFORMANCE

MEASUREMENT

RAJA MOHD KAMAL BIN RAJA ZULKIFLI

UNIVERSITI TEKNOLOGI MALAYSIA

PSZ 19:16 (Pind. 1/07)

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Title

: Tool for Monitoring Procurement Process for Performance Measurement

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VALIDATION OF E-THESIS PREPARATION

Title of the thesis

: Tool for Monitoring Procurement Process for

Performance Measurement

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: Master of Science (Engineering Business Management)

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: UTM Razak School of Engineering and Advanced

Technology

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: 2014

I, RAJA MOHD KAMAL BIN RAJA ZULKIFLI declare and verify that the copy of
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TOOL FOR MONITORING PROCUREMENT PROCESS FOR PERFORMANCE

MEASUREMENT

RAJA MOHD KAMAL BIN RAJA ZULKIFLI

A project report submitted in partial fulfilment of the

requirements for the award of the degree of
Master of Science (Engineering Business Management)

UTM Razak School of Engineering and Advanced Technology

Universiti Teknologi Malaysia

JANUARY 2014

ii

DECLARATION

I declare that this thesis entitled Tool for Monitoring Procurement Process for
Performance Measurement is the result of my own research except as cited in the
references. The thesis has not been accepted for any degree and is not concurrently
submitted in candidature of any other degree.

Signature

Name

RAJA MOHD KAMAL BIN RAJA

ZULKIFLI
15th JANUARY, 2014

Date

iii

To my parents, Raja Zulkifli bin Raja Abdul Mulok and Raja Ramlah binti Raja
Hamzah, who gave me good values and their prayers for my success in family,
career and education.
To my lovely wife, Anidah binti Kamaludin, who is always patient with challenges
I faced during my studies.
To my children, Raja Muhd Faiz, Raja Muhammad Luqman Hakim, Raja
Muhammad Aniq Sufyan, Raja Muhammad Umar AbQori and Raja Nur AsSyura;
they are all my aspiration to be successful in my education which I hope will
encourage them to be more successful than me in the future.

iv

ACKNOWLEDGEMENTS

I would like to thank Professor Madya Dr. Robiah binti Ahmad (Main
Supervisor) and Dr. Noor Fawazi bin Md Noor Rudin (Co-Supervisor) on their
assistance, guidance and insightful comments on my Master of Science (Engineering
Business Management) thesis. Dr Robiah and Dr. Noor Fawazi have provided
encouragement, guidance and support to me from the initial to the final stage of the
Master degree dissertations. The guidance from both of them has helped me
understand the work structure, how to write, and analyse the data and then prepare
the dissertation to fulfil Universiti Teknologi Malaysia master degree requirement.

ABSTRACT

Delay in goods delivery is always referred to ineffective of procurement

process and non-performance result to procurement. Requirement on companys
project schedule to complete project on time has highlighted the importance of on
time delivery performance. Hence, improving the delivery performance in the
procurement process has been a priority to fulfil the project requirement and
company performance objectives overall. The objectives of this project is to develop
a Procurement Monitoring Tool (PMT) that help procurement, project team,
managers, or director of company to monitor the procurement process and improve
the procurement performance. The PMT required input from the management,
internal customer, project and procurement such as objectives, budget, requisitions,
project schedule, procurement procedures and procurement process. The monitoring
giving user information they need to evaluate how the process is functioning and to
identify areas where additional measures may require to maintain the required
process and improve procurement performance overall. Frameworks from literatures
was gathered, analysed and modified to fit to the research in developing the
procurement monitoring tool towards performance measurement. To test and verify
the performance tool, samples data from the project used as the input to the process
with real time monitoring. The analysis discusses using formulas and outcomes are
given on the effectiveness and efficiency of the process, such as effectiveness of
processing time, supplier product order compliance and payment processing time,
which provides procurement with timely, relevant and concise information towards
determine procurement performance goals achieved. Suggestion on potential
enhancement and finally a conclusion of the study with the list of benefits from
procurement and project perspectives of having such tool.

vi

ABSTRAK

Kelambatan dalam penghantaran barangan selalunya dikaitkan dengan

ketidakberkesanan proses perolehan dan memberi maklumat bahawa perolehan
berprestasi lemah. Keperluan pada jadual projek syarikat untuk berjalan tepat pada
masanya telah meihat betapa pentingnya prestasi penghantaran barangan tepat pada
masanya Oleh itu, menambahbaik prestasi penghantaran dalam proses perolehan
telah menjadi satu keutamaan untuk memenuhi keperluan projek dan objektif
syarikat keseluruhannya. Objektif projek ini adalah bertujuan untuk membangunkan
kaedah atau alat perolehan pemantauan yang boleh digunakan oleh pihak perolehan,
kumpulan projek, pengurus projek, pengarah projek atau CEO syarikat untuk
memantau proses perolehan dan menambahbaikkan prestasi proses perolehan.
Kaedah pemantaun perolehan ini memerlukan data dari pihak pengurusan, pengguna
dalaman, projek mahupun perolehan. Contoh data seperti objektif, bajet, permintaan
belian, jadual projek, prosedur perolehan dan proses perolehan. Kaedah pemantauan
ini memberi informasi kepada pengguna untuk menilai fungsi proses dan mengenal
pasti bahagian manakah yang perlu untuk mengekalkan proses sedia ada dan
menambahbaikkan prestasi perolehan keseluruhannya. Rangka kerja dari bahan
kajian telah dikumpulkan, dianalisa dan diubahsuai, selaras dengan kajian
pembangunan untuk kaedah pemantauan perolehan ke arah penilaian prestasi
perolehan. Untuk mengkaji dan membuktikan kaedah ini, contoh data diambil dari
projek sebagai input kepada proses dengan kaedah pemantauan semasa. Analisa telah
dibincangkan dengan menggunakan formulasi dan hasil dibuat atas keberkesanan
proses seperti contoh efektif dalam prosess masa, barang pembekal yang menepati
ciri, atau masa dalam proses pembayaran, di mana ini akan menyumbangkan
perolehan dengan informasi yang cepat, sesuai dan tepat dalam memastikan
matlamat prestasi perolehan tercapai. Pandangan telah diberikan mengenai
penambahbaikkan potensi dan kesimpulan juga dibuat dengan mengambil kira
kelebihan kaedah tersebut.

vii

TABLE OF CONTENTS

CHAPTER

TITLE

PAGE

DECLARATION

ii

ACKNOWLEDGEMENTS

iv

ABSTRACT

ABSTRAK

vi

TABLE OF CONTENTS

vii

LIST OF TABLES

ix

LIST OF FIGURES

LIST OF ABBREVIATIONS

xi

LIST OF APPENDICES

xii

INTRODUCTION

1.1

Introduction

1.2

Background of the Research

1.3

Problem Statement / Research Problem

1.4

Justification of the Research

1.5

Methodology

1.6

Objectives

1.7

Scope

1.8

Research Contributions

1.9

Structure of the Thesis

1.10

Summary and Conclusion

LITERATURE REVIEW

2.1

Introduction

2.2

Parent Disciplines

16

viii

2.3
3

Conclusion

20

METHODOLOGY

21

3.1

Introduction

21

3.2

Research Methodology

23

3.3

PMT Framework

25

3.4

Justification for the Methodology

29

MONITORING TOOL, DATA COLLECTION AND ANALYSIS 30

4.1

Introduction

30

4.2

Monitoring Tool

30

4.2.1 Monitoring Tool Management

33

4.3

Alert Method

36

4.4

Output for Performance Measurement

40

4.4.1 Output Equation

41

4.5

Data Collection

44

4.6

Analysis on Outcomes for Performance Measurement

45

4.7

Conclusion

53

CONCLUSIONS AND FUTURE WORKS

54

5.1

Conclusions

54

5.2

Further Work

55

REFERENCES

57

APPENDIX A

60

APPENDIX B

61

APPENDIX C

62

ix

LIST OF TABLES

TABLE NO.

2.1

TITLE

Literature reviews related to supply chain, procurement, its process

PAGE

and procurement performance

4.1

Monitoring tool spreadsheet in Microsoft Excel

33

4.2

Data derived from monitoring tool for alert method

37

4.3

Procurement performance indicators

40

4.4

PMT of procurement materials purchased

45

4.5

Total EPT output in monitoring tool

48

4.6

Requisition completion in PMT

51

LIST OF FIGURES

FIGURE

2.1

TITLE

PAGE

16

2.2

Purchasing process model and some related concepts

(van Weele and Weele, 2005)
Relation between components of supply chain (Kumar et al., 2005)

2.3

Components of measurement mode (Kumar et al., 2005)

18

2.4

Balance Scorecard for procurement measurement model

19

17

(Kumar et al., 2005)

3.1

Input, calculation and output for PMT

22

3.2

The flow of research methodology towards PMT creation

23

3.3

Application of PMT

25

3.4

Modified framework with Procurement Monitoring Tool

26

3.5
4.1

Flow of PMT task in procurement process

Alert method appointment set-up via Microsoft Outlook

28
38

4.2

Sample of outlook pop-up email appears in target user pc

39

xi

LIST OF ABBREVIATIONS

CEO

Chief Executive Officer

EOT

Effectiveness Ordering Time

EPT

Effectiveness Processing Time

MSR

Material Service Requisition

PMT

Procurement Monitoring Tool

PO

Purchase Order

RFQ

Request for Quotation

xii

LIST OF APPENDICES

APPENDIX

TITLE

PAGE

Sample for project schedule

60

Sample of supplier performance scorecard

61

Sample of procurement procedure for selected project

62

CHAPTER 1

INTRODUCTION

1.1

Introduction

Procurement process is described as transactional elements of procurement. It

relates to purchase order cycle, including order generation, order distribution,
expediting, delivery tracking, good receipts and invoice processing (Kocabasoglu,
2002). Procurement is all about meeting and exceeding customer expectations.
Kocabasoglu (2002) had suggested that procurement must take reactive role and
involve in monitoring the procurement process. In addition, Chan and Qi (2003)
described procurement to develop support systems for streamlining its process as the
procurement operational tasks.

Monitoring conveys critical information using timely and relevant data.

According to Eckerson (2010), monitoring one process for performance
measurement is called a performance management, which monitor and analyse is one
of the steps of performance management. Chan and Qi (2003) describes performance
measurement as feedback or information on activities with respect to customer
expectations and strategic objectives. In addition performance management provides
necessary assistance for performance improvement in pursuit of procurement
excellent (Chan and Qi, 2003).

Sarode et al. (2008) has mentioned that the improved performance of

efficiency and effectiveness is not only about product transfer but it also applied to

information sharing between hierarchy of all tiers in the supply chain. In order to
better improve the procurement performance, such information to be monitored
frequently along the ongoing process until it finish, and suggested by Bhagwat and
Sharma (2007) that such improvement is possible through different mechanisms
including buyer-customer partnership and coordination, and adoption of new
development tool.

After analysing opinions from scholars which generally indicate that

procurement process is closely link with procurement performance, it is agreed that
the procurement process activity need to be monitored frequently. Researchers
managed to relate performance measurement to procurement and give an approach to
established such framework or model of procurement performance. However, this
case study will not discuss on how to develop a procurement performance system.

This study will look into developing monitoring tool model for procurement
process. It will create monitoring approach using Microsoft Excel that will use real
time monitoring of each process activity for procurement process effectiveness. The
monitoring method will be able to alert the process importance and control the level
of performance. Finally the outcomes can be measured as performance indicators for
performance analysis.

1.2

Background of the Research

As effectiveness and efficiency of procurement process plays important role

to the performance measurement, monitoring and controlling the procurement
process is increasingly challenge to procurement. Lots of researches discussed and
emphasized on how to improve the procurement performance, but no specific tool
has been discussed for monitoring the procurement process in real time manner.
Many organizations might have their own way to deal with this matter but probably
not share it to others. With monitoring tool propose for procurement process, it will

help to strengthen the procurement process with objectives and resources given as
inputs, to improve the company continuous performance.

Research is needed to investigate how to integrate the monitoring method and

performance measurement related to each other. The monitoring and performance
method use in this study are 1) alert method via email pop-up, 2) the monitoring
excel file and 3) the supplier performance scorecard. The alert method using emails
alert via Microsoft Outlook. The monitoring tool is using Microsoft Excel
application for frequent update on procurement process. Each activity is being
monitored base on plan and actual date given. Other method is about evaluating
supplier using performance scorecard that carry out quarterly a year. For this
proposed monitoring tool to established, the outcome need to be tested. The outcome
on the performance will be measured by formula on each activity in the process.

The performance measurement will be used as an indicator for performance

of procurement and organization overall. This then is the intention of this study; to
develop PMT for procurement process and to test its implementation in the
performance measurement context.

1.3

Problem Statement / Research Problem

Procurement in general has been pointed out as one of the major elements
contributes to late delivery of service or material at site. Nowadays, many
organizations suffer from losses of ineffective procurement process. Late delivery of
goods, non-compliance of goods received, poor lead time of delivery from supplier,
and late approval for order is some of example for non-performance of procurement
process. Other example of delay factors might relates to clients material, unrealistic
of project duration, selection method and suppliers (Rotchanakitumnuai, 2013).
These factors generally relates to the procurement resources, the procurement
process and the outcomes. Rotchanakitumnuai (2013) again suggested that mitigation
activities to be developed in order to discover the root cause.

Another example reflects the cost impact from the poor procurement process.
Quesada et al. (2010) discussed the impact of late delivered goods, which related to
compensation. It relates to cost and reduce profit, which deviate performance.
Therefore in such situations, developing monitoring tool for procurement process
through correct method which emphasizes on monitoring of procurement activities is
crucial in the context of performance measurement. By doing so, it enables managers
to evaluate how efficient and effective the process and identify which process need
further improvement for overall procurement performance.

1.4

Justification of the Research

Monitoring activities in procurement process will help procurement to

identify process failure and manage future process with similar experience. Such
failure is non-performance to procurement and company in term of cost deviation
and losses. The performance can be measured, but the way of managing the
performance can be seen for a company running similar procurement process with
various activities where similar idea of measuring performance can be modified.
Usually the performance will require some baseline information for measurement, so
procurement will be able to manage each activity in the process. By using such
information as input, monitoring activities will be justified with comparison of actual
and plan date, whether it achieved the procurement objectives or fail to meet the
target date. The monitoring tool is developed in such manner, applying the correct
method for alert the process which will benefit the procurement process and improve
the procurement performance overall.

1.5

Methodology

This thesis has adopted some ideas and frameworks from previous research
and enhanced them to fulfil current research objectives. The case study will create a
monitoring tool that will monitor procurement process and show potential outcomes

on performance aspect benefits from the effective procurement process. Many factors
become input to the monitoring methodology in order to provide measurement
indicators. The related items as the input are:

a. Objective
b. Internal customer
c. Project schedule
d. Procurement procedure
e. Procurement process

Next the output is the outcome from the procurement process measured in
terms of procurement performance.

There are few steps towards creating the monitoring tool in the procurement
process in research methodology. First is to know the objectives of study which are
1) developing monitoring tool, 2) monitor and analyze the procurement process and
3) apply monitoring method for real time alert and updates. Once the objectives
sucessfully defined, various models and frameworks have been analyzed from
researches to find similar and suitables input to suit this case study. New framework
then being developed and tested via input data for output. The output is the outcomes
from the procurement process which measures the performance. Result findings from
the measurement will indicate whether the process is effective or need further
improvement; and whether the tool is affective or not. Flow for research
methodology is shown in Figure 3.1 in Chapter 3.

The concept is valid to be used either for similar process of procurement for
project or similar approach using the same method. Details model will be discussed
in methodology and tool creation section. Data from the project will be used to test
the tool developed in this study.

1.6

Objectives

This study attempts to achieve the following objectives on procurement

process for performance measurement benefit.

a. To develop monitoring tool for procurement process.

b. To monitor procurement process and analyse performance measurement
using monitoring tool.
c. To apply monitoring method for real time alert and update.

1.7

Scope

This research will develop monitoring tool to test the performance outcome
from the procurement process to be used on performance measurement in oil and gas
field example. Other field that intend to use this tool will need to change some of the
input types, and need to optimise the formula in Excel calculation.

1.8

Research Contributions

This research will introduce PMT that help organization to measure

performance on procurement process. Monitoring result will help managers to
evaluate how efficient and effective the process and identify which process need
further improvement for overall procurement performance.

1.9

Structure of the Thesis

This thesis is structured with the following chapters.

Chapter 1 has given an overview of the procurement, procurement process,

procurement performance and explained on the numerous definitions of them and its
relationship from various scholars.

This chapter explains on the research

background, problem statement, and research justification, scope of the study,

objectives to achieve, and the outcome of the study. Lastly, an overview on the
methodology was explained in brief on how to create a tool for monitoring
procurement process for performance measurement.

Chapter 2 gives a literature review of this study. It analyses research to

evaluate what has been done and what is the gap that can be improved in present
research either the framework or working methodology. This is important to the
researcher to understand better what others thought on similar research area so that
more valuable result can be achieved in the present research.
Chapter 3 discusses on the methodology and working steps implemented in the case
study to simulate the result using data from companys project.

Chapter 4 provides a description on the creation of PMT based on the

proposed methodology and discusses on the data to be used to validate the PMT and
perform the analysis on the results.

Chapter 5 is the conclusion of this study. The conclusion section will

provides the outcomes from monitoring based on the data from the companys
project and provide suggestions on the next steps to improve the tool.

1.10

Summary and Conclusion

This chapter has described on the overview of procurement, procurement

process, procurement performance and the important points why the organization
should have a tool that can monitor procurement process. Research study has been
justified with problem statement, research justification, scope, objectives and the
outcomes. New framework has been developed from other research study with the
most appropriate framework to be selected. The methodology was explained in brief
on how to create a PMT for performance measurement. Monitoring result can help
managers or management to measure procurement performance and decide the way
forward for existing and future project performance.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

Procurement is acquisition of goods, services and works from external

sources. Some scholars use term of supply chain in their case study instead of
procurement. Most scholars aggreed in general definition, that supply chain is a
network chain of supply which procurement is part of the network (Leenders et al.,
1994); (Dobler et al., 1996); and (van Weele and Weele, 2005). The definition term
used in procurement and purchasing are the same and can be used interchangeably
(Dobler et al., 1996). It also applies to both procurement and purchasing process
which both concept are common and related (van Weele and Weele, 2005). Table 2.1
below listed the summary of the literature reviews on supply chain and procurement;
the procurement process and the procurement performance.

Table 2.1 Literature reviews related to supply chain, procurement, its process and
procurement performance
No

Topic

Purpose

Key Related

Arthur
(Year)

Establish
framework for
performance
measurement in
supply chains.

Review and identify

performance
measures. Develop
such framework.

Performance
measurement.

Sarode et
al. (2008)

Towards an
aggregation

Propose building
Performance

Performance
measurement

Berrah
and

10

performance
measurement
system model in a
supply chain
context.

Management System
(PMS). Adopt
Choquet integral
operator and
MACBETH
methodology.

model in supply
chain

Clivill
(2007)

A model and a
performance
measurement
system for
collaborative
supply chains.

Study how decision

support can improve
performance of
collaborative supply
chains.

Model for
performance in
supply chain

Angerhofe
r and
Angelides
(2006)

Performance
measurement of
supply chain
management: A
balanced
scorecard
approach.

Develop balance
scorecard for day-today measures and
evaluation for supply
chain management.

Balance
scorecard
approach for
performance
measurement

Bhagwat
and
Sharma
(2007)

A framework for
supply chain
performance
measurement.

Develop framework to Importance of

promote
supply chain
performance
understanding of the
importance of supply
chain performance
and metrics. Hope to
stimulate more
interest.

Gunasekar
an et al.
(2004)

An innovative
performance
measurement
method for supply
chain
management

Propose innovative
performance method
via measurement
algorithm,
measurement scale
and fuzzy
performance grade.
Existing performance
measurement theory
fails to support

Apply
algorithm, fuzzy
performance
grade method
for supply chain
performance

Chan and
Qi (2003)

Impact of eprocurement on
procurement

Study impact of eprocurement between

procurement practices

Impact of eprocurement on
procurement

Quesada
et al.

11

practices and
performance.

and procurement
practices and
performance. Usage of procurement
performance.
e-procurement affect
positively managers
perception

(2010)

E-procurement
and supply chain
performance.

Discuss relationship
between eprocurement and
supply chain
performance.

Supply chain
integration has
high effect in
supply chain
performance

Chang et
al. (2013)

Procurement
performance
measurement
system in the
health care
industry.

To develop
procurement
performance
measurement system.

Key area
performance via
balance
scorecard.

Kumar et
al. (2005)

10

An empirical
investigation of
the impact of
strategic sourcing
and eprocurement
practices on
supply chain
performance.

Theoretical model
been develop and
resulting hypothesis is
tested via survey

Impact of
strategic
sourcing and eprocurement to
supply chain
performance.

Kocabaso
glu (2002)

11

Benchmarking
procurement
functions: causes
for superior
performance.

To relate performance
to all procurement
function. Method use
is questionnaire and
regression analysis.

Benchmarking
proved success
to procurement
process

Brandmeie
r and
Rupp
(2010)

12

Internet
supporting the
procurement
process: lessons
from four case
studies.

Analyze and
understand main
factors in adoption of
internet based tool for
customer-supplier
relationship.

Internet based
tool adoption in
procurement
process.

Bartezzag
hi and
Ronchi
(2003)

13

Quality in the
public
procurement

To study quality
integration and role of
quality within

Quality in public Rnnbck

(2012)
procurement
process

12

process.

interview participants.

14

Profits Made in
Transactions
Involving LateDelivered Goods.
The Impact
Should LateDelivered Goods
Have

To study impact of
late delivery of goods
and relation to profit.
Late delivery means
deviation to contract.
Different case study
reviewed to look into
cost and damages.

Late delivery.
Deviation in
procurement
process.

Saltman
(2004)

15

The influence of
partnering and
procurement on
subcontractor
involvement and
innovation.

To investigate how
procurement
procedures influence
subcontractor, value
creation and
innovation. Case study
to see result of
procurement
procedures to value

Procurement
procedure
influence value
to
supplier/subcont
ractor (part of
procurement
process).

Eriksson
et al.
(2007)

16

Uncertainty
avoidance: public
sector clients and
procurement
selection

Choose the right

procurement system
for construction
project. Identify need
to develop framework
for appropriate
procurement system

Identify
appropriate
procurement
system

Love et al.
(2008)

17

Assessment of eprocurement
auction with a
balanced
scorecard

Investigate impact of
success factor of eprocurement on
balance scorecard.
Data collected from
respondent

Study
performance of
e-procurement
via balance
scorecard

Rotchanak
itumnuai
(2013)

18

The Impact of
Material
DeliveryDeviations on
Costs and
Performance in
Construction
Projects.

Study how late

delivery will impact
on cost and
performance.

Examine
procurement
process and
supplier
performance.

Darvik
and
Larsson
(2010)

13

19

Procurement
strategies for the
oil and gas
industry: to
capture changing
values and
dealing with
multicultural
complexity.

Identify values and

highlight impact on
procurement process
and strategies.

To improve
current
procurement
process

Mohamma
d (2008)

20

Managing
information flow
in construction
supply chains.

Information is
important to
procurement process

Value
information
flow in
procurement
process

Titus and
Brchner
(2005)

21

Exploring
infrastructure
procurement by
Australian state
governments

Understand project
procurement practice.
To create public value
in procurement

Right
procurement
practice. Create
public value in
procurement

Staples
and
Dalrymple
(2011)

22

Procurement
performance:
Measuring
quality,
effectiveness, and
efficiency

Develop benchmarks
and management
indicators to
determine
organizational quality.
The output indicators
can be applied to
gauge the
performance.

Indicators
important for
performance
measurement.

Kestenbau
m and
Straight
(1995)

23

Measuring the
Value of the
Supply Chain:
Linking Financial
Performance and
Supply Chain
Decisions

Investigate impact of
supply chain
management to
performance overall.

Supply chain
performance

Camerinel
li (2009)

24

Construction
Materials Supply
Logistics.

Material supply
logistic play important
role in determine
project goals.

Part of
procurement
process
logistic.

Muya et
al. (1997)

14

25

The Purchasing
Performance
Measurement
Challenge

Such challenge in
purchasing
performance are
guideline, economy,
cost, trends, complain.
Analytic process as
appropriate method
for effectiveness and
efficiency of material
management

Performance
measurement
challenge

Hofmann
et al.
(2014)

26

Adapting
purchasing to
supply chain
management

To study and adapt

purchasing in supply
chain. Its relationship

Purchasing and
supply chain

Leenders
et al.
(1994)

27

Purchasing and
supply
management: text
and cases

Study of purchasing
and supply chain
management via cases

Purchasing and
supply chain
management

Dobler et
al. (1996)

28

Purchasing and
supply chain
management:
Analysis,
strategy, planning
and practice

Relation between
purchasing and supply
chain management in
term of analysis,
strategy, planning and
practice

Purchasing and
supply chain

van Weele
and Weele
(2005)

Procurement is considered as one of an important role for a company to meet

organizational objectives (Leenders et al., 1994). It is important for a business to
select the most appropriate procurement system (Love et al., 2008) and the right
procurement practice that create value in procurement (Staples and Dalrymple,
2011). Nowadays, the rising of technology development is very promising. From the
Table 2.1, Bartezzaghi and Ronchi (2003) had analyzed the factor for company
started to adopt internet-based-tool in their procurement process while Quesada et al.
(2010) had studied the impact of e-procurement to the procurement performance.

Procurement process is the most important element in procurement to

determine performance. The review of researchers about the process and its relation

15

to the performance has been listed in Table 2.1. Benchmarking technique has been
used in proving success to the procurement process (Brandmeier and Rupp, 2010)
while study on quality, (Rnnbck, 2012) and supplier influences (Eriksson et al.,
2007) has been carried out further in order to improve the procurement process.
There are some issues in the procurement process such as delivery deviation from
suppliers (Saltman, 2004) and need to be examined (Darvik and Larsson, 2010) thus
values for further improvement (Mohammad, 2008).

The procurement integration has high effect in procurement performance,

which Chang et al. (2013), and Gunasekaran et al. (2004) has stressed out the
importance need to study further. The procurement performance faces great
challenge (Hofmann et al., 2014) where researchers has come out with proposed
model (Sarode et al., 2008) and framework. Berrah and Clivill (2007) and
Angerhofer and Angelides (2006) had proposed such framework in order to explain
how to measures performance. To get the result indicators for performance
measurement (Kestenbaum and Straight, 1995), Kumar et al. (2005) and Bhagwat
and Sharma (2007) proposed a balance scorecard performance, while Chan and Qi
(2003) proposed algorithm measurement and fuzzy performance grade.

Gap from all researchers finding founds. How to do monitoring for each
procurement activity is not been discussed literally, except explanation on how to
improve the procurement process.; how to develop framework for procurement
performance; apply the correct model; study of impact of e-procurement to
procurement performance and procurement practices; and the importance of
procurement performance. Based on this finding, a monitoring tool is required in
order to monitor the procurement process for its performance measurement. Hence
from the gap finding in research study summary in table 2.1, the need to develop the
PMT is justified.

16

2.2

Parent Disciplines

Framework is a structured diagram to explain the work concept, process or

design flow. Framework will provide the outline of the subject interlink in the
procurement process.

Kumar et al. (2005) has explained an overview of the performance

measurement system in the procurement controlled by purchasing department. The
related concept of procurement and the purchasing process was explained by van
Weele and Weele (2005) as shown in Figure 2.1.

Figure 2.1 Purchasing process model and some related concepts (van Weele and
Weele, 2005)

The procurement or purchasing function is not responsible to materials

requirement planning, materials scheduling, inventory management, incoming
inspection and quality control, van Weele and Weele (2005). However, in order to be
effective, procurement operation need to be closely link to the materials activities.

In related to definition of performance measurement, Kumar et al. (2005) has

highlighted the two most fundamental dimensions of performance are efficiency and

17

effectiveness. Efficiency measures how successfully the input transformed into

output while effectiveness measures how successfully the system achieves its desired
output. Later Kumar et al. (2005) has mentioned the components of supply chain and
its relation-ship as shown in Figure 2.2. The supply chain must be measured in order
the decision-maker understand how the efforts effect the result.

Figure 2.2 Relation between components of supply chain (Kumar et al., 2005)

To measure the procurement performance, Kumar et al. (2005) has proposed

three following areas:

1)

Representation of the supply chain

2)

Efficiency of the supply chain

3)

Effectiveness of the supply chain

From the above three areas, he has concluded that a procurement

measurement model for the health care industry of his case study, must cover the
following components, as shown in Figure 2.3:

1)

Environment and structures of the purchasing department

2)

Operating Procedures

3)

Generic Measures for Suppliers, Purchasing Department and Internal

Customer

18

Figure 2.3 Components of measurement mode (Kumar et al., 2005)

As shown in Figure 2.4, Kumar et al. (2005) has comes out with a Balance Scorecard
to established a set of generic measurement and perspectives. The balance scorecard
is used to monitor procurement performance. The result calculation of the outcomes
from the balance scorecard is crucial whether the procurement has performed
through the procurement process. The result determined such action and
investigation to be carried out in order to prevent such deviation in future process.

19

Figure 2.4 Balance Scorecard for procurement measurement model (Kumar et al.,
2005)

20

2.3

Conclusion

The literature review has analysed previous research which provide direction
on the assessment method and steps of develop procurement measurement model.
Most of the scholars did research on the performance of procurement. Some
researchers relate performance to procurement process, procurement functions,
technology and how to improve the said relationship. Only few discussed solely on
procurement process and way to measure the process contributes to the procurement
performance. None has discussed on how to monitor and alert the process in real
time monitoring. The monitoring outcome then will be used as measurement
indicator to strengthen procurement performance. The concept on the assessment can
be used to help on provide what is the input factor to the measurement model and
also what is the outcome should the managers look to get the success factor in
procurement performance. Chapter 2 has discussed on literature reviews and
procurement performance framework but the implementation concept can be used in
a new PMT model development. Kumar et al. (2005) case study provides a
methodology similar to the one that will be used in this study. Detailed discussion on
methodology will be given in chapter 3.

21

CHAPTER 3

METHODOLOGY

3.1

Introduction

This study will develop the PMT; perform method of monitoring; and
analysis on the outcomes. Input to PMT are taken from 1) objectives, 2) internal
customer, 3) project schedule, 4) procurement policies and procedures, and 5)
procurement process, such as budget for procurement; lesson learnt from previous
project; internal department request for purchase; material lead time information; and
allowance time for procurement process to act as guideline. The PMT is design on
Microsoft Excel application and will be shared by other team members in dedicated
folder located in server for monitoring purpose. PMT then will apply an alert method
using Microsoft Outlook pop-up email on the process for trigger the dateline. The
outcome from the monitoring and the procurement process will be used as an
indicator for performance measurement. Microsoft Excel application again used to
calculate the formulation output. The output as follows:

a)

Effectiveness Ordering Cycle Time

b)

Effectiveness Delivery Cycle Time

c)

Suppler Evaluation

d)

Procurement Processing Cycle Time

e)

Requisition Completion Rate

f)

Product Order Compliance

g)

Lead Time Performance

h)

Payment Processing Time

22

As shown in Figure 3.1, it is the basic foundation of PMT which requires

input data, task of monitoring, calculation of outcomes and output on the
performance. Later will discussed on how to come out with such PMT with research
methodology and proposed framework.

Figure 3.1 Input, calculation and output for PMT

23

3.2

Research Methodology

This chapter describes the methodology to be used in this case study toward
developing the PMT and shown in Figure 3.2. Research objectives has been
determined and explained in Chapter 1.

Start

Set the research objective

Analyse the framework from past

research

Suitable for
current research

No

Yes
Modify the framework to fit the
research/ case study

Create and develop PMT to monitor the

procurement process. Outcomes for
performance measurement

Modify based on miss leading

items

Test the framework

Meet the
requirement

No

oo
Yes

Implement the system

End

Figure 3.2 The flow of research methodology towards PMT creation

24

Analysis reviews has been carried out from past literatures and scholars
regarding the topic of procurement, procurement process and the relationship of both
with procurement performance. Most scholars did mention about procurement
performance but none discussed about how to do a real time monitoring the
procurement process in order to improve performance. This is considers a gap of the
reserch reviews and to adopt with a new develop framework of PMT for monitoring
procurement process. The original framework of Kumar et al. (2005) is discussed on
procurement performance framework but the implementation concept can be used in
this new PMT model development.

The input from Kumar et al. (2005) about the relationship component of
procurement is important as main character for representing environment and
structure; what activities and flows take place in procurement. In addition, it
compromises the key elements for measurement such as resources for procurement to
provide; procedures of information flows within procurement; and output of an
objectives to achieve and degree of customer satisfaction. Once the input; the
procurement process; and the output have been predetermined, PMT has been
developed with the required data input to the procurement process and been tested.

Monitoring and alert being applied to ongoing procurement process and will
generate the outcomes of the process behaviour whether it follows the objectives or
not. The outcome is then measured in terms of performance and output will be used
as result for data analysis. Such analysis will generate information to validate the tool
whether it is effective or not to improve performance in the process and procurement
overall. Figure 3.3 shows the application of PMT related to the new framework
model described in the PMT framework.

25

Management/Customer

Application of Procurement Monitoring Tool

START

Objectives

Internal
Customer

ALERT

Procurement

Monitoring
Tool
Procurement
Process

ALERT

Outcomes

FINISH

Figure 3.3 Application of PMT

3.3

PMT Framework

The required elements and components are combined in new meaningful

modified framework with an extended of additional breakdown on PMTs block, as
shown in Figure 3.4. Requirements on procurement performance are usually defined
by efficiency of resources utilization and effectiveness of organization objectives as
input being fulfilled. To achieve the procurement performance, the outcome result
will be used as an indicator for managers to measures the performance.

26

Figure 3.4 Modified Framework with Procurement Monitoring Tool

27

The proposed framework contains items from internal and external source. In
Figure 3.4, the items in left quadrant are from internal resources such as procedures,
generic measures, and internal customer. The procedures explained the objectives to
be fulfilled by procurement aligned with strategies of organization. The objective set
in procurement procedures, for example days taken for a normal requisition to be
exercise in order to convert to bid, evaluation and close by order. The strategies of
organization reflect the plan or target date of project to deliver one material to the
site that as guideline for procurement to work towards its actual date. Generic
measures is measurement of resources utilization and objectives to be fulfilled in
area of cost, time, and flexibility (Kumar et al., 2005).

The most important block in the framework is the main block. The main
block consists of 1) internal customer, 2) procurement process, and 3) supplier. The
internal customer is department or division in organization that request to
procurement. The request is been exercise by procurement through procurement
process. Detail explanations on the each procurement process will be discussed later.
The supplier is an external source that executes order from PO awarded by
procurement. Supplier is considers an important element for procurement as it is one
element to complete procurement process chain. Some data regarding supplier
performance need to analyse for procurement performance as well.

The monitoring tool block is attached to the main block as explained above.
The tool required some method to fulfil its task. The tool is design using Microsoft
Excel application. The alert method is using Microsoft Outlook pop-up email that
will remind email receiver about uncomplete task in the process. Figure 3.5
explained how the element of monitoring occurs on each event in the procurement
process. Such event will be monitored and it is design in such a way for the PMT to
act and deliver. The PMT will be carried out in real time monitoring and alerting the
process if the process deviate from plan. The outcomes are result from the
procurement process of each and complete process. The result will act as an indicator
for performance measurement of procurement process or procurement overall.
Details explanation on the usage of monitoring method and the output of
performance measurement will be discussed in chapter 4.

28

Start

Customer

Issuance/
Revise
specification

Alert

YES

NO

Inquiry

NO

Evaluation

Select 2nd
proposed

Alert

YES

NO

Approval

NO

YES

Select 2nd
approved
supplier

Alert
Order

YES

NO

NO
Supplier

Monitor
delivery

Alert

YES

NO

Delivery

Finish

Figure 3.5 Flow of PMT task in procurement process

NO

29

3.4

Justification for the Methodology

The method in this case study will help management to see whether a real
time monitoring of PMT is capable to monitor procurement process and improve
procurement performance. By applying the task of monitoring the procurement
process, PMT is seen as a solution to monitor the process. Not only the process is
being monitored, the parties that involve in the process also being alert and
monitored to make sure there is no deviation to the target proposed in procurement
plan. The PMT of course will strengthen the ongoing performance of process, thus
make sure the process end up as planned and performed.

30

CHAPTER 4

MONITORING TOOL, DATA COLLECTION AND ANALYSIS

4.1

Introduction

The PMT was developed using Microsoft Excel application. It is used to

monitor the procurement process for performance measurement benifits. Data was
collected from management, internal customer, projects and procurement such as
project material budgeted, materials requested, lead time material specification and
allowance of time in procurement procedures. Such data collection is used as input
data for PMT to execute it tasks by monitoring and applying alert method to
procurement process. The outcomes from the monitoring activities are the
information and to be used in calculation that measures the output. Performance will
be measured and final analysis is derived from the findings. The result analysis will
determined the process performance and suggest further on action way foward.

4.2

Monitoring Tool

As discussed in chapter 3, the monitoring tool contains input, calculation and

output section. The input section is as shown in Table 4.1 and Table 4.2, calculation
and output are shown in Table 4.4, Table 4.5 and Table 4.6. Explanation for the input
items are as below:-

31

a) Objectives
In this case study, objectives is an aims set by management for
procurement to align with company strategies. The aims represent data
such as procurement budget in Ringgit Malaysia (RM), and delay in
material lead time derived from history results perceived as bad lesson
learnt. Such lesson learnt is data for procurement to benchmark in
existing current process.

b) Internal customer
Procurement function is always to satisfy internal customer needs. The
internal customer is customer within company department or division
such as operation, finance, human resources, etc. The internal customer
might vary and depends on jurisdiction of procurement to deal with. In
this case study, procurement is dealing with project baseline. Data is
represents date submission of requisition and delivery date for material to
arrive site requested from customer.

c) Project Schedule
Project schedule contains timeline of project to occur. The dateline that
outline in the project schedule use as data and set as a baseline for
material planned date in the monitoring tool.

d) Procurement procedures
Procurement procedure is an approved guideline for procurement. It
ensure there is a consistent, effective and efficient system for planning,
coordination, monitoring and controlling of all tasks and activities related
to procurement execution in area of procurement process. For instance,
pre-qualification of suppliers will be carried out in order to further
streamline the suppliers list to be used; or a maximum of three inquiries
shall be raised for every single inquiry or bid of requisition to exercise.
The data is the guideline from the procurement procedures.

32

e) Procurement process
In this case study the procurement process are outline from requisition,
inquiry/bid, and evaluation, approval from management, order and
delivery to site. The data is presented in number of day format and
calculated in terms of effectiveness of process in percentage.

A calculation section will calculate the outcomes from the procurement

process that is directly involved in the performance measurement. The calculation
are based on required procurement process to measures performance output such as
effectiveness time of process, process completion rate, supplier evaluation, product
order compliance, lead time performance and payment processing time (if any). In
this case study, it is limited to the calculated output, which can be change due to
various process and design of procurement process. How effective the requisition
completion rate is depends on how much number of requisition completed compared
to number of requisition received. Such output result is 100% completion rate if all
requisition received has been exercise and successfully ordered.

33

4.2.1 Monitoring Tool Management

Table 4.1 Monitoring tool spreadsheet in Microsoft Excel

34

In Table 4.1, activities such as Material Service Requisition (MSR) received,

RFQ (Request for Quaotation)/Bid issued and close, evaluation/clarification issued
and close, management approval, order issued and delivery at site are the
procurement process. The yellow fill colour in the table represent plan activities,
while the blue fill colour is represent actual activities, which need to be filled up by
buyer or procurement user. How to input the relevant data and operate the
monitoring tool spreadsheet is explained below:-

1) For each material or service that need to be exercise is determine by MSR

request from internal customer. In this case, for item 1 (C7), internal customer
from operation engineering department requested swivel flange 12in that need to
be purchased and deliver to site by 10 Dec 2013. The input data here are 1)
material and its specification (C7), and 2) the required delivery date on site in
column AA row 7 (AA7). The required delivery date is also reflect the material
date plan in project schedule.

2) The next input required after the plan delivery date is the estimated lead time in
days as shown in column Z row 7 in the table. In this case, the estimated lead
time delivery for item C7 is 60 days. This input taken from historical data from
the past project which apply the same material purchased in market. The 60 days
is already include 15 percent of contingency delivery time that about 9 days in
addition to the 51 days of normal delivery.

3) By working backward and using formula in excel monitoring tool spreadsheet,

the order issued date can be estimated. Date of 11 Oct 2013 in column Y row 7
(Y7) is calculated by deduct the AA7 to Z7 (=AA7-Z7). PO to be issued to
supplier no later than 11 Oct 2013.

4) Next input data is required in column X row 7 (X7), which is the estimated days
for order issuance after management approval. The data is taken from the
procurement procedure which required one day for issue the order. For this
reason, the plan dateline for the management approval is on 10 Oct 2013 (W7)
that been derived from deduction from Y7 to X7.

35

W7=Y7-X7

5) Apply to other activities such as R7, P7, N7, L7, and J7 by using same
chronology of working backward and deduct from the front column of days
required for such activities to execute. The data again taken from
procurement procedures which outline time allowance of activities in
procurement process, which need to be followed and used as a strict
guideline.

R7=W7-S7
P7=R7-Q7
N7=P7-O7
L7=N7-M7
J7=L7-K7

The time allowance in the procedures as below:-

a) MSR to issue RFQ will require 2 days (K7)

b) RFR/Bid to close within 7 days (M7)
c) Evaluation take place 1 day after RFQ/Bid close (O7)
d) Evaluation/Clarification to exercise within 5 days (Q7)
e) Evaluation proposal need to approve by management within 3 days (S7)
f) Issuance of order take place after management approval within 1 day (X7)

The input data explained above are critically required for the monitoring tool
to execute. The input data for such monitoring tool can be summarized as
below:-

a) Material specification from requisition - data taken from internal

customer and procurement process for the requisition.
b) Required delivery date for material data taken from internal customer
requirement that based on project schedule data.

36

c) Estimated lead time for material - data taken from past historical project
data
d) Time allowance for plan date data taken from procurement policies and
procedures of time allowance provided.

4.3

Alert Method

Input data for the alert method is taken from the monitoring tool spreadsheet.
Each activity in the procurement process has a dateline, and the process has to occur
in step before the next process can occur. For example MSR has to submit before it
can be exercise for bidding or inquiry. In Table 4.2, column G, H, and I is dedicated
for alert purpose. For the item C7, the plan date (J7) for the MSR to be received is by
22 Sep 2013. In this case study, alert will require 2 days in advance for some critical
process being monitored. The alert date in column G row 7 (G7) is generated by
formula that deducted 2 days from the MSR plan received date (J7).

G7=J7-H7

The alert date will start on 20 Sep 2012. Email will start to pop-up on the same day
based on setting of appointment recurrence as shown in Figure 4.1 and 4.2. The alert
email is send to requester and his superior for cc copy in operation department. The
pattern or the range of the recurrence can be set in the outlook for the whole day or
for how many recurrences need to occur. The alert method is applied to the
procurement process, which needs to be monitored, and can be for the whole process
or selected process, depends on the activity which requires urgent control. In this
case study, the alert method is limited to selected process which requires additional
measures to maintain the performance.

37

Table 4.2 Data derived from monitoring tool for alert method

38

Figure 4.1 Alert method appointment set-up via Microsoft Outlook

39

Figure 4.2 Sample of outlook pop-up email appears in target user pc

40

4.4

Output for Performance Measurement

Output is the outcomes from monitoring the procurement process. The

outcome will be used as an indicator for performance measurement and the output
result will reflect the procurement performance overall as shown in Table 4.3.

Table 4.3 Procurement performance indicators

Procurement Performance Indicators
No

Name

Ownership

How it Improve
Performance

Elements of
improvement

Who
benefits?

Effectiveness
of ordering
time

Customer

Order of actual
cycle time less or
equal to planned

Time order time

meet planned

Customer,
procurement

Effectiveness
of delivery
time

Supplier

Delivery of actual
average cycle
time vs. planned

Time - delivery
time meet planned

Procurement,
supplier,
customer

Effectiveness
of processing
time

Procurement

Process cycle
time meet
objectives

Time - process
cycle time

Procurement

Supplier
Evaluation

Supplier

Number of
supplier
evaluation meet
objective

Quality - supplier
evaluation

Procurement,
supplier

Requisition
completion
rate

Procurement

Requisition
completed vs.
received

Requisition
completed

Procurement

Product order
compliance

Supplier

Number of order
meet product
criteria

Quality product/items
compliance.
Correct quantity
received,
complete shipping
document

Procurement,
supplier

Lead Time
Performance

Supplier

No of order
received on-time

Order received on
time

Procurement,
supplier

Payment
Processing
Time

Finance

On-time payment
for suppliers
invoice

Payment on-time

Procurement,
supplier

41

4.4.1 Output Equation

Output section is the expected outcomes from the monitoring tool activities.
The output is calculated based on the input data in the input section. The equation for
the output section is discussed below:

a) Effectiveness of ordering time (EOT)

EOT measures the percentage of actual average cycle time of order between
planned average cycle times of order.

Formula:

Target:

Less than (<) or equal to (=) 100%

For each item with a greater result from 100% (>100%), the actual average order
cycle time is higher than the planned average order cycle time. And, for each
item with a result less than or equal to 100% (< or = 100%), the actual average
order cycle time is aligned with the planned average order cycle time.

b) Effectiveness of processing time (EPT)

EPT measures the percentage of actual average cycle time of order between
planned average cycle times of order.

Formula:

Target:

Less than (<) or equal to (=) 100%

42

For each item with a greater result from 100% (>100%), the actual average
process cycle time is higher than the planned average process cycle time. And,
for each item with a result less than or equal to 100% (< or = 100%), the actual
average process cycle time is aligned with the planned average process cycle
time.

c) Supplier evaluation

The suppliers evaluation measures the percentage of actual average cycle time of
order between planned average cycle times of order.

Formula:

Target:

Equal to (=) 100%

For each item with a result of 100% (=100%), all supplier evaluation has met the
objectives. And, for each item with a result less than 100% (< 100%), the number
of supplier evaluation meet objective is less compare to total number of supplier
evaluation. The result reflects quality on supplier performance in meeting the
objective via their evaluation. PMT will not reflect numbers of supplier
evaluation to be measured.

d) Requisition completion rate

Requisition completion rate measures the percentage of total MSR completed

between the total of MSR received and only being performed once all MSR reach
the process of order issuance.

Formula:

Target:

Equal to (=) 100%

43

For each item with a result of 100% (=100%), all MSR that have been received
has completed. And, for each item with a result less than 100% (< 100%), the
MSR is not achieved the target. Such result will reflect timeliness performance in
procurement process which investigation need to be carried out by managers.

e) Product order compliance

This indicator measures a suppliers compliance with the product stated in the
purchase order or contract. It measures the percentage of orders for an individual
supplier that met the product criteria.

Formula:

Target:

Equal to (=) 100%

By monitoring and documenting supplier performance, procurement requires

corrective action from suppliers when they are not in compliance with order
requirements. Supplier performance also provides historical information for
supplier evaluation and selection process for future order.

f) Lead time performance

This indicator measures a supplier performance criteria identified in the purchase

order or contract, whether the order for an individual supplier is received on time,
according to the delivery schedule, whether the correct quantity was received or
shipment was fully delivered, and whether the correct shipping documents is
received on time.. Again such information is useful for the supplier evaluation
and selection process for future orders.

Formula:
Target:

Equal to (=) 100%

44

g) Payment processing time

It measures the percentage of supplier payments that made within stipulated

payment period as called in the contract. On time payment to suppliers will let
procurement have better plan and control spending, and be able to negotiate more
favourable price agreements or payment terms.

Formula:

Target:

Equal to (=) 100%

Late payment to suppliers is generally caused of delay in approval or delay in

documentation. The corrective action is to share such information with respective
department and encourages effort to improve the on time payment.

4.5

Data Collection

This case study has used sample data from companys existing project to test
the monitoring tool model and perform analysis on the outcome. Such sample data
are extracted from management, internal customer and procurement. The sample data
reflect the same input data that been discussed in Chapter 3 and 4. Sample for the
project schedule is shown in Appendix A and sample for the procurement procedures
is shown in Appendix C.

45

4.6

Analysis on Outcomes for Performance Measurement

Table 4.4 PMT of procurement materials purchased

46

Table 4.4 shows eight (8) MSR for procurement materials as shown in
column C from row 6 to 37 (C6 to C37). How to manage the monitoring tool has
been explained in Chapter 4.1.1 Monitoring tool management. In this case study,
all MSR comes from operation department as the internal customer. The input from
the MSR such as material specification and material delivery date will be entered in
the PMT. Test result will shows that the PMT has performed and improved as shown
below:-

1)

Effectiveness of ordering time (EOT)

a)

For item 1 (C6-C7), EOT to calculated the average output. For the
average of planned the formula using is
=SUM(K7+M7+O7+Q7+S7+X7)/6

=3.17

While the average of actual, the formula using is

=SUM(K8+M8+O8+Q8+S8+X8)/6

= 2.67

Output:

Based on the output result, the EOT for item 1 is consider good
performance and meet the measurement target.

b) For item 2 (C12-13), EOT has been calculated based on above

explanation.

Planned:

=SUM(K13+M13+O13+Q13+S13+X13)/6 =3.17

Actual:

=SUM(K14+M14+O14+Q14+S14+X14)/6 =2.83

Output:

EOT for item 2 is meeting the target and slighter lower to item 1 due to its
performance.

47

c) For the item 3 until 8 (C16-C37). Excel application can copy and paste
same pattern of formula and apply to the respective column and row. By
using the established mathematical programming in Excel, the average
planned and actual can be generated and the EOT output can be
measured. The result as follows:-

2)

Item 3:

Not applicable because the process is not complete

Item 4:

95% (meet the target)

Item 5:

95% (meet the target)

Item 6:

89% (meet the target)

Item 7:

Not applicable because the process is not started

Item 8:

89% (meet the target)

Effectiveness of processing time (EPT)

EPT calculated average of actual and plan for each activity in procurement
process such as 1) MSR received, 2) RFQ/Bid issued, 3) evaluation/clarification, 4)
management approval, 5) order issued, and 6) delivery at site. Based on the Table
4.5, EPT has been calculated using formula in Excel application. The total of process
in days shows in column and row of K40-41, M40-41, O40-41, Q40-41, S40-41,
X40-41, and Z40-41. The n for the process is shows in L40, N40, P40, R40, T40,
Y40, and AA40. The EPT output is then generated as follows:-

48

Table 4.5 Total EPT output in monitoring tool

49

a) MSR received:
( )

The EPT output meet target and in excellent performance.

b) RFQ/Bid issued:

EPT output achieved target and the actual is align with planned.

RFQ/Bid close:

EPT output meet target and in excellent performance.

c) Evaluation/clarification issued:

EPT output reflect the actual is higher than the planned and required attention
from managers. Further investigation need to be done.

Evaluation/clarification close:

EPT output meet target and in excellent performance.

d) Management approval:

EPT output meet target and in excellent performance.

e) Order issue:

50

EPT output reflect the actual higher is than the planned and required attention
from managers. Further investigation need to be done. Final output will
reflect the outcome on delivery date of materials.

3)

Supplier evaluation

Such data of supplier evaluation is not recorded in PMT and only

procurement department can extract for the benefit of performance measurement. In
this case study, the PMT is limited to the basic procurement process and it can be
modified by other company to suit their purpose.

4)

Requisition completion rate

In Table 4.6, there are six (6) MSR received shown in AC40. For the MSR
completed, it is 3.5 as shown in AB40. By using the said formula above, the rate can
be calculated as follows:-

Rate:

The requisition completion rate is 58.3% which some explanation can be

generated. Out of six (6) MSR received, two (2) MSR is waiting for material delivery
to complete the process. One MSR is considers half completed which material
delivery still outstanding and not completed although some has delivered.

5)

Product order compliance

Details about product order compliance is not shown in the PMT. In this case
study it assumed that all order is comply with order requirements.

51

Table 4.6 Requisition completion in PMT

52

6)

Lead time performance

The total number of order received on time is taken from column AA. The
only order received on time is column AA22 compared to planned date column
AA21 while the other orders are delay compared to the planned. Such late orders are
column AA8, AA14, and AA26. Total numbers of order that have been schedule for
delivery is four (4) numbers (AA8, AA14, AA22 and AA26).

Lead time performance:

This result reflects low performance on overall material lead time delivery.
The ideal target for supplier lead time performance is 100%. However, some
suppliers may not be achieving this target. Procurement need to establish baseline
target rate and review past performance for the suppliers performance. The rate
should be set at a level above the current performance level so that it can raise
suppliers performance expectations and encourage continuous improvement. As
performance improves, the target level should be raised appropriately aiming to
achieve 100% over time. For the result less than 100% target, corrective action need
to be done with sharing such information to suppliers for performance effectiveness,
maybe once a month. For the result of 100%, an acknowledgement to suppliers is
needed for them to continue with provision of good service and quality of product.

7)

Payment processing time

Such data for invoice payment to suppliers is not recorded in PMT. In this

case study, it is assumed all payment made to supplier is prompt. The PMT is limited
to the basic procurement process and it can be modified to show the payment update
by finance department.

53

4.7

Conclusion

The performance indicators have established the outcomes for performance

measurement. In the analysis of the outcome, data has been evaluated and result
findings are used to identify the strengths and weaknesses of procurement process
and procurement performance overall. From the findings, some of the processes
show positive result while some are not. For the lower result of measurement
indicator which less than the target (<100%), procurement requires a corrective
action and investigation need to be carried out by managers. Positive result reflects
quality in performance which meet target. Such findings need to be share to related
party to further improve the process while maintaining the good performance.

In this case study, the performance output are limited to the findings with
corrective suggestion and not elaborate more with developing a plan for addressing
the identified weaknesses. It is an active step of moving from performance
measurement to performance management with a plan development, and such the
approach can be implemented in next research study.

54

CHAPTER 5

CONCLUSIONS AND FUTURE WORKS

5.1

Conclusions

In conclusion the PMT developed in this case study met the research
objectives. Research methodology is been carried out and the PMT was developed.
The PMT used to monitor the procurement process and measures the procurement
performance.

A set of data has been tested to generate output via the PMT. The weaknesses
and the strengths findings are the expected result in the output. The output will
determine the process whether it being well organized, and whether it being strictly
monitored using the PMT and the alert method.

The analysis on the performance outcome will help to aligns and strengthens
future process, while the measurement output can be used for critical decision
making for effectiveness and efficiency of the procurement process.

Companies nowadays facing challenging market to make sure its

procurement process can deliver benefits and profit to the company. To move
towards that direction, company have to ensure the procurement is being properly
managed and follow companys objectives. The monitoring tool should be able to
monitor and alert the process without fail.

55

5.2

Further Work

The monitoring tool developed in this case study is based on project in oil
and gas industry. The procurement process discussed is limited to the case study and
can be enhanced further by adding some activity that has high rated process. It is not
only apply to the core of procurement process, but such related process like logistic
movement or invoice payment can be eloborated inside the PMT. The monitoring
tool also can be applied to other department other than procurement, such as human
resource or administration of project department. Other businesses might need to
modify certain aspects in the tool to suit their aims and business objectives.

In this case study, PMT has been developed using Microsoft Excel
application. It is a high technical application platform and ready made programming
software offered by Microsoft Excel. Others might consider use another ready made
application in the market or apply a programming made-to-use to tailor companys
business needs such as Visual Basic programming or SQL database application.

In Chapter 2 of literature reviews, some scholars did mention about eprocurement and it impact to procurement performance. Kocabasoglu (2002) had
done empirical investigation of the impact on strategic sourcing and e-procurement
practices on procurement performance. Other scholars like Rotchanakitumnuai
(2013); Quesada et al. (2010); and Chang et al. (2013) are also discussed the same
about e-procurement and procurement performance. Completes research and good
recommendation from the researchers proved that e-procurement is very stunning
and needed for company to run its procurement system. The decision is up to
company whether to incorporate e-procurement system in thier current procurement
practice. It is a popular option nowadays and can be analysed further to suit company
needs. Other enhancement can be made to improve the version with generation web
based model using dedicated database source application server.

56

In other opinion, the PMT can be elaborated and combined with other system
with other department which related in order to monitor inter-department relationship
task. This can be combined with manual generated document for progressively
monitoring procurement performance such as department performance balance
scorecard that carried out monthly.

57

REFERENCES

ANGERHOFER, B. J. & ANGELIDES, M. C. 2006. A model and a performance

measurement system for collaborative supply chains. Decision Support
Systems, 42, 283-301.
BARTEZZAGHI, E. & RONCHI, S. 2003. Internet supporting the procurement
process: lessons from four case studies. Integrated Manufacturing Systems,
14, 632-641.
BERRAH, L. & CLIVILL, V. 2007. Towards an aggregation performance
measurement system model in a supply chain context. Computers in Industry,
58, 709-719.
BHAGWAT, R. & SHARMA, M. K. 2007. Performance measurement of supply
chain management: A balanced scorecard approach. Computers & Industrial
Engineering, 53, 43-62.
BRANDMEIER, R. A. & RUPP, F. 2010. Benchmarking procurement functions:
causes for superior performance. Benchmarking: An International Journal,
17, 5-26.
CAMERINELLI, E. 2009. Measuring the Value of the Supply Chain: Linking
Financial Performance and Supply Chain Decisions, Gower Publishing, Ltd.
CHAN, F. T. & QI, H. 2003. An innovative performance measurement method for
supply chain management. Supply Chain Management: An International
Journal, 8, 209-223.
CHANG, H. H., TSAI, Y.-C. & HSU, C.-H. 2013. E-procurement and supply chain
performance. Supply Chain Management: An International Journal, 18, 3451.
DARVIK, L. & LARSSON, J. 2010. The Impact of Material Delivery-Deviations on
Costs and Performance in Construction Projects.
DOBLER, D. W., BURT, D. N. & LEE, L. 1996. Purchasing and supply
management: text and cases, McGraw-Hill New York.
ECKERSON, W. W. 2010. Performance dashboards: measuring, monitoring, and
managing your business, Wiley. com.
ERIKSSON, P. E., DICKINSON, M. & KHALFAN, M. M. 2007. The influence of
partnering and procurement on subcontractor involvement and innovation.
Facilities, 25, 203-214.

58

GUNASEKARAN, A., PATEL, C. & MCGAUGHEY, R. E. 2004. A framework for

supply chain performance measurement. International journal of production
economics, 87, 333-347.
HOFMANN, E., MAUCHER, D., KOTULA, M. & KREIENBRINK, O. 2014. The
Purchasing Performance Measurement Challenge. Performance Measurement
and Incentive Systems in Purchasing. Springer.
KESTENBAUM, M. I. & STRAIGHT, R. L. 1995. Procurement performance:
Measuring quality, effectiveness, and efficiency. Public Productivity &
Management Review, 200-215.
KOCABASOGLU, C. 2002. An empirical investigation of the impact of strategic
sourcing and e-procurement practices on supply chain performance. 3063138
Ph.D., State University of New York at Buffalo.
KUMAR, A., OZDAMAR, L. & NG, C. P. 2005. Procurement performance
measurement system in the health care industry. International Journal of
Health Care Quality Assurance, 18, 152-166.
LEENDERS, M. R., NOLLET, J. & ELLRAM, L. M. 1994. Adapting purchasing to
supply chain management. International Journal of Physical Distribution &
Logistics Management, 24, 40-42.
LOVE, P. E., DAVIS, P. R., EDWARDS, D. J. & BACCARINI, D. 2008.
Uncertainty avoidance: public sector clients and procurement selection.
International Journal of Public Sector Management, 21, 753-776.
MOHAMMAD, M. Procurement strategies for the oil and gas industry: to capture
changing values and dealing with multi cultural complexity. The proceedings
of the international conference on construction and building technology
(ICCBT2008), Universiti Teknologi MARA (UiTM), Malaysia, 2008. 29-38.
MUYA, M., PRICE, A. & THORPE, A. Construction Materials Supply Logistics.
Proc. 13th Annual ARCOM Conference, 1997. 144-153.
QUESADA, G., GONZLEZ, M. E., MUELLER, J. & MUELLER, R. 2010. Impact
of e-procurement on procurement practices and performance. Benchmarking:
An International Journal, 17, 516-538.
RNNBCK, . 2012. Quality in the public procurement process. The TQM
Journal, 24, 447-460.
ROTCHANAKITUMNUAI, S. 2013. Assessment of e-procurement auction with a
balanced scorecard. International Journal of Physical Distribution &
Logistics Management, 43, 39-53.
SALTMAN, A. I. 2004. Must Profits Made in Transactions Involving Late-Delivered
Goods Be Deducted from the Injured Party's Breach Damages-If Not, What
Impact Should Late-Delivered Goods Have. . John's L. Rev., 78, 131.

59

SARODE, A., SUNNAPWAR, V. & KHODKE, P. 2008. A Literature Review for

Identification of Performance Measures for Establishing a Framework for
Performance Measurement in Supply Chains. International Journal of
Applied Management and Technology, 6, 12.
STAPLES, W. J. & DALRYMPLE, J. F. 2011. Exploring infrastructure procurement
by Australian state governments. International Journal of Managing Projects
in Business, 4, 512-523.
TITUS, S. & BRCHNER, J. 2005. Managing information flow in construction
supply chains. Construction Innovation: Information, Process, Management,
5, 71-82.
VAN WEELE, A. J. & WEELE, A. J. 2005. Purchasing and supply chain
management: Analysis, strategy, planning and practice, Cengage Learning
EMEA.

60

APPENDIX A

Sample for project schedule

61

APPENDIX B
Sample of supplier performance scorecard

62

APPENDIX C

Sample of procurement procedure for selected project

Contract No.:

Contract Title:
Provision of Offshore Installation & Transportation Services for A
Production/Processing Platform, Pipelines and Pipeline End Manifold for the
Changkang Field Development, VIETNAM

Client :
Pearl Oil (AMATA) Limited

Document Title :
Procurement and Subcontracting Procedure

Document No :

63

Contract No :

Contract Title :
Provision of Offshore Installation & Transportation Services for A
Production/Processing Platform, Pipelines and Pipeline End Manifold for the
Changkang Field Development, VIETNAM

Document Title :

Procurement and Subcontracting Procedure

Document No :.

Issued for Review

KAHA
R

MIMI

T.
VARKEY

02

Issued for Comment

KAHA
R

MIMI

T.
VARKEY

01

Issued for Comment

KAHA
R

MIMI

T.
VARKEY

Prepa
red

Revie
wed

Approv
ed

By

By

By

06/11/1
2

Rev

QA
Check

Date

Description

Initial

Date

PEARL
MANORA
Approval

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure

DCH

DOCUMENT C HANGE H ISTORY (DCH)

Revision
No

Status of Change
(New / Revised /
Cancellation)

Effective /
Revision Date
06/11/2012

Prepare
d by

Reviewe
d by

Approved
by

KAHAR

MIMI

T. VARKEY

01

Issued for Comment

02

Issued for Comment

KAHAR

MIMI

T. VARKEY

Issued for Review

KAHAR

MIMI

T. VARKEY

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure

DCH

TABLE OF CONTENTS

1.0

Purpose

2.0

Scope

3.0

References

4.0

Acronym/Abbreviations

5.0

Responsibilities

6.0

Procedure Details

6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12
6.13
6.14
6.15
7.0

Planning
Requisition Order
Tender Plan Requirements
Technical Evaluation Criteria Requirements
Procedure details for RFQ/ITB process for Procurement of GOODS
Procedure details for RFQ/ITB process for Subcontracting SERVICES
Award Recommendation & Negotiation
Purchase Order, Service Order & Letter of Intent (PO/SO/LOI/LOA)
Post Order Management
Inspection/Delivery/Receiving/Non-Conformance
Expediting
Invoice and Payment
Performance Review
PO/SO/Contract Closure
Procedure details for waiver to ITB/Purchase Justification

2-3

4
4-5
5
5
5-6
6 - 10
10
10-11
12 - 13
13 - 14
14 - 15
15
15
15 - 16
16

Procedure Outline
7.1
7.2
7.3

Procedure outline for RFQ/ITB process Procurement of GOODS

Procedure outline for RFQ/ITB process Subcontracting SERVICES
Procedure outline for waiver to ITB/Purchase Justification

17-19
20-21
22

8.0

Definitions

23

9.0

List of Appendices

23

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure
10.0

Quality Records

1.0

PURPOSE

DCH

23-24

The purpose of this procedure is to ensure that there is a consistent, effective and
efficient system for the planning, coordination, monitoring and controlling of all
tasks and activities related to Procurement and Subcontracting execution, in the
areas of ;
-

2.0

Planning
Requisition
Sourcing
Tendering
Evaluation
Negotiation
Order
Expediting
Receiving and Inspection
Administrative Closure

SCOPE

This documents covers to all key activities related to Procurement and Subcontract
work for the provision of Offshore Installation & Transportation Services for Bumi-B
and Cakerawala-D Wellhead Platform as stipulated under Contract no.
3000000219.

3.0

REFERENCES

CONTRACTOR Limits of Authority (LOA).

Business Services Control Division, Procurement and Subcontracting
Department
(SCPB/LII/BSC/PSC/001 Revision 1 2 April 2010)

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure
4.0

DCH

ACRONYM / ABBREVIATIONS

CV

Contract Value

AVL

Approved Vendor List

BWF

Bid Waiver Form

CBE

Commercial Bid Evaluation

CEO

Chief Executive Officer

CLIENT

Carigali Hess Operating Company Sdn Bhd

COG

Consignment of Goods Note

CONTRACT

Contract No. 3000000219

CONTRACTOR

TL Offshore Sdn Bhd

COO

Chief Operating Officer

DC

Director of Commercial

DEP

Design Engineering Plan

DO

Delivery Order

GOODS

Project Permanent Materials and/or Consumables (e.g Permanent

Flanges, Permanent Bolts & Nuts, Permanent Gaskets, etc)

HOD

Head of Department

HOP/HOS

Head of Procurement and Subcontract

ITB

Invitation To Bid

LOA

Letter Of Award

LOI

Letter Of Intent

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure
MOM

Minutes Of Meeting

MTO

Material Take Off

NCR

Non-Conformance Report

NOC

Notice of Completion

NTI

Notice to Invoice

PCC

Project Cost Controller

PD

Project Director

PE/OE

Project Engineer/Operations Engineer

PM

CONTRACTOR Project Manager

PMP

Procurement Master Plan

PMT

Project Management Team

PO

Purchase Order

PPM

Project Procurement Manager / Management

PTS

Procurement Tracking Schedule

PPP

Project Procurement Procedures i.e. This document

PPT

Project Procurement Team

PR

Purchase Requisition

PS

Procurement Staff

PSE

Procurement / Subcontract Executive

QA

Quality Assurance

RFQ

Request for Quotation

RO

Requisition Order

DCH

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure

5.0

DCH

ROA

Recommendation Of Award/Ratification of Award

SERVICES

Project Rental of Equipment and/or Subcontracting Services

SD

Subcontracts Document

SO

Service Order

SOW

Scope Of Work

SPR

Supplier Performance Review

TBE

Technical Bid Evaluation

TC

Tender Committee

TP

Tender Plan

TQC

Technical Queries and Clarification

UCQ

Unpriced Commercial Quotation

CMC

Contract Management & Costing Dept.

VENDOR

Vendor/Supplier/Subcontractor

VSD

Vendor & Subcontract Database

RESPONSIBILITIES
The overall responsibility of the Procurement and Subcontracting Procedure lies
with CONTRACTORs Head of Procurement (HOP) and Head of Subcontract (HOS).

6.0

PROCEDURES DETAILS
6.1 Planning
6.1.1. Project Master Procurement Plan and Procurement
Plan Variation

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure

DCH

6.1.1.1 Project Engineer/Operations Engineer (PE/OE) or

Requestor in the Project Management Team (PMT) shall
identify GOODS and SERVICES required to procure for the
project and prepare the Material Take-Off (MTO) List or
Scope of Work (SOW) accordingly.
6.1.1.2 The PM shall review and approve the MTO/SOW before
submission to the Head of Procurement (HOP)/Head of
Subcontract (HOS),

If it is approved, the MTO/SOW shall be submitted to

PPM, and

If it is not approved, PE/OE shall amend the MTO/SOW

and resubmit to PM for review and approval.

6.1.1.3 PPM shall prepare the Procurement Master Plan(PMP) for

Procurement Materials & Subcontract Works, vessel
chartering, rental items, fabrication works, & other items
related to the services from third party. The PMP shall be
based on the approved MTO/SOW.
6.1.1.4 Upon completion of PMP, PPM shall submit to HOP/HOS
for review and approval.
6.1.1.5 The PMP Format is attached as per Appendix 1.

6.2
6.2.1

Requisition Order (RO)

The PE/OE or Requestor shall prepare Requisition Order (RO) for all
procurement of GOODS/SERVICES required.
The PE/OE or
Requestor shall specify clearly GOODS/SERVICES required to
procure and categorize GOODS/SERVICES as per the relevant
charge type (Lump Sum, Day Rates, etc).

All requests for purchases of GOODS/SERVICES shall be made

via the RO Form. The PE/OE or Requestor shall provide all
necessary information as required in the RO form. The
following information are required but not restricted to, Job
Charge Number

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure

DCH

Detailed specification and description.

Intended use or purpose to purchase.
Drawing (if applicable).
Quantity required and available on-hand (if info is available)
and duration
(in the case of rental /
services on day rates).
Delivery location.
Date required.
Final destination indicating the location of the materials /
services to be
used, and
Charge type (lump sum, day rate) where applicable.

6.3

6.2.2

The completed RO Form shall be submitted by the PE/OE or

Requestor to the Head of Department (HOD) for recommendation.

6.2.3

The HOD shall review the RO Form and decide on the

recommendation of requisition.

6.2.4

The RO then shall be approved by either PM/PD. For urgent

requirement, appropriate justification to be included in the RO and
approval shall be obtained.

6.2.5

The RO shall be referred to the PE/OE or Requestor on any

inadequacy.

6.2.6

The RO Format is attached as per Appendix 2.

Tender Plan Requirements

6.3.1

An approved Tender Plan (TP) from Tender Committee is required

for Non Cost Plus subcontracting SERVICES and procurement of
GOODS for value more than RM 3M.

6.3.2

For Non Cost Plus subcontracting SERVICES, Tender Plan

submission shall come with Bidder List Form, Technical Evaluation
Criteria (TEC) and Commercial Evaluation Criteria.

Provision of Offshore Installation &

transportation Services for
Production/Processing
Platform,Pipelines and Pipelines End
Manifold for the Changang Field
Development, VIETNAM

Document No.

D O CU M E NT N AM E :
Procurement and Subcontracting
Procedure
6.3.3

Tender Plan for any Permanent Materials, CLIENT needs to review

and approve.

6.3.4

Specific review and approval of the TP and its subsequent revision

shall be accordance with CONTRACTOR LOA.

6.3.5

6.4

6.5

DCH

The Tender Plan format is attached as Appendix 3.

Technical Evaluation Criteria

6.4.1

For TEC the essential criteria has to be cleary stated and providing
the correct technical parity bands and to be approved by PM.

6.4.2

For Permanent Materials item (Cost Plus) TEC needs to be

reviewed and approve by CLIENT.

Procedure details of RFQ/ITB Process for Procurement of GOODS

6.5.1

Bidder Selection
Identify and Selection of VENDORs / Subcontractors
6.5.1.1 Upon receipt of the approved PR Form, PSE in charge shall
generate the Bidders List. The complete Bidder List Form to
be submitted to CONTRACTORs HOP/HOS and PM for
review and approval.

6.5.1.2 Bidder list for Permanent Materials shall be based on

CLIENTS APPROVED VENDOR LIST (AVL) as stated in the
CONTRACT.

-------SAMPLE END HERE-------