برآورد اثرات هزینه تمرکز خرید؛ شواهد تجربی از موافقت نامه های چارچوب در بخش دولتی

There appears consensus among academics that purchasing centralization provides several synergy benefits, especially in terms of lower prices and economies of processes, but empirical evidence of the specific cost effects is scarce in literature. This paper presents empirical evidence of these cost effects from a purchasing centralization project using centralized framework agreements in the Finnish government. The empirical study is twofold: the cost effects of centralization are estimated by comparing the costs of centralized and decentralized tendering processes and potential price savings. The estimation of process costs is done by surveying the time spent on the tendering both for the decentralized operating model and the centralized operating model in the government and estimating the cost of those times. Potential price savings are estimated by comparing the central framework agreement prices to market prices in two selected product categories. The results on the price savings provide empirical evidence of the academic consensus that significant volume discounts are available from pooling. Additionally, the size of savings potential in process costs shows that the number of units centralizing their purchasing process does not need to be very high before economies of process already become evident.

Purchasing’s importance to organizational competitiveness is increasingly being noted, and it is now more and more considered as a strategic function instead of just an operative one (e.g. Carr and Smeltzer, 1997 and Paulraj et al., 2006). As a result, more and more attention is placed on purchasing activities in organizations, which has led to the restructuring of purchasing functions and the search for optimal purchasing processes in different product and service categories in different contexts (e.g. Parikh and Joshi, 2005 and Laios and Moschuris, 2001). Many firms realize that purchasing is a key element in a supply chain management strategy, and the trend has thus been toward a stronger, more centralized function and greater participation in the firm’s strategic planning process (Stanley, 1993: Cousins and Spekman, 2003 and Dubois, 2003). Typically, as purchasing starts to develop, a more centralized approach is sought, as demonstrated e.g. by Van Weele’s (2002) purchasing and supply development model. The combination of focusing more on collaborative relationships and the increasingly strategic role of purchasing has resulted in a rise in prominence of strategies of supply base reduction (Harland et al., 1999) and the quest for global efficiency and effectiveness has led to increased centralization and coordination of the purchasing function (Faes et al., 2000). More and more the question prevails how to get organized at a corporate level to capture potential purchasing synergies (Rozemeijer, 2000). Dimitri et al. (2006) suggest that centralization appears as a clear trend in public procurement as well. The importance of this type of integration is not in doubt; theory has long suggested the need for integration of internal functions and there is empirical evidence that integrating specific internal supply chain functions such as purchasing will lead to higher performance (Pagell, 2004). By taking control of scattered purchasing volumes throughout the organization, organizations are expecting to gain savings and other benefits. Specifically, many organizations, both public and private, have established framework agreements with selected suppliers to benefit from purchasing synergies (Karjalainen et al., 2009). This means that instead of each organizational unit deciding upon their own specifications, suppliers, and contractual agreements, and running the processes associated with this in parallel, or even individual employees searching for suppliers when a purchasing need arises, organization-wide agreements are made with a selection of preferred suppliers. All organizational units are then expected to use these frame agreements for their operative purchases. Purchasing literature has introduced several synergy benefits associated with centralization of purchasing processes and the pooling of volumes, one of the most important being various forms of cost savings, attained e.g. through volume discounts and reduced overlapping work activities. Rough estimates for these cost savings have also been suggested but only a few studies provide specific cost analyses on the subject. Multiple articles discuss Total cost of ownership (TCO) –models, designed to develop an understanding of the true cost of purchase and aid in purchasing decision making and supplier selection (e.g. Ellram, 1993, Ferrin and Plank, 2002 and Hurkens et al., 2006). But while these models include components other than price (Ellram, 1993), they are focused on comparing the costs of alternative suppliers and/or supply solutions and not focused on calculating the internal process costs (e.g. supplier selection, contracting) between different purchasing models. There is a need for research on verifying, demonstrating and measuring the effects of purchasing centralization on purchasing costs. The motivation for this research stems largely from this gap in current research, as well as managerial need for more studies on quantifying the cost effects of centralization. To justify the move to a centralized model, and convince all organizational stakeholders on its purposefulness, evidence of the synergy benefits available through centralization needs to be demonstrated. The objective of this study is twofold. First, it is to provide directions on how organizations can estimate and quantify the cost effects of purchasing centralization. Second, it is to provide one demonstration of these cost effects by empirical evidence from a purchasing centralization project. The structure of the paper is the following. First, prior literature on purchasing centralization is presented. The second section of the literature review is focused on the definitions of centralized purchasing in the literature; within that discussion the definition used in this paper, based on centralized framework agreements, is presented, and its relation to hybrid purchasing models is pointed out. In addition, the advantages and disadvantages—along with the most appropriate contexts—of using such a purchasing approach are discussed. Literature on purchasing centralization in public procurement is also discussed, as the empirical data for this research is from the public sector. In this paper, the terms purchasing and public procurement are used in accordance with the suggested definitions of Murray (2009), who argues that procurement encompasses purchasing (the whole purchasing cycle). The literature review is concluded with a subsection focused on motivating additional research in the area of quantifying the cost impacts of centralization. The third section of the paper contains the conducted analyses. First, the selected research method is presented and discussed in light of previous research on the topic. Then, using the Finnish Government as a case example, the effects of centralization on tendering process costs and purchasing prices are presented through empirical data. Discussion and conclusions conclude the paper.

This paper provided a review of literature on purchasing centralization, gathering main findings and identifying gaps in research. From previous research (e.g. Trautmann et al., 2009a) it was identified that purchasing centralization creates three types of synergy benefits: economies of scale, economies of information and learning, and economies of process. What has received only minor attention is research on how to quantify these synergy benefits. Empirical research especially in the area of hard savings as defined by Nollet et al. (2008) which mostly relates to economies of scale and economies of process has been scarce. This type of research is relevant, however, for academic and especially managerial purposes, as demonstrations of the cost effects of centralization—which are generally assumed to be savings—are necessary to justify the organizational move to centralization, which in most cases is done by the use of centralized framework agreements for those categories that are deemed as suitable for a centralized approach. But without being able to convince units of the benefits of centralization, and to demonstrate them, the purchasing function can experience difficulties in motivating other units to use the contracts it has negotiated. And without contract compliance, all the benefits of centralization most likely will not materialize (Kulp et al., 2006). The relationship between the marginal benefits derived from each different source of economies and the subunits commitment to the centralized operating model was also depicted in Fig. 1. This figure demonstrated that subunit compliance is needed especially to gain economies of scale and process, while most economies of information can be realized with only few units committing. The empirical part of this study provided results of a research project estimating the cost effects of the use of central framework agreements in Finnish government. Specifically, the effects of centralization on tendering process costs (economies of process) and purchasing prices (economies of scale) were investigated. This study is, to the author’s knowledge, the first attempt to empirically gather data on the process costs of purchasing based on time spent in tendering. Based on survey results, the approximate cost of the average decentralized public tendering process, which takes 167 working hours to complete, was estimated to be 5845 €. As the times are estimates provided by respondents, not results of observation and time tracking studies, these figures cannot be taken as absolutes. They do, however, provide a first estimation of process costs in public procurement, and establish a basis for further studies in the field. From a managerial point of view, being able to put a cost on the process of tendering makes it easier to justify bringing the process under central control instead of letting each unit run their own process. Price savings of centralization were estimated by comparing the central framework agreement prices to market prices in two selected categories: flights and office supplies. Both comparisons showed significant economies of scale in the central framework agreements, savings between different individual products tested ranged from 8% (toner cartridges) to 37% (flights with very flexible contract and cancellation terms). These examples can be seen as empirical verifications of the consensus among academics that centralization is expected to bring lower prices through volume discounts. These sizes of savings potential in both process costs and purchasing prices show that the amount of units centralizing their purchasing process and the purchasing volume being pooled do not need to be very high before economies of scale already become evident. These types of savings demonstrations can also be used to tackle off-contract buying, i.e. maverick buying, which is a problem also for the Finnish government. Those engaged in it often do so because of the perceived superiority of an alternative offer i.e. they believe they can find the same products with lower prices than the contract prices (Karjalainen et al., 2009). Typically this means that they have found a lower-priced product on the market. When centralized framework prices are found to be competitive compared to market prices, this information can be used to reduce maverick buying at the user level. And as illustrated in Fig. 1, increased compliance by the units is crucial to achieving the intended benefits. This is because the higher contract utilization rate will affect supplier behavior and bring greater discounts in contract prices. Some elements were left outside the scope of this study. First, costs of ordering and different ordering methods were not considered. This is because in most centralized purchasing operating models, the ordering operations are still decentralized. Second, possible costs of unsuitable product specifications resulting from the fact that a standardized product contracted for the whole organization may not meet the specific needs of individuals were not taken into consideration. Third, costs related to quality are not considered. It is reasonable to assume, however, that all these costs can contribute to the cost differences between a centralized and a decentralized operating model, and are thus identified as important avenues for future research. In addition, centralized purchasing may have indirect effects on e.g. purchasing skills and IT systems in use, so future research should attempt to identify also the costs of training and investments when comparing the two operating models. This research does not take a normative approach in the sense that it would promote centralization as the optimal purchasing organizational form for any organization, for all purchased items or in all environmental or organizational contexts. The objective was merely to demonstrate the potential savings that can be gained by centralization, when the organizational context and the products purchased appear suitable for a centralized approach to contracting. A prescriptive approach is, however, taken in suggesting a method for these calculations on the cost effects of purchasing centralization as such methods are not available in previous research. To conclude, this paper intended to provide a rare empirical study on estimating the cost effects of centralization, a topic which has received wide theoretical acceptance in literature but has not been demonstrated with empirical evidence. The results thus provide a good starting point for further discussions and empirical studies on the topic, hopefully using a variety of methods and organizational contexts.