Moving Toward Value‐Based Purchasing

Abstract

As the marketplace becomes more competitive, the concept of “value” is receiving increased attention. Firms are attempting to increase the value of their products and services and reduce the nonvalue‐added activities, both in terms of number and cost. One function that has a tremendous impact on these efforts is purchasing. Purchasing, being a boundary spanning function, has the opportunity to increase value through two major linkages: internal interactions and external involvement. Value‐based purchasing focuses the decisions of purchasing professionals on the creation of value rather than on the traditional objectives of cost savings and efficiency. To develop and maintain this focus, the function's internal operating environment must support and enhance these efforts. Organizational variables like the performance measurement system, the extent of functional interaction, and access to external information affect value‐based purchasing. This article, through empirical data from 21 firms in diverse industries, examines the readiness of the current organizational environment, in terms of these three critical variables, for successful implementation of value‐based purchasing. Based on the findings, recommendations for managers are provided.

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