Performance Measurement and Decision Making in a Purchasing Environment

Abstract

Performance measurement has been, and continues to be, an important issue in the management of the purchasing function. Performance measures are useful in that they provide guidance in decision making by focusing a buyer's attention on particular criteria, e.g., delivery, quality, or cost. At the same time, it must be recognized that these performance measures (either formal or perceived) encourage a buyer to make certain types of decisions. For example, if emphasis is placed on cost reduction, decisions in areas of supplier selection, material substitution, or value analysis may well be made with the intent to reduce costs, as opposed to reducing the supplier base, improving quality, and so on. Additionally, the performance measurement system can affect a buyer's confidence, commitment, and enjoyment while working in that particular environment. As a purchasing executive, it is essential to understand the potential impact of different performance measurement systems on both a buyer's decision‐making activities and his or her perceptions of priorities. This discussion, based on the results of a behavioral laboratory simulation, attempts to provide that understanding.

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