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Purchasing professionalization: the journey to more professionalism within Welbions’ purchasing function

Stokkentre, R.P. (2013) Purchasing professionalization: the journey to more professionalism within Welbions’ purchasing function.

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Abstract:The environment of Dutch housing corporations is changing, causing difficulties in different areas of concern. As a consequence, housing corporations are continuously searching for a higher level of effectiveness and efficiency, often resulting in the “professionalization” of various business operations. The current developments in the sector and the need to become more result driven, particularly in the area of purchasing, are the motivations for this research. Main area of concern within housing corporation Welbions is that the increasing costs can only be covered partly by the potential realizable increases in revenues. This has caused that in the near future a gap is going to arise between the organization-wide income and expenses. Additional actions are necessary, therefore is Welbions willing to have a better control over their costs, especially those generated by its purchasing function. The magnitude of purchasing’s impact on the overall corporate performance strengthens the question: Can the purchasing function of Welbions be “professionalized” with reduced costs in perspective? The Professionalization of business operations is seen as an effective way to reduce costs and thereby expanding the financial possibilities of an organization. The following main research question has been formulated for this research: In what way can Welbions professionalize its current purchasing function in order to be beneficial to the organization? Within this question, it is the purchasing function’s internal organization of processes and activities as well as its structural integration and coordination in which we are most interested. In order to find an answer to the research question(s), a qualitative case study has been conducted supported by an extensive review of literature in the field of purchasing. Besides literature, this research used different empirical sources of which internal documents and conducted (qualitative) interviews provided the majority of the practical information needed to answer the research questions. Welbions currently possesses a decentralized mechanism to structurally integrate and coordinate its purchasing function. Various analyses indicated that this mechanism not anymore fits to the organization in order to manage a professionalized purchasing function. The analyses revealed that Welbions’ purchasing function should possess more centralization, be it either by a complete centralized function or a hybrid one. Despite the identified preference towards a complete centralized purchasing function, it is recommended to have the purchasing function integrate and coordinate by hybrid mechanism since this mechanism is deemed to fit better to the desires and needs of the organization. Next to identifying which integration and coordination mechanism fits Welbions to manage a professionalized purchasing function, this paper also focuses on the actual professionalization of the purchasing function itself. Based on a combination of purchasing maturity models, other practical oriented literature, and signals out of Welbions have seven factors been selected that formed the theoretical framework of this research. The selected factors are deemed to be most beneficial (useful) to Welbions and should be minimally present in its purchasing function. Comparing the theoretical framework (“Soll-situation”) with the purchasing practices at Welbions (“Ist-situation”) revealed that Welbions definitely has the ability to professionalize its purchasing function. The following recommendations are made in order to possess a more professionalized purchasing function:  Purchasing policy: continue with the development of the integral purchasing policy that describes the fundamental principles and objectives set by the management team.  Purchasing process: compose a documented purchasing process that is based on the principles of the purchasing policy and preferably differentiated on the three main business processes.  Supplier selection: determine, as part of the purchasing process, a structured way of selecting a supplier which is preferably differentiated based on the three main business processes  Supplier performance evaluation: structurally assess, document, and share the performance of key suppliers through a pre-determined set of objective performance indicators.  Contract management: develop and actively maintain a contract management system/register in which all the concluded contracts and agreements are managed, organization-wide.  Purchasing portfolio analysis: first, perform purchasing portfolio analysis periodically to identify the key suppliers and purchasing categories. Second, incorporate and distinguish the purchasing policy based on the portfolio analysis’ classification.  Purchasing performance measurement and control: develop a procedure/system to control and periodically evaluate the performances of the purchasing function. It should start with evaluating the compliance of the stated policy and process before objective measures are included to assess the stated purchasing objectives. Each of these recommendations is deemed to lead towards a more professionalized purchasing function. If implemented, the organization is likely to have reduced costs in perspective. This paper furthermore performed different quantitative analyses on the 2012 purchasing documentation in order to define Welbions’ purchasing function in terms of nature and volume. The analyses revealed typical features and striking findings which strengthen the recommendations made. In addition, these analyses identified different potentials to further reduce/save costs through the purchasing function. Taking together the recommendations, analyses, and the suppositions of literature resulted in an estimated savings potential of between € 2,1 million and € 5,3 million (based on the 2012 volume). Translated into percentages, this indicates an overall estimated savings potential of between 3,3% and 8,3%.
Item Type:Essay (Master)
Housing Corporation Welbions, Hengelo (O), the Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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