IMPROVING CONTRACT
COMPLIANCE MEASUREMENT AT
SARA LEE INTERNATIONAL
University of Groningen Uppsala University
IMPROVING CONTRACT
COMPLIANCE MEASUREMENT AT
SARA LEE INTERNATIONAL
P
UBLIC
V
ERSION
SUSANNA C.M. JONK
Master Thesis
University of Groningen – MSc International Financial Management Uppsala University – MSc Business and Economics
IMPROVING CONTRACT
COMPLIANCE MEASUREMENT AT
SARA LEE INTERNATIONAL
IMPROVING CONTRACT
AT SARA
Susanna
Telephone MSc Speciali Supervisors Dr. Dr. IICONTRACT COMPLIANCE MEASUR
SARA LEE INTERNATIONAL
Susanna Catharina Maria Jonk
Student number: 1534459 Email: S.C.M.Jonk@student.rug.nl Telephone number: +31 (0)6 43902248
August 2010
University of Groningen
MSc in International Business & Management Specialisation: International Financial Management
&
Uppsala University MSc in Business and Economics
Supervisors University of Groningen:
Dr. M.P. van der Steen (1st supervisor) Dr. R.B.H. Hooghiemstra (2nd supervisor)
Supervisor Sara Lee International:
Drs L. Cooijmans, R.A.
The contract compliance measurement that was introduced at Sara Lee International (SLI) in July 2009 was not satisfactory to all parties. Category managers (who source and contract
services for the corporation) felt that the measurement did not provide a correct representation of the level of contract compliance among them. This research therefore provides an answer to the problem statement: ‘How to improve the measurement
Not much research about contract compliance measurement had been performed prior to this study, which made establishing relationships between various influences and the measurement of contract compliance the main academic goal of this research. Previous studies had shown that
organisational and people factors affect individual behaviour and o furthermore established that there are various reasons why individu
contract. Prior studies had also concluded that the validity, reliability, practicality, acceptability, specificity and strategic congruence of a measurement have a positive effect on its value to users. The characteristics based on which can be established whether the top Management Team
procurement department as having a
another previous study. The different types and approaches to contract compliance wer
as well. However, due to the newness of contract compliance measurement, none of the influences of these aspects on contract compliance
With the use of questionnaires (quantitative research
with category managers, direct managers and other experts, the validity of several hypotheses was tested. The first questionnaire was sent to all category managers in the procurement department of SLI and had a high response rate of 77%. The interviews went into further detail regarding the reasons behind the answers that category managers had given in the questionnaire.
was sent to thirty-two shopping cart creators (the people actuall
completed by 63% of them. The results from both questionnaires were tested for their suitability parametric tests. In the end, they were used to determine correlations between the variables and make several multiple regressions. In these regressions, the below
predictors whereas the constructed ‘contract compliance measurement’ variable was the dependent outcome variable.
Various conclusions were drawn the conclusions for the Academic C some of the results, all conclusions for the number of additional conclusions ar
study has found a (i) statistically significant positive relationship between Factors and contract compliance measurement, which indicates that if
improve, the measurement of contract compliance will improve as well. Furthermore, that (ii) the Management’s View on Purchasing
contract compliance. (iii) Strictly statistical, it
negative influence on contract compliance measurement, however since the sampled population within the procurement department of SLI is almost equal to the entire population, the researcher determines that maverick buying has a negative effect on the measurement of contract compliance within SLI. Additionally, (iv) Performance Measurement Criteria
relationship with contract compliance. (v) The
influence on contract compliance measurement, though transactional compliance has a significant positive relationship, while process compliance & performance has a negative relationship. Finally, (vi) the Different Contract Complianc
measurement as well, where the majority are positively related and one is negatively related. In order to improve the contract compliance measurement, the above
positive influence should be improved.
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The contract compliance measurement that was introduced at Sara Lee International (SLI) in July 2009 was not satisfactory to all parties. Category managers (who source and contract
services for the corporation) felt that the measurement did not provide a correct representation of the level of contract compliance among them. This research therefore provides an answer to the problem
How to improve the measurement of contract compliance at Sara Lee International?
Not much research about contract compliance measurement had been performed prior to this study, which made establishing relationships between various influences and the measurement of contract
the main academic goal of this research. Previous studies had shown that
organisational and people factors affect individual behaviour and organisational performance. It was furthermore established that there are various reasons why individuals buy non
Prior studies had also concluded that the validity, reliability, practicality, acceptability, specificity and strategic congruence of a measurement have a positive effect on its value to users. The
on which can be established whether the top Management Team
s having a strategic contribution to the corporation were determined in another previous study. The different types and approaches to contract compliance wer
as well. However, due to the newness of contract compliance measurement, none of the influences of these aspects on contract compliance measurement specifically had been researched yet.
With the use of questionnaires (quantitative research) and several interviews (qualitative research) with category managers, direct managers and other experts, the validity of several hypotheses was tested. The first questionnaire was sent to all category managers in the procurement department of SLI a high response rate of 77%. The interviews went into further detail regarding the reasons behind the answers that category managers had given in the questionnaire. The second questionnaire two shopping cart creators (the people actually making purchases) and was completed by 63% of them. The results from both questionnaires were tested for their suitability
they were used to determine correlations between the variables and sions. In these regressions, the below mentioned aspects were the predictors whereas the constructed ‘contract compliance measurement’ variable was the dependent
re drawn based on these sources. It is important to make a distinction b the conclusions for the Academic Community and for SLI. Due to the statistical insignificance of some of the results, all conclusions for the Academic Community are also valid for SLI, whereas a number of additional conclusions are solely applicable to the procurement department of SLI. study has found a (i) statistically significant positive relationship between Behaviour Influencing
and contract compliance measurement, which indicates that if Behaviour Influencing Fa improve, the measurement of contract compliance will improve as well. Furthermore,
Management’s View on Purchasing has a positive relationship with the measurement . (iii) Strictly statistical, it cannot be concluded that maverick buying has a negative influence on contract compliance measurement, however since the sampled population within the procurement department of SLI is almost equal to the entire population, the researcher determines erick buying has a negative effect on the measurement of contract compliance within SLI. Performance Measurement Criteria have a statistically significant positive relationship with contract compliance. (v) The Type and Approach of Contract Compliance
influence on contract compliance measurement, though transactional compliance has a significant positive relationship, while process compliance & performance has a negative relationship. Finally, Different Contract Compliance Measurements have an influence on contract compliance measurement as well, where the majority are positively related and one is negatively related.
In order to improve the contract compliance measurement, the above-mentioned aspects with a luence should be improved. This means that SLI should improve the IT
The contract compliance measurement that was introduced at Sara Lee International (SLI) in July 2009 was not satisfactory to all parties. Category managers (who source and contract goods and services for the corporation) felt that the measurement did not provide a correct representation of the level of contract compliance among them. This research therefore provides an answer to the problem
of contract compliance at Sara Lee International?’ Not much research about contract compliance measurement had been performed prior to this study, which made establishing relationships between various influences and the measurement of contract the main academic goal of this research. Previous studies had shown that environmental, al performance. It was als buy non-compliant to a Prior studies had also concluded that the validity, reliability, practicality, acceptability, specificity and strategic congruence of a measurement have a positive effect on its value to users. The on which can be established whether the top Management Team perceives the the corporation were determined in another previous study. The different types and approaches to contract compliance were distinguished as well. However, due to the newness of contract compliance measurement, none of the influences of
specifically had been researched yet.
) and several interviews (qualitative research) with category managers, direct managers and other experts, the validity of several hypotheses was tested. The first questionnaire was sent to all category managers in the procurement department of SLI a high response rate of 77%. The interviews went into further detail regarding the reasons The second questionnaire y making purchases) and was completed by 63% of them. The results from both questionnaires were tested for their suitability by they were used to determine correlations between the variables and to mentioned aspects were the predictors whereas the constructed ‘contract compliance measurement’ variable was the dependent
ake a distinction between ommunity and for SLI. Due to the statistical insignificance of ommunity are also valid for SLI, whereas a e solely applicable to the procurement department of SLI. This Behaviour Influencing Behaviour Influencing Factors improve, the measurement of contract compliance will improve as well. Furthermore, it was concluded has a positive relationship with the measurement of cannot be concluded that maverick buying has a negative influence on contract compliance measurement, however since the sampled population within the procurement department of SLI is almost equal to the entire population, the researcher determines erick buying has a negative effect on the measurement of contract compliance within SLI. have a statistically significant positive act Compliance have an influence on contract compliance measurement, though transactional compliance has a significant positive relationship, while process compliance & performance has a negative relationship. Finally, s have an influence on contract compliance measurement as well, where the majority are positively related and one is negatively related.
and stimulate its usage. Furthermore, a database should be established which contains transactional spend data and which can allocate this data to
categories into (Non) Business-C
the process should also be clarified. One
feedback on individual contract compliance performance in the weekly team meeting and the highest percentile increase in contract compliance should be highlighted in the monthly department report. Additionally, it was recommended to route p
that the group of indirect category managers should be more involved in the contract compliance measurement. The personal contract compliance performance should
target of a category manager and should be
maverick buying should be eliminated by giving a r
by improving contact between shopping cart creators and category managers. used contract compliance measurement
should be used again within SLI.
II
. Furthermore, a database should be established which contains transactional can allocate this data to specific contracts. The reasons for grouping several Critical-categories and the overall objectives, policies and workings of be clarified. One category manager per team should be appointed to give ontract compliance performance in the weekly team meeting and the highest percentile increase in contract compliance should be highlighted in the monthly department report. Additionally, it was recommended to route process-feedback through a taskforce.
group of indirect category managers should be more involved in the contract compliance measurement. The personal contract compliance performance should be kept included in the personal target of a category manager and should be equally evaluated across all lines of business
maverick buying should be eliminated by giving a refreshment training to shopping cart creators ontact between shopping cart creators and category managers. Moreover,
used contract compliance measurement should be adjusted after which the modified measurement should be used again within SLI.
This piece of work, my master thesis, is the result of eight months of research during my internship at Sara Lee International, which was followed by an extra period to conclude this study. The research also forms the final piece in the completion
specialisation in International Financial
University. You can therefore consider it my last testimony My internship at Sara Lee International just flew by. business environment for the first time
beginning, finding a research topic department and especially after
compliance was a ‘hot issue’ within the department, been introduced. Unfortunately,
totally new topic in theory, which made it Nevertheless, I am still very glad
me to fully utilise my potential and to make a valuable contribution to a new development highly valued being the contact person for the measurement of contract compliance and was very pleased to support numerous category managers to improve their contract compliance performance. has taught me more than dry theoretical
social aspect of personal performance Several people have contributed my appreciation to a number of people.
Cooijmans for giving me the opportunity to perform my graduation project at Sara Lee International and for his endless support, guidance and feedback during my research.
me with my research, made moment
resources to do whatever I thought was necessary.
Leon for including me in several different projects, which has provided me understanding of procurement, a big corporation
will certainly prove to be valuable in my future career. Next to this, I would like to thank all my colleagues at Sara Lee International for
showing interest in my research and for their cooperation during my I would also like to thank Martijn van der Steen
interesting viewpoints and useful feedback
had a good feeling of where my research should lead to doing. Additionally, I would like to thank
University of Groningen for reviewing my final report.
Finally, I would also like to express my gratitude to the people surrounding me to thank my wonderful parents, brother, sister and brother
have always given me confidence that I will however certainly not least, I would like
needed and for giving me feedback and help at any time. Without your persistent confidence in me, this would have been a much tougher project to finish.
Utrecht, August 2010
Susan Jonk
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This piece of work, my master thesis, is the result of eight months of research during my internship at tional, which was followed by an extra period to conclude this study. The research completion of the study International Business & Management, with a International Financial Management, at the University of Groningen and the Uppsala You can therefore consider it my last testimony to the academic world.
International just flew by. It allowed me to get in touch with the ‘real’ for the first time and I discovered that it is a great world to work in!
finding a research topic seemed difficult. However, after a couple of weeks working at the after listening and talking to my colleagues, I noticed
within the department, especially because the new measurement
I also found out that it is a relatively new subject in business and a totally new topic in theory, which made it much harder to find information and
very glad that I chose this actual and interesting subject because it has allowed e my potential and to make a valuable contribution to a new development hly valued being the contact person for the measurement of contract compliance and was very pleased to support numerous category managers to improve their contract compliance performance.
theoretical knowledge, but has also given me valuable insight into the social aspect of personal performance and motivating people.
have contributed to the completion of this research. I would therefore
to a number of people. First of all, I would like to thank my company supervisor Leon Cooijmans for giving me the opportunity to perform my graduation project at Sara Lee International and for his endless support, guidance and feedback during my research. You were always keen to help search, made moments free in your busy schedule and offered me the freedom and I thought was necessary. Furthermore, I want to express my gratitude to including me in several different projects, which has provided me
, a big corporation but also in the development of ‘soft skills’
be valuable in my future career. Next to this, I would like to thank all my colleagues at Sara Lee International for offering a friendly and stimulating work environment, showing interest in my research and for their cooperation during my internship and research
to thank Martijn van der Steen, my academic supervisor, for his great support viewpoints and useful feedback during this thesis project. After our appointments
ere my research should lead to and I felt trusted and confident Additionally, I would like to thank Reggy Hooghiemstra, my second supervisor University of Groningen for reviewing my final report.
Finally, I would also like to express my gratitude to the people surrounding me. Foremost to thank my wonderful parents, brother, sister and brother-in-law who have always support
me confidence that I will succeed at whatever I wish to accomplish in my life. Last, would like to thank my boyfriend Jos for giving me support whenever me feedback and help at any time. Without your persistent confidence in me, this would have been a much tougher project to finish.
This piece of work, my master thesis, is the result of eight months of research during my internship at tional, which was followed by an extra period to conclude this study. The research of the study International Business & Management, with a of Groningen and the Uppsala the academic world.
to get in touch with the ‘real’ world to work in! At the after a couple of weeks working at the colleagues, I noticed that contract new measurement had just a relatively new subject in business and a ind information and relevant literature. because it has allowed e my potential and to make a valuable contribution to a new development. I felt hly valued being the contact person for the measurement of contract compliance and was very pleased to support numerous category managers to improve their contract compliance performance. It iven me valuable insight into the
therefore like to express to thank my company supervisor Leon Cooijmans for giving me the opportunity to perform my graduation project at Sara Lee International were always keen to help free in your busy schedule and offered me the freedom and Furthermore, I want to express my gratitude to including me in several different projects, which has provided me with a much better but also in the development of ‘soft skills’, which be valuable in my future career. Next to this, I would like to thank all my ffering a friendly and stimulating work environment,
and research.
for his great support, our appointments I always ed and confident in what I was my second supervisor at the
SUMMARY ...
PREFACE ... TABLE OF CONTENTS ... LIST OF FIGURES, GRAPHS
1. INTRODUCTION ... 1.1. Problem indication ... 1.2. Relevance of Research ... 2. RESEARCH DESIGN ... 2.1. Introduction ... 2.2. Problem Statement ... 2.2.1. Research Objective ... 2.2.2.Research Question ... 2.2.3.Research Conditions 2.3. Structure of Research ... 3. THEORETICAL REVIEW ... 3.1. Introduction ... 3.2. Defining Procurement ... 3.3. Defining contract compliance
3.3.1.Types of Compliance
3.3.2. Maverick Buying ... 3.4. Behavioural factors influencing
3.4.1.Environmental factors 3.4.2.Organisational factors
3.4.3. People factors ... 3.5. Performance Measurement
3.5.1.General Performance Measurement 3.5.2.Purchasing Performance Measurement
3.5.3.Purchasing Performance Measurement Dimensions 3.5.4.Purchasing Performance
3.6. Performance Measurement 3.7. Key Performance Indicators 3.8. Summary ...
4. RESEARCH ENVIRONMENT
4.1. Introduction ... 4.2. Sara Lee ...
4.2.1.Sara Lee Corporation 4.2.2.Sara Lee International
4.2.3.Procurement Department of Sara Lee International 4.2.4.IT-Applications ...
4.2.5.Performance measurement, development & appraisal
4.3. Current situation of contract 4.3.1.Contract compliance
4.3.2.Purchase Order Coverage
4.4 Contract Compliance Measurement
4.5. Theoretical Framework ... 4.6. Hypotheses ... IV
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... ... ... GRAPHS AND TABLES... ... ... ... ... ... ... ... ... ... ... ... ... ... compliance ... ... ... influencing contract compliance measurement ...Environmental factors ...
Organisational factors ... ...
Measurement ...
General Performance Measurement ...
Purchasing Performance Measurement ...
Purchasing Performance Measurement Dimensions ...
Purchasing Performance Evaluation System ... Measurement Criteria ...
3.7. Key Performance Indicators ... ...
ENVIRONMENT ...
... ...
Sara Lee Corporation ...
Sara Lee International ...
Procurement Department of Sara Lee International ... ...
ement, development & appraisal ...
contract compliance at SLI ...
of Category Managers ...
5. METHODOLOGY ...
5.1. Introduction ... 5.2. Type of Research ... 5.3. Data Collection ...
6. RESULTS & ANALYSIS ...
6.1. Introduction ... 6.2. Statistical analysis ...
6.2.1.Factor Analysis ... 6.2.2.Assumptions ... 6.3. Hypothesis 1: Behaviour Influencing
6.3.1.Descriptive Analysis
6.3.2.Statistical Analysis ... 6.4. Hypothesis 2: Management’s
6.5. Hypothesis 3: Different Forms 6.6. Hypothesis 4: Performance 6.7. Hypothesis 5 ...
6.7.1.H.5.a. Types and approach
6.7.2.H.5.b. Different Forms
7. RECOMMENDATIONS FOR
7.1. Introduction ...
7.2. Behaviour Influencing Factors & Performance Measurement Criteria 7.2.1.IT-Application ...
7.2.2.Structure... 7.2.3.Dimensions of Individual
7.2.4.Reward System ... 7.3. Different Forms of Maverick Buying
7.4. Types and approach of contract compliance & different
8. CONCLUSION ...
8.1. Introduction ... 8.2. Conclusions for the Academic 8.3. Conclusions for Sara Lee 8.4. Limitations and future research
ABBREVIATIONS ... REFERENCES ... APPENDICES ...
Appendix A: Trend calculation Appendix B: Number of purchase Appendix C: Questionnaire Category Appendix D: Questionnaire Shopping Appendix E: Principal Component Appendix F: Skewness and Kurtosis Appendix G: Excluded Variables Appendix H: Ranks hypothesis Appendix I: Excluded Variables Appendix J: CCM Presentation V ... ... ... ... ... ... ... ... ... Influencing Factors ... ... ... Management’s View on Purchasing ...
Forms of Maverick Buying ... Performance Measurement Criteria ... ...
approach of contract compliance ...
Forms of Contract Compliance Measurement ...
FOR SARA LEE INTERNATIONAL ...
... 7.2. Behaviour Influencing Factors & Performance Measurement Criteria ...
...
...
Individual Differences ... ... 7.3. Different Forms of Maverick Buying ...
7.4. Types and approach of contract compliance & different CCMs... ...
... ... Academic Community ... International ... research ... ... ... ...
calculation Multiplier Business Critical categories Coffee &
purchase orders & purchase order coverage ... Category Managers ... Shopping Cart Creators ... Component Analysis: outcome variable ...
Kurtosis ... Variables Hypothesis 1...
hypothesis 3 ... Variables Hypothesis 4 ... Presentation in tables and graphs ...
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IGURESFigure 1: Research structure ... Figure 2: Procurement process model
Figure 3: Different Forms of Maverick Buying and their underlying reasons Figure 4: Behavioural model ...
Figure 5: Expectancy Theory ...
Figure 6: Key areas of purchasing performance measurement Figure 7: Performance Measurement Criteria
Figure 8: SLI Supplier Segmentation Figure 9: How to create an order
Figure 10: Contract Compliance Measurements Figure 11: Theoretical Framework
Figure 12: Results Contract Compliance Measurement
G
RAPHSGraph 1: S2C ...
Graph 2: Age Groups ... Graph 3: Education Levels ... Graph 4: Performance Measurement Criteria
T
ABLESTable 1: Management’s View on Purchasing
Table 2: Response rate of questionnaire category managers Table 3: H.1. Multiple regression
Table 4: H.1. Model Summaryd ... Table 5: H.3. Test Statisticsa ... Table 6: H.3.Correlations ... Table 7: H.4. Multiple Regression
Table 8: Model Summarye ... Table 9: Chi-Square Tests ... Table 10: H.5.a. Multiple Regression
Table 11: H.5.a. Model Summary Table 12: H.5.b. Multiple Regression Table 13: H.5.b. Model Summary
Table 14: Conclusions ...
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: Procurement process model ... 3: Different Forms of Maverick Buying and their underlying reasons ...
... ... Figure 6: Key areas of purchasing performance measurement ...
Figure 7: Performance Measurement Criteria ...
entation ... ... : Contract Compliance Measurements ... Figure 11: Theoretical Framework ... Figure 12: Results Contract Compliance Measurement ...
... ...
... Graph 4: Performance Measurement Criteria ...
Table 1: Management’s View on Purchasing ...
Table 2: Response rate of questionnaire category managers ... H.1. Multiple regressiona ...
... ... ...
Table 7: H.4. Multiple Regressiona ... ...
...
Table 10: H.5.a. Multiple Regressiona ... Table 11: H.5.a. Model Summaryb ... Table 12: H.5.b. Multiple Regressiona ... Table 13: H.5.b. Model Summaryb ...
1.1. PROBLEM INDICATION
Sara Lee International (SLI) is a subsidiary of Sara Lee Corporation
between the American based company Consolidated Foods and the Dutch firm Douwe Egberts. The last five years, Sara Lee International centrali
department had to centralise its purchasing activities
The main responsibility of the procurement department within Sara Lee International is the acquisition of goods and services (sourcing), contracti
department, every category manager
source and contract the ‘best’ supplier available. the supplier and SLI needs to be
creators (SCC), the actual buyers and/or services according to the contract Dictionary defines ‘complying’ as:
standards”. However, for the shopping cart
category managers have contracts or price agreements in place. Until the end of June 2009, the number of contracts
signed contracts present per category of contracts present was low. T calculated by taking the percentage of contracted products or services. Spend is: “
parties, excluding Value Added Tax
be low as well.
The Chief Procurement Officer (CPO) part of the best-in-class companies and theref
for the contract compliance of category managers. The reason for introducing a different approach was the proven importance that contract compliance
Group, 2009a). In July 2009, a Key Performance Indicator in the personal targets of all category managers
compliance: by having valid contract category managers and shopping cart
The new KPI for contract compliance, however, is not satisfactory according to several category managers, as the measurement does not take into account numerous important issues
2009b). For instance, the data included is not accurate and category managers feel measurement was forced upon them by the leadership team. More
out of scope, while they influence the contract compliance performance maverick buying. According to Karjalainen et al.
purchasing behaviour” or buying “
To the best of my knowledge, there is no relevant theory on specifically. Also the main suppliers of contract man
how to measure contract compliance without
study will focus on improving the contract compliance measurement a way that it will be more satisfactory to all
corporation. The shopping cart creators will have a supporting role, especially in exploring the reasons behind maverick buying. Consequently, t
compliance regarding category managers, as biggest in this area. With the improveme
reduce its risk, achieve cost advantages and as a result belong to the best companies concerning the level of contract compliance
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INDICATION
is a subsidiary of Sara Lee Corporation (SLC) and result
between the American based company Consolidated Foods and the Dutch firm Douwe Egberts. The Sara Lee International centralised its business and accordingly the procurement
e its purchasing activities to reduce purchasing and transactional costs. The main responsibility of the procurement department within Sara Lee International is the acquisition of goods and services (sourcing), contracting and supplier relationship management.
category manager (CM) is responsible for several product categor source and contract the ‘best’ supplier available. Subsequently, a contract or price agreement
be signed. Afterwards, the CMs have to stimulate
the actual buyers in the factories of Sara Lee International, to purchase the contract. This is also called ‘purchasing compliant
as: “to act in accordance with a wish or command or meet specified However, for the shopping cart creators to purchase compliantly, it is essential that category managers have contracts or price agreements in place.
009, the number of contracts was calculated by counting the total number of category manager, however these calculations illustrated that the number
The level of compliant purchases realised by the the percentage of annual spend at the SLI procurement department
. Spend is: “amounts which are paid by accounts payable to external
parties, excluding Value Added Tax” (Cooijmans, 2009b). The compliant purchases level
(CPO) and Procurement Directors agreed that SLI needed to become class companies and therefore introduced a new performance measurement system contract compliance of category managers. The reason for introducing a different approach was
contract compliance has on the performance of a company . In July 2009, a Key Performance Indicator (KPI) was introduced
the personal targets of all category managers. The new KPI was established to increase contract compliance: by having valid contracts in place, which are utilised by SC creators, the performance of
shopping cart creators will become more visible.
The new KPI for contract compliance, however, is not satisfactory according to several category ent does not take into account numerous important issues
. For instance, the data included is not accurate and category managers feel
measurement was forced upon them by the leadership team. Moreover, shopping cart creators are left scope, while they influence the contract compliance performance significantly by engaging in
. According to Karjalainen et al. (2009), maverick buying ” or buying “off-contract” (Neef, 2001).
there is no relevant theory on the measurement of
the main suppliers of contract management systems, like SAP and Ariba how to measure contract compliance without the use of an extensive software system.
improving the contract compliance measurement at Sara Lee International
hat it will be more satisfactory to all involved parties and consequently benefit the entire The shopping cart creators will have a supporting role, especially in exploring the reasons behind maverick buying. Consequently, the focus in this research will be mainly on contract compliance regarding category managers, as the gap between desired and actual performance is the With the improvement of contract compliance, Sara Lee International could
advantages and as a result belong to the best concerning the level of contract compliance.
results from a merger between the American based company Consolidated Foods and the Dutch firm Douwe Egberts. The ed its business and accordingly the procurement
to reduce purchasing and transactional costs. The main responsibility of the procurement department within Sara Lee International is the acquisition
relationship management. Within the product categories and has to contract or price agreement between stimulate the shopping cart ational, to purchase products ‘purchasing compliantly’. The Oxford
to act in accordance with a wish or command or meet specified
it is essential that the
calculated by counting the total number of se calculations illustrated that the number y the SC creators was at the SLI procurement department allocated to
amounts which are paid by accounts payable to external
The compliant purchases level appeared to
SLI needed to become ore introduced a new performance measurement system contract compliance of category managers. The reason for introducing a different approach was has on the performance of a company (Aberdeen (KPI) was introduced which was included s established to increase contract creators, the performance of
The new KPI for contract compliance, however, is not satisfactory according to several category ent does not take into account numerous important issues (Cooijmans, . For instance, the data included is not accurate and category managers feel that the over, shopping cart creators are left significantly by engaging in maverick buying is: “non-compliant
1.2. RELEVANCE OF RESEARCH
Until recently, procurement wasas a strategic function which can distribute strategic value to a variety of areas
Moreover, it is believed that the procurement department and especially the function of the CPO are enhanced by the challenging economic situation
Contracts are a key aspect of any business as they control a major piece of the enterprise’s expenses. Therefore, the complexity and volume of centrali
years. The main reasons for this increase are outsourcing, globali competition. Since unclear policies,
have a considerable impact on the co management (Aberdeen Group, 2006)
The Aberdeen Group has performed several benchmark studies concerning contract management, specifying the main differences between best
correlation between ‘the percentage of spend under management’ and contract compliance (% of spend that is compliant to contracts) and high performance in other KPIs
Their research illustrates that the usual advantage of getting
between 5% and 20%”. Moreover, Aberdeen Group research has demonstrated that
additional cost for every dollar spent th
(Aberdeen Group, 2009a). The procurement department capability to follow the percentage of spend tha
picture of the current scope of the company and
to new profitable investments. In addition, the obtained visibility can support the CPO to create strategies which bring even more spend
raises the possibility of increased
1
The researcher is aware that the Aberdeen Group is a consulting firm which could influence their point of view. However due t relevance of the subject for every company and unavailability of
2 ESEARCH
, procurement was not perceived as being strategically valuable, however it strategic function which can distribute strategic value to a variety of areas
that the procurement department and especially the function of the CPO are conomic situation (Aberdeen Group, 2009b)1.
Contracts are a key aspect of any business as they control a major piece of the enterprise’s expenses. , the complexity and volume of centralised contracts have both risen
years. The main reasons for this increase are outsourcing, globalisation, partnerships and severe unclear policies, unclear regulations and inefficient management of contracts can have a considerable impact on the company, it is extremely important to focus on contract
(Aberdeen Group, 2006).
The Aberdeen Group has performed several benchmark studies concerning contract management, specifying the main differences between best-in-class companies and laggards. It
correlation between ‘the percentage of spend under management’ and contract compliance (% of spend that is compliant to contracts) and high performance in other KPIs (Aber
research illustrates that the usual advantage of getting “one dollar of spend under agreement is . Moreover, Aberdeen Group research has demonstrated that
additional cost for every dollar spent that is not compliant to a supplier or agreement is 22%
he procurement department can obtain several advantages capability to follow the percentage of spend that it manages. The obtained visibi
the company and identify possible new chances, which could both investments. In addition, the obtained visibility can support the CPO to create bring even more spend under agreement. Eventually, greater throughput significantly
ed savings (Aberdeen Group, 2009b).
The researcher is aware that the Aberdeen Group is a consulting firm which could influence their point of view. However due t relevance of the subject for every company and unavailability of relevant theory, their research is still included.
, however it has emerged strategic function which can distribute strategic value to a variety of areas (Rozemeijer, 2000). that the procurement department and especially the function of the CPO are
Contracts are a key aspect of any business as they control a major piece of the enterprise’s expenses. risen in the last couple of ation, partnerships and severe regulations and inefficient management of contracts can o focus on contract
The Aberdeen Group has performed several benchmark studies concerning contract management, class companies and laggards. It has identified a high correlation between ‘the percentage of spend under management’ and contract compliance (% of (Aberdeen Group, 2009a).
one dollar of spend under agreement is
. Moreover, Aberdeen Group research has demonstrated that “the average
a supplier or agreement is 22%”
obtain several advantages from the . The obtained visibility can supply a possible new chances, which could both lead investments. In addition, the obtained visibility can support the CPO to create under agreement. Eventually, greater throughput significantly
2.1. INTRODUCTION
The following chapter will provide the
problem statement will be identified, including the research objective, research question and research conditions. Paragraph 2.3 will provide an overview of the
2.2. PROBLEM STATEMENT
The problem statement consists of a research objective, a research question and research conditions, which will be discussed below
research question, whereas the rese be performed.
2.2.1.RESEARCH OBJECTIVE
In July 2009, a new performance measurement was introduced at Sara Lee International, however as explained in the problem indication,
objective of this study is therefore to improve the measurement of contract compliance at Sara Lee International, while the focus will be on the measurement of contract compliance concerning category managers. After analysing relevant theory and the current situation, the researcher will provide recommendations on how to improve the measurement of contract compliance at Sara Lee International. With this improvement, Sara Lee International could reduce ris
advantages and transform to one of the best contract compliance.
2.2.2.RESEARCH QUESTION
To solve the issues mentioned in the problem indication and to obtain the research objective, th researcher stated the following research question
How to improve the measurement of contract compliance at Sara Lee International?
The research question will be answered by the following sub questions:
1. What is contract compliance?
2. What are the theoretical insights concerning maverick buying? 3. What behavioural factors influence contract compliance? 4. Which considerations regarding purchasing performance
criteria are described in theory?
5. To what extent is contract compliance me
6. What are the practical considerations regarding contract compliance measurement at Sara Lee International?
2.2.3.RESEARCH CONDITIONS
There are numerous research conditions which need to be taken into consideration for th
First, this study is performed as the final element of the MSc programme International Business & Management, specialisation International Financial Management (IFM). Therefore, the University has set a couple of requirements regarding the for
external parties which need to be satisfied. The research “
piece of research, which is conducted according to scientific standards and focused on knowledge creation” (Hermes, 2008). The final thesis within IFM (25 ECTS) should be based on existing theory and can take several forms, including theoretical research, empirical research, or an analysis of a problem relating to an organisa
research is conducted at Sara Lee International. Moreover, the thesis project requires of a financial and international dimension. According t
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The following chapter will provide the applied research design for this study. In paragraph 2.2 problem statement will be identified, including the research objective, research question and research
provide an overview of the structure of this study. TATEMENT
he problem statement consists of a research objective, a research question and research conditions, which will be discussed below (Leeuw, 2003). The research objective will be answered by the the research conditions will specify under which limitations this study will
In July 2009, a new performance measurement was introduced at Sara Lee International, however as explained in the problem indication, this measurement is not satisfactory to all involved parties objective of this study is therefore to improve the measurement of contract compliance at Sara Lee
the focus will be on the measurement of contract compliance concerning category ing relevant theory and the current situation, the researcher will provide recommendations on how to improve the measurement of contract compliance at Sara Lee International. With this improvement, Sara Lee International could reduce ris
advantages and transform to one of the best-in-class performing companies regarding the level of
mentioned in the problem indication and to obtain the research objective, th
research question:
How to improve the measurement of contract compliance at Sara Lee International?
The research question will be answered by the following sub questions:
What is contract compliance?
tical insights concerning maverick buying? factors influence contract compliance?
Which considerations regarding purchasing performance measurement, evaluation and are described in theory?
To what extent is contract compliance measured at Sara Lee International?
What are the practical considerations regarding contract compliance measurement at Sara
ONDITIONS
There are numerous research conditions which need to be taken into consideration for th
First, this study is performed as the final element of the MSc programme International Business & ation International Financial Management (IFM). Therefore, the University has set a couple of requirements regarding the form, learning outcomes, credit load and involvement of external parties which need to be satisfied. The research “should reflect an original (but manageable)
piece of research, which is conducted according to scientific standards and focused on knowledge
. The final thesis within IFM (25 ECTS) should be based on existing theory and can take several forms, including theoretical research, empirical research, or an analysis of a
rganisation (Ritsema, 2009). This research has taken research is conducted at Sara Lee International. Moreover, the thesis project requires
a financial and international dimension. According to the University of Groningen, completing this design for this study. In paragraph 2.2, the problem statement will be identified, including the research objective, research question and research
he problem statement consists of a research objective, a research question and research conditions, . The research objective will be answered by the arch conditions will specify under which limitations this study will
In July 2009, a new performance measurement was introduced at Sara Lee International, however as to all involved parties. The objective of this study is therefore to improve the measurement of contract compliance at Sara Lee the focus will be on the measurement of contract compliance concerning category ing relevant theory and the current situation, the researcher will provide recommendations on how to improve the measurement of contract compliance at Sara Lee International. With this improvement, Sara Lee International could reduce risk, achieve cost class performing companies regarding the level of
mentioned in the problem indication and to obtain the research objective, the
How to improve the measurement of contract compliance at Sara Lee International?
measurement, evaluation and asured at Sara Lee International?
What are the practical considerations regarding contract compliance measurement at Sara
There are numerous research conditions which need to be taken into consideration for this research. First, this study is performed as the final element of the MSc programme International Business & ation International Financial Management (IFM). Therefore, the University has m, learning outcomes, credit load and involvement of
should reflect an original (but manageable) piece of research, which is conducted according to scientific standards and focused on knowledge
research is a measure of a student’s individual ability. The researcher needs to demonstrate that she is “able to work independently and professionally in terms of managing the project and dealing with
relational, methodological and content
(Ritsema, 2009). Second, this research is accomplished Finance & Processes Department of Sara Lee
aspect of this research is that is has practical relevance and of approximately eight months (Cooijmans, 2009a)
2.3. STRUCTURE OF RESEARCH
This paragraph describes the structure of the next chapters, see
theoretical background of this study; starting with the definition of procurement and contra compliance, Behaviour Influencing Factors
performance measurement and
performance indicators. Chapter 4 describes the research environment a provides insight into the current situation about contract compliance also introduces the theoretical framework and hypothes
structured. After the research en
methodology used in this research. Chapter 6 shows the results and analysis of the empirical research questionnaires and interviews
recommendations concerning the measurement of contract compliance provided. At the end, Chapter 8
limitations of this research and suggestions for fut
Introduction & Research Design Empirical Analysis Conclusions & Recommendations Theoretical Analysis 4
research is a measure of a student’s individual ability. The researcher needs to demonstrate that she is
able to work independently and professionally in terms of managing the project and dealing with nal, methodological and content-related aspects, and in terms of keeping to agreements
. Second, this research is accomplished under the supervision Finance & Processes Department of Sara Lee International. For Sara Lee International
aspect of this research is that is has practical relevance and that it is accomplished within a time frame (Cooijmans, 2009a).
ESEARCH
This paragraph describes the structure of the next chapters, see Figure 1. Chapter 3 discusses the theoretical background of this study; starting with the definition of procurement and contra
Behaviour Influencing Factors, performance measurement in general
evaluation in particular, criteria for sound measurement and key Chapter 4 describes the research environment at Sara Lee International and provides insight into the current situation about contract compliance and its measurement. Chapter 4 also introduces the theoretical framework and hypotheses around which this research has been
After the research environment has been thoroughly investigated, chapter 5
methodology used in this research. Chapter 6 shows the results and analysis of the empirical research that are conducted at Sara Lee International. In Chapter
the measurement of contract compliance for Sara Lee International are . At the end, Chapter 8 describes the conclusions drawn from the analysis and includes limitations of this research and suggestions for future research.
Performance Measurement Criteria Behavioural Factors influencing Contract
Compliance Measurement
Conclusions
Research Environment: Sara Lee International Current Situation of Contract Compliance at SLI
Contract Compliance Measurement Theoretical Framework
Definitions of Procurement & Contract Compliance
Performance Measurement Introduction Research Design
Limitations & Future Research
Key Performance Indicators
Methodology Results & Analysis
Recommendations Hypotheses
Figure 1: Research structure
research is a measure of a student’s individual ability. The researcher needs to demonstrate that she is
able to work independently and professionally in terms of managing the project and dealing with related aspects, and in terms of keeping to agreements” supervision of the Procurement International. For Sara Lee International, the essential accomplished within a time frame
. Chapter 3 discusses the theoretical background of this study; starting with the definition of procurement and contract , performance measurement in general, purchasing for sound measurement and key t Sara Lee International and its measurement. Chapter 4 this research has been oroughly investigated, chapter 5 explains the methodology used in this research. Chapter 6 shows the results and analysis of the empirical research, conducted at Sara Lee International. In Chapter 7, the for Sara Lee International are describes the conclusions drawn from the analysis and includes the
Factors influencing Contract
Research Environment: Sara Lee International Current Situation of Contract Compliance at SLI
3
3.
3.1. INTRODUCTION
This chapter will evaluate relevant literature in the field of contract compliance measurement. to understand the purpose and content of this research, it is important to have clarity on important concepts. Paragraph 3.2
will give a definition of ‘contract compliance’ maverick buying. Then, it should be establish
measurement can only be improved when it is known what factors affect distilled from theory in paragraph 3.4.
purchasing performance measurement, it is important to general and purchasing performance measurement
be described in paragraph 3.5
measurement for purchasing, paragraph 3.6 will explore needed to create a sound measurement system discussed in paragraph 3.7, as these are the a with.
3.2. DEFINING PROCUREMENT
Van Weele (2005a) defines purchasing as “
such a way that the supply of all go
running, maintaining and managing the company’s primary and support activities is secured at the most favourable conditions”. In this definition, the purchasing function mainly includes the
from determining the specification until the follow
shown in Figure 2. The term procurement however, is somewhat more extensive and includes “
activities required to getting the product fro
In Figure 2, this is shown by the arrow from ‘internal customer’ to ‘supplier’.
Figure 2
By examining the cost structure of manufacturing organisations, the importance of procurement to organisations is clearly illustrated as the largest part of the cost of goods sold (COGS) is often taken up by purchased services and materials. Kluge
to the COGS is almost 50 percent. Procurement is capable of improving an organisation in different ways (van Weele, 2005a):
• By reducing all direct materials costs, which will lead to an improvement of the organisation’s sales margin, and in turn improve the
• By reducing the net capital used by the o organisation’s capital turnover ratio.
• By addressing suppliers appropriately, they may possibly contribute to an innovation process of the company. It is
supplier, as this could affect the RONA of the company considerably.
Next to the direct savings on purchasing prices, procurement is also able to facilitate the improvement of the organisation’s competitive position in an indirect way. The indirect contribution can be achieved by reducing the quality costs,
design & innovation, reducing stock, increasing flexibility and fostering of purchasing synergy. In many instances, the indirect support frequently appears to
achieved (van Weele, 2005a).
Internal Customer Determining Specification Selecting Supplier 5
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This chapter will evaluate relevant literature in the field of contract compliance measurement. to understand the purpose and content of this research, it is important to have clarity on
aragraph 3.2 will therefore define the term ‘procurement’, while
‘contract compliance’ and elaborate on the types of contract compliance and it should be established which factors influence contract compliance, as the measurement can only be improved when it is known what factors affect it. These elements will be paragraph 3.4. Because contract compliance measurement is a type of performance measurement, it is important to investigate performance measurement in general and purchasing performance measurement and evaluation in particular. This investigation will in paragraph 3.5. After establishing the most important aspects of performance measurement for purchasing, paragraph 3.6 will explore Performance Measurement Criteria
create a sound measurement system. At the end, key performance indicators will be , as these are the actual measurements that category managers are
ROCUREMENT
defines purchasing as “the management of the company’s external resources in
such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the
”. In this definition, the purchasing function mainly includes the from determining the specification until the follow-up and evaluation, which are clearly interrelated
. The term procurement however, is somewhat more extensive and includes “
the product from the supplier to its final destination” , this is shown by the arrow from ‘internal customer’ to ‘supplier’.
2: Procurement process model (van Weele, 2005a)
By examining the cost structure of manufacturing organisations, the importance of procurement to s is clearly illustrated as the largest part of the cost of goods sold (COGS) is often taken services and materials. Kluge (1996) even states that the purchasing value in relation to the COGS is almost 50 percent. Procurement is capable of improving an organisation in different By reducing all direct materials costs, which will lead to an improvement of the
’s sales margin, and in turn improve the Return On Net Assets ( By reducing the net capital used by the organisation, which will
’s capital turnover ratio.
By addressing suppliers appropriately, they may possibly contribute to an innovation process of the company. It is therefore important to have an effective relationship with the
could affect the RONA of the company considerably.
Next to the direct savings on purchasing prices, procurement is also able to facilitate the improvement ’s competitive position in an indirect way. The indirect contribution can be hieved by reducing the quality costs, increasing product standardisation, contributing to product stock, increasing flexibility and fostering of purchasing synergy. In many instances, the indirect support frequently appears to be more extensive than the direct savings
Ordering Expediting & Evaluation
Follow Evaluation Selecting
Supplier Contracting
This chapter will evaluate relevant literature in the field of contract compliance measurement. In order to understand the purpose and content of this research, it is important to have clarity on the most , while paragraph 3.3 and elaborate on the types of contract compliance and ed which factors influence contract compliance, as the . These elements will be Because contract compliance measurement is a type of investigate performance measurement in . This investigation will ects of performance Performance Measurement Criteria which are . At the end, key performance indicators will be category managers are working
the management of the company’s external resources in ods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the
”. In this definition, the purchasing function mainly includes the activities which are clearly interrelated as . The term procurement however, is somewhat more extensive and includes “all ” (van Weele, 2005a).
By examining the cost structure of manufacturing organisations, the importance of procurement to s is clearly illustrated as the largest part of the cost of goods sold (COGS) is often taken even states that the purchasing value in relation to the COGS is almost 50 percent. Procurement is capable of improving an organisation in different By reducing all direct materials costs, which will lead to an improvement of the
ssets (RONA);
, which will positively affect the By addressing suppliers appropriately, they may possibly contribute to an innovation important to have an effective relationship with the
Next to the direct savings on purchasing prices, procurement is also able to facilitate the improvement ’s competitive position in an indirect way. The indirect contribution can be ation, contributing to product stock, increasing flexibility and fostering of purchasing synergy. In be more extensive than the direct savings
Follow-up &
