Indirect procurement management: Maturity
model development and validation
Operations and Supply Chain Management
Master's thesis
Author:
Kalle Liinaharja
Supervisor:
D.Sc. (Tech.) Riikka Kaipia
16.11.2023
Turku
The originality of this thesis has been checked in accordance with the University of Turku
quality assurance system using the Turnitin Originality Check service.
Master's thesis
Subject: Operations and Supply Chain Management
Author: Kalle Liinaharja
Title: Indirect procurement management: Maturity model development and validation
Supervisor: D.Sc. (Tech.) Riikka Kaipia
Number of pages: 95 pages + appendices 16 pages
Date: 16.11.2023
Indirect procurement management still lags direct procurement in many aspects. Whereas the
value creation capability and strategic contribution of direct procurement are widely recognized,
indirect procurement is often seen as overly complex, minor, and irrelevant compared to direct
procurement. As a result, it receives much less managerial attention and resources, degrading the
efforts to manage them professionally. Yet, indirect procurement often represents more than 40
percent of all procurement spend – a share that no company should overlook.
With ever toughening competition, indirect procurement management development has the
potential to offer a new source of savings and competitive advantage. However, there is only little
academical support for developing indirect procurement management. The literature of indirect
procurement is also very fragmented, and a large part of it dates to 1990s and 2000s. This study
aims to create a synthesis of indirect procurement research and bridge the gap between academia
and practice by creating a comprehensive research-based tool for measuring and developing
indirect procurement management capability. Maturity models have been recognized as useful
tools to measure current capability and guide development. Therefore, this study creates an
indirect procurement management maturity model.
This thesis adopts a constructive approach to developing the maturity model. The first version of
the model is created through an extensive literature review and is then empirically validated by
conducting qualitative research utilizing semi-structured interviews. Two research questions are
first posed to guide the process and later answered: Which issues and management practices
characterize indirect procurement management? and What are the characteristics of a
comprehensive indirect procurement maturity model?
The study identified multiple issues and managerial solutions characteristic for indirect
procurement management that are present at different stages of maturity. The issues are
intertwined in their root causes and require comprehensive development and implementation of
best practices to be overcome. The developed maturity model was seen to accurately reflect reality
and to be a useful tool to measure current capability and to guide indirect procurement
management development in practice. Improvements with soft factors, such as communication,
cross-functional cooperation, and managerial recognition, were recognized as key enablers and
solutions for improving indirect procurement management performance. When properly
resourced, correctly appreciated, and comprehensively developed indirect procurement can offer
a sought-after source of untapped potential in cost reduction and value-creation and improve
everything from functional performance to work-wellbeing of all employees in an organization.
Key words: Indirect procurement, Indirect procurement management, Procurement, Maturity
model, Maturity measurement
Pro gradu -tutkielma
Oppiaine: Toimitusketjujen johtaminen
Tekijä: Kalle Liinaharja
Otsikko: Indirect procurement management: Maturity model development and validation
Ohjaaja: TkT Riikka Kaipia
Sivumäärä: 95 sivua + liitteet 16 sivua
Päivämäärä: 16.11.2023
Epäsuorat hankinnat ovat jääneet suorien hankintojen varjoon niin yrityselämässä kuin
tutkimuksessakin. Suorien hankintojen arvonluontipotentiaali ja strateginen merkitys
ymmärretään käytännön yrityselämässä, mutta epäsuorat hankinnat nähdään edelleen usein
kompleksisena ja merkityksettömänä osana hankintoja. Epäsuoriin hankintoihin ei kiinnitetä
tarpeeksi huomiota eikä niille allokoida riittävästi resursseja, joka heikentää merkittävästi niiden
johtamista ja kyvykkyyttä. Epäsuorat hankinnat vastaavat kuitenkin usein yli 40 prosentista
hankintakuluja. Ne ovatkin siis merkittävä kokonaisuus, jota yhdenkään yrityksen ei tulisi
väheksyä.
Epäsuorien hankintojen kehittämisessä piilee suurta potentiaalia kulusäästöille ja kilpailukyvyn
kehitykselle. Akateeminen kirjallisuus tarjoaa kuitenkin vain vähän tukea niiden kehittämiselle.
Epäsuorien hankintojen johtamisen kirjallisuus on hyvin hajanaista ja merkittävä osa siitä yli 20
vuotta vanhaa. Tämän tutkielman tavoitteena on luoda synteesi epäsuorien hankintojen
kirjallisuudesta ja kuroa umpeen akateemisen maailman ja käytännön välistä kuilua luomalla
kattava ja ajantasainen, tutkimukseen perustuva työkalu epäsuorien hankintojen johtamisen
kyvykkyyden mittaamista ja kehittämistä varten. Maturiteettimallit on tunnistettu hyviksi
työkaluiksi kyvykkyyden mittaamiseen ja kehitystoimien ohjaamiseen. Tässä tutkimuksessa
luodaankin maturiteettimalli epäsuorien hankintojen johtamiselle ja validoidaan se empiirisesti.
Maturiteettimalli kehitetään konstruktiivista tutkimusotetta soveltaen. Mallin ensimmäinen versio
luodaan kattavan kirjallisuuskatsauksen pohjalta, jonka jälkeen se validoidaan laadullisen
tutkimuksen avulla puolistrukturoituja haastatteluja aineistonkeruussa hyödyntäen. Tutkimuksen
tueksi asetetaan kaksi tutkimuskysymystä, joihin vastataan lopuksi. Nämä kysymykset ovat:
Mitkä ongelmat ja hankintojen johtamisen käytännöt ovat tyypillisiä epäsuorille hankinnoille?
Sekä Mitkä ovat kattavan epäsuorien hankintojen maturiteettimallin tunnuspiirteet?
Tutkielmassa identifioitiin monia epäsuorien hankintojen johtamiselle tyypillisiä ongelmia ja
ratkaisuja, jotka esiintyvät eri tavalla maturiteettipolun eri vaiheissa. Ongelmien juurisyyt liittyvät
toisiinsa ja ratkaisujen implementointi edellyttää kokonaisvaltaista kehitystä. Kehitetyn
maturiteettimallin nähtiin olevan realistinen ja hyödyllinen työkalu nykyisen kyvykkyyden
mittaamiseen ja kehittämiseen. Viestinnän, poikkifunktionaalisen yhteistyön ja johdon huomion
ja ymmärryksen lisääminen epäsuoria hankintoja kohtaan tunnistettiin olevan avainasemassa
epäsuorien hankintojen johtamisen kehittämisessä. Asianmukaisen resurssoinnin, oikeanlaisen
arvostuksen, sekä kattavan kehittämisen kautta epäsuorat hankinnat voivat tarjota arvokkaan
kilpailukyvyn lähteen, sekä parantaa organisaatioiden sisäistä kyvykkyyttä jokaisella osa-
alueella.
Avainsanat: Epäsuora hankinta, Epäsuorien hankintojen johtaminen, Hankinta,
Maturiteettimalli, Maturiteettimittaus
TABLE OF CONTENTS
1 Introduction 10
1.1 Background and research problem 10
1.2 Research objective and questions 12
1.3 Structure of the thesis 12
2 Procurement management 14
2.1 From purchasing to procurement 14
2.2 Distinction between direct and indirect procurement 17
2.3 Indirect procurement management issues and proposed solutions 22
3 Maturity models 29
3.1 Maturity models as assessment and development tools 29
3.2 Maturity model construction process 31
3.2.1 Phase I: Planning 33
3.2.2 Phase II: Development 34
3.2.3 Phase III: Evaluation 35
3.2.4 Phase IV: Maintenance 36
3.3 Existing procurement maturity models 36
4 Maturity model for indirect procurement 42
4.1 Developing a maturity model for indirect procurement 42
4.1.1 Phase I: Planning 42
4.1.2 Phase II: Development 43
5 Methodology 52
5.1 Research methods and positioning of the study 52
5.2 Data collection 54
5.3 Data analysis 56
5.4 Research quality 58
6 Results 59
6.1 Empirical validation of the basis of the model 59
6.2 Empirical validation of the model 72
6.3 Refinement of the model 80
7 Discussion and conclusion 83
7.1 Discussion 83
7.2 Conclusion 87
7.3 Limitations and future research 88
References 90
Appendices 96
Appendix 1: Literature-based maturity model 96
Appendix 2: Interview frame 99
Appendix 3: Data structure 101
Appendix 4: Refined maturity model 103
LIST OF FIGURES
Figure 1 – Value chain 15
Figure 2 – Different concepts under procurement process model 16
Figure 3 – Indirect procurement issues and their intertwined causalities 23
Figure 4 – Literature-proposed solutions to indirect procurement issues 26
Figure 5 – Benefits of sustained development 30
Figure 6 – Maturity model design principles 32
Figure 7 – Maturity model development phases 32
Figure 8 – Maturity model development phases and decision points 33
Figure 9 – Comparison of maturity models 39
Figure 10 – The skeletal frame of the model prior to population 50
Figure 11 – Research approach categorization framework 53
Figure 12 – Elements of constructive approach 54
Figure 13 – The process of constructive research 54
LIST OF TABLES
Table 1 – Hypothetical illustration of indirect procurement’s spend share of total
company spend with two different percentages 19
Table 2 – Sample indirect procurement categories and examples 20
Table 3 – Differences of direct and indirect procurement 21
Table 4 – Maturity model level names and descriptions 49
Table 5 – General information about interview participants 55
Table 6 – Indirect procurement issues experienced or recognized by the
interviewees 60
Table 7 – Indirect procurement solutions employed or recognized by the
interviewees 67
9
10
1 Introduction
1.1 Background and research problem
The role and status of procurement have experienced major changes over the last few
decades. Up until the 1980s and even 1990s, many companies saw procurement as a mere
administrative purchasing function with no inherent additional value creation capability.
Over the last few decades, however, procurement has steadily gained increasing attention,
both in academic circles and in businesses. Ever more companies have adopted a
specialization strategy and outsourced their non-core activities to external suppliers (van
Weele & van Raaij 2014). This in turn has increased the need for and importance of
managing external resources (Tanskanen et al. 2017). Nowadays, many companies
acknowledge procurement as either a core or strategic function. When properly
recognized and managed, the procurement function presents companies with means to cut
costs, improve performance, and even gain a competitive advantage in the market.
(Jayaram & Curkovic 2018.)
As attention to procurement increased, the methods and strategies to manage it became
more sophisticated. Management practices for different items were differentiated based
on item characteristics and similar items were grouped to allow more efficient
management. First there was Kraljic’s matrix (Kraljic 1983), then category management
and spend analysis. Categorically, procurement was also split into two: direct
procurement and indirect procurement (IP). Direct procurement relates to the obtainment
of services and materials for the end-products of the company, while indirect procurement
consists of all the materials and services supporting the operations of a company (van
Weele & Rozemeijer 2022). Direct procurement has stably been receiving more attention
in both academics and businesses alike due to its higher share of total procurement value,
bigger spend per supplier, and relatively more straight-forward nature (Jayaram &
Curkovic 2018). Indirect procurement, on the other hand, has traditionally been
considered an overly complex, minor, and irrelevant entity consisting of bits and pieces
of spend here and there (Jayaram & Curkovic 2018; Cox et al. 2005). This has led to
indirect procurement remaining a less researched area with much fewer academic
publications focusing on it, while businesses have also been dedicating their resources to
managing the direct side of procurement.
11
In practice, indirect procurement spend is not a mere drop in the ocean. A recent article
estimates the size of the indirect procurement item and service market to be 200 billion
Euros annually in Europe alone (Osto&Logistiikka 4/2023). In addition, Iloranta and
Pajunen-Muhonen (2015) and Cox et al. (2005) point out that indirect procurement spend
can represent even up to 50% of total procurement spend in a given company. As the
category is receiving much less attention in both academics and real-life businesses, it
usually is not managed as punctually, creating unnecessary and avoidable costs. Indirect
procurement can also be just as relevant contributor for strategic targets of a company as
direct procurement. For example, according to Giunipero et al. (2012) the relevance of
sustainability and responsibility is increasing rapidly, and Meinlschmidt et al. (2018) note
that procurement has a vital role in actualizing the goals of companies related to them.
Indirect procurement, with categories like travel and fleet management, can have a major
impact on these targets. Additionally, the often substantially larger number of indirect
procurement suppliers compared to direct procurement also exposes a company to a much
higher degree of sustainability and compliance risks. Even a minor supplier’s wrongdoing
can smear a company’s name and image, with many negative implications for the
company. (Hingorani 2010.)
Evidently, there is a major need for improving indirect procurement management
proficiency. As the competition grows ever tougher, improvements in the way of
managing indirect procurement could untap its great savings potential. Tanskanen et al.
(2017) advocate for an increase in the use of academic research in support of practical
decision-making, as management decisions are too often made through intuition or with
outdated information. However, indirect procurement management literature is scarce.
Furthermore, academic literature is often aimed at academic audiences, which again
decreases its practical usability (Tanskanen et al. 2017). Even if managers wanted to
improve indirect procurement management through scientific research, the literature
offers only scattered support for this and very little in terms of easily employable tools.
Maturity models have been recognized as good tools for measuring performance
proficiency and for supporting and guiding development (Andreasen & Gammelgaard
2018; Wendler 2012). Maturity can be understood as a level of proficiency or capability
(Rendon 2008). The higher the maturity, the greater the proficiency or capability.
According to Maier et al. (2012), maturity models have the capability to bridge the gap
between theory and practice, as they are based on a thorough literature review and
12
empirically evaluated. After this, the models can be utilized in practice to support
decision-making. As there is a clear need for developing indirect procurement
management proficiency, a maturity model for indirect procurement as a research-based
tool seems an attractive option.
1.2 Research objective and questions
The main objective of this research is to create a comprehensive, research-based maturity
model for measuring and developing indirect procurement management proficiency and
performance. This maturity model should be comprehensive, generic, easy to use, and
understandable. In addition, this research is also aimed to contribute towards the literature
of indirect procurement by providing an empirical update to it. In support of these
objectives, two research questions are posed:
RQ1: Which issues and management practices characterize indirect procurement
management?
RQ2: What are the characteristics of a comprehensive indirect procurement
maturity model?
The purpose of the first question is to support in building an extensive knowledge of the
area of indirect procurement management. The field of indirect procurement management
is approached through the issues hindering its performance and solutions and best-
practices employed to tackle the issues and proficiently manage the area. Furthermore,
the first question acts as an enabler in answering the second research question, which is
focused on the creation and contents of the actual maturity model constructed. In the
search for answers to both questions, first an extensive literature review is conducted.
Based on it, the first literature-based version of the maturity model is created. After this,
the views of the literature are compared to and supplemented by empirical findings
through interviews, resulting with an empirically validated maturity model.
1.3 Structure of the thesis
This thesis is structured as follows. Chapter 2 contains a review of indirect procurement
and relevant procurement literature, drawing a synthesis on the issues and solutions
associated with indirect procurement management. Due to unestablished definitions and
undisciplined use of different terms in procurement literature, terms such as procurement,
13
purchasing, and sourcing, as well as indirect, MRO (Maintenance, repair, operations), and
NPR (non-production related) are all used in the search for literature. Chapter 3 covers
the use and creation process of maturity models. In chapter 4, the two previous chapters
are combined, and the first literature-based version of the indirect procurement maturity
model is created.
Chapter 5 presents the methodology and positioning of the study. It also describes the
research process, data, and its analysis, and provides an evaluation of the research quality.
The results of the empirical study are presented in chapter 6. Based on the results, the
maturity model is also refined. Finally, chapter 7 provides conclusions, limitations, and
suggestions for future research.
14
2 Procurement management
2.1 From purchasing to procurement
Procurement, purchasing, sourcing, purchasing and supply management, and external
resources management are all terms, roles, and concepts used for describing the area and
activities of procurement function, both in literature and practice. The terms are also used
to describe both activities and functional groups. (van Weele & Rozemeijer 2022, 2–14.)
However, these terms lack proper, established definitions, and are used in an
undisciplined fashion. They are often used as synonyms for one another or defined with
slight differences from paper to paper and researcher to researcher. (Ellram et al. 2020.)
For the sake of clarity, the term procurement will be used as the main term throughout
this study. This subchapter examines how procurement has evolved from a clerical
purchasing function towards a strategic one and defines the term procurement and its
contents for this study.
Merriam-Webster’s dictionary defines the word “purchasing” as the act of obtaining
something by paying money or its equivalent for it (Merriam-Webster: purchasing). This
alludes towards a transactional nature for the function and tasks performed. For the better
part of the 20th century, what we today might call procurement function was in most
cases doing exactly this: administrative and clerical purchasing-related tasks,
subordinated to operations or production functions, with the simple aim of securing
supply while reducing material costs (Poissonnier 2017; van Weele & van Raaij 2014).
Purchasing’s recognition increased during the 1970s and early 80s for primarily two
reasons. First, the economic landscape changed. The almost-continuous growth since the
second world war came to a halt with the oil crisis. The ensuing supply disruptions and
decline in sales forced companies to start paying increasing attention to their spending,
while also securing adequate supply. The variety and importance of tasks performed by
purchasing increased. Second, due to the aforementioned economic turbulence, the
strategic management theory evolved to better explain and guide businesses with their
decisions. Frameworks such as Porter’s five forces model identified the bargaining power
of customers and suppliers as critical forces, which in turn spurred interest towards
purchasing. (Ellram & Carr 1994; Mena et al. 2018; van Weele & van Raaij 2014.)
However, improvement efforts were still focused on developing purchasing’s short-term
15
cost efficiency on a tactical level. The area lacked long-term thinking and strategic
recognition and was not aligned with competitive strategy. (Spekman & Hill 1980.)
Porter (1985, 37–42) made another key contribution to the development of procurement,
when he published his value chain model, illustrated in Figure 1. There he listed
procurement as a distinct value-creating activity, implying that it had inherent value
creation capability. He also opted to use the word procurement over purchasing, as he felt
that the word procurement would better describe the variety of activities performed. van
Weele and van Raaij (2014) argue, that Porter was one of the first key management
theorists who steered more attention towards the area of procurement and argued for the
strategic relevance of suppliers and their management.
From the late 1980s onwards, the market environment became ever more competitive.
Globalization, technological advancements, and later the introduction of internet and e-
business forced companies to adopt new, more specialized strategies. Management
literature introduced resource-based view, resource dependence theory and stakeholder
theory. (Spina et al. 2013; van Weele & van Raaij 2014.) As a part of the resource-based
view, Prahalad and Hamel (1990) encouraged companies to focus on their core
competencies and to outsource non-core activities. As a result, firms became more
dependent on their suppliers as the average purchasing spend as a percentage of total firm
spend rose. As a solution to this, resource dependence and stakeholder theories advocated
for the importance of managing the external resources of a company, resulting in a wider
Figure 1 – Value chain (Porter 1985)
16
spectrum of activities for the purchasing function, which again increased the strategic
relevance of the function. (Mol, 2002; Spina et al. 2013; van Weele & van Raaij 2014.)
Over the decades, purchasing management literature has been organizing related
activities into different process flow models. As the environment has introduced new
demands, the number of activities has increased, and the process has become more
complex and sophisticated. Figure 2 illustrates this on a process model adaptation.
However, the problem of overlapping terms persists both in literature and businesses.
According to Van Weele & Rozemeijer (2022, 2–9) procurement is the broadest of the
terms, covering the activities of all the others, from internal stakeholder requirements to
external stakeholder management. Johnsen et al. (2019, 8–11) also note that procurement
has a strategic, long-term focus, while purchasing is perceived to be more tactical or
operational by nature. Sourcing relates to the searching, evaluating, selecting, and
contracting of potential suppliers (Johnsen et al. 2019, 8). Term purchasing and supply
management (PSM) seems to combine the operational focus of purchasing to the more
strategic focus of supply management, and to an extent be equal to procurement.
However, according to van Weele & Rozemeijer (2022, 10) PSM has a distinct difference
between the US and Europe, where in Europe it is considered more strategic than in the
US.
The strategic relevance and value-creation potential of procurement activities have only
become clearer over the years. Academic publications like Spekman and Hill (1980),
Kraljic (1983), Elram and Carr (1994), Rozemaijer et al. (2003), Paulraj et al. (2006),
Zimmermann and Foerstl (2014), and Ueltschy Murfield et al. (2021) have consistently
Figure 2 – Different concepts under procurement process model (Modified from van Weele &
Rozemeijer 2022, 7)
17
called for and shown that the recognition of procurement as a strategic function and
developing it with a long-term view instead of a short-term cost reduction focus offers
companies an edge in the competition through additional value creation capability.
Sustainability and responsibility are also factors that have recently emerged as drivers for
the strategic role of procurement. According to Giunipero et al. (2012), the demands from
both consumers and public authorities towards companies to adopt responsible and
sustainable practices have increased dramatically. According to Chick and Hanfield
(2015, 54) sustainable and responsible practices are increasingly becoming an order
qualifier: A company must adopt both sustainable and responsible practices or experience
decreasing demand and ultimately face bankruptcy. Conversely, both Giunipero et al.
(2012) and Johnsen et al. (2019, 20–21) note that adopting sustainable and responsible
practices can also create a competitive advantage for companies. As more and more
companies adopt sustainability and responsibility into their strategies, procurement’s role
and strategic relevance are only increasing. Procurement acts as the link between
companies and has the responsibility of managing suppliers. A company’s responsibility
extends only as far as their supplier’s responsibility, thus stressing the importance of
procurement’s role in actualizing strategic responsibility and sustainability goals
(Meinlschmidt et al. 2018).
Due to the discussed differences between the terms, and the inclusivity and strategic
nature of procurement, this thesis will adopt the views and definitions of Johnsen et al.
(2019) and van Weele & Rozemaijer (2022), where procurement will be used as the
general term to cover all of the aforementioned terms, unless there is a specific reason to
distinguish a certain part of the procurement process.
2.2 Distinction between direct and indirect procurement
The entity of procurement can be split between direct and indirect procurement. This split
is based on the differences in the place of consumption and the relation to a company’s
value proposition of the goods and services procured. Direct procurement consists of
spend on materials and services which are used for the core business process of a
company, to its end-products or services, and are eventually consumed by external
stakeholders. Conversely, indirect procurement consists of spend on categories that are
consumed by internal stakeholders and enable and support various activities performed
by a company but do not directly deliver value to external stakeholders but rather to
18
internal ones. (Cox et al. 2005; Jayaram & Curkovic 2018; Carlsson 2019, 178; van Weele
& Rozemeijer 2022, 4–6.)
The share of procurement spend of all company expenditure can vary a lot from company
to company and industry to industry. According to Iloranta and Pajunen-Muhonen (2015,
21), on average, total procurement spend accounts for over 50 percent of all company
expenditure, and in some instances, it can represent over 80 percent. The share of indirect
procurement spend of the total procurement spend is highly dependent on the company
and industry. Angeles and Nath (2007) propose a number between 30 and 60 percent.
According to Iloranta and Pajunen-Muhonen (2015, 64), the share of indirect
procurement spend of the total procurement spend is typically lower, around 30 percent,
in raw material or commodity-heavy industries, such as food processing, construction,
engineering, and pulp and paper. In others, such as services, education, and banking it
can be up to 100 percent. A general estimation is that on average indirect procurement
accounts for over 40 percent of total procurement expenditure (Cox et al. 2005; Iloranta
& Pajunen-Muhonen 2015, 64). Table 1 illustrates these spend figures and highlights the
scale and relevance of indirect procurement for any company. Even with the moderate,
40 percent estimate it can easily represent over 25 percent of the total expenses in a given
company.
19
Table 1 – Hypothetical illustration of indirect procurement’s spend share of total company spend
with two different percentages (based on Iloranta & Pajunen-Muhonen 2015; Angeles & Nath
2007; Cox et al. 2005)
Procurement spend as a
percentage of total spend
40 % 50 % 60 % 70 % 80 %
Indirect Procurement spend
as a percentage of
procurement spend
40 % 40 % 40 % 40 % 40 %
Indirect Procurement spend
as a percentage of total
company spend
16 % 20 % 24 % 28 % 32 %
Procurement spend as a
percentage of total spend
40 % 50 % 60 % 70 % 80 %
Indirect Procurement spend
as a percentage of
procurement spend
60 % 60 % 60 % 60 % 60 %
Indirect Procurement spend
as a percentage of total
company spend
24 % 30 % 36 % 42 % 48 %
According to Payne et al. (2011, 1–3) indirect procurement spend was traditionally
considered to primarily consist of “administrative expenses” or maintenance, repair, and
operations (MRO) costs. However, as aforementioned definition indicates, indirect
procurement covers many more categories. These include the likes of marketing and sales
services, travel management, facilities management, and utilities. Table 2 provides a non-
exhaustive summary of the main categories.
20
Table 2 – Sample indirect procurement categories and examples (Iloranta & Pajunen-Muhonen
2015, 62-63; Payne et al. 2011, 3; van Weele & Rozemeijer 2022, 16–17)
Category Examples
Marketing and sales related services &
equipment
media visibility, promotion campaigns,
exhibitions
IT-related services & equipment software and hardware, support services
HR-related services & equipment recruitment agencies, employee training,
employee benefits
Finance-related services payroll services, accounting services
Management consultancy services strategy, change, etc. consultancy services
Office equipment & supplies general office supplies, printers
R&D related services & equipment laboratory equipment, research services,
patents
Facility management cleaning, catering, security
Utilities electricity, water
Maintenance, repair & operations (MRO)
services & equipment
spare parts, repair services for machinery
and equipment
Travel management plane tickets, hotels, taxi services
Fleet management lease vehicles for employees, internal
logistics vehicles
Investment goods plants, machinery
Although investment goods technically fall under the umbrella of indirect procurement,
they can and often are classified and handled separately from indirect procurement. This
is due to a few major differences. Investment goods are often procured only once, and the
procurement process has a project-like character. The value of individual investment is
significantly greater than an average indirect procurement good or service, and the
decisions about them are strategic, and often have a major influence on the company over
the long term. Apart from a normal good, the expected life span of an investment good is
expected to be years, if not decades. They are classified as investments in accounting, and
their value is depreciated over their lifespan. The obtainment of investment items is often
led by the Finance department. (Iloranta & Pajunen-Muhonen 2015, 61; Johnsen et al.
2019, 62; van Weele & Rozemeijer, 2022, 17.) Therefore, the category of investment
goods will be excluded from the scope of this thesis.
21
There are many aspects that differ between direct and indirect procurement. This leads to
them being quite different by nature and to manage. The categories and associated goods
and services under indirect procurement are very diverse. For example, many of the items
are bought in bulk, like IT equipment for company employees, whereas in other instances
one-time purchase of one loosely specified service is required. Researchers such as Cox
et al. (2005), Jayaram and Curkovic (2018), and van Weele and Rozemeijer (2022)
identify many differences between direct and indirect procurement. Table 3 compiles the
differences discussed in the sources.
Table 3 – Differences of direct and indirect procurement (adopted from van Weele & Rozemaijer
2022, 6, supplemented from Cox et al. 2005; Jayaram and Curkovic 2018; Chick & Hanfield 2015,
17)
Aspects Direct Procurement Indirect Procurement
Managerial recognition Some to strategic None to recognized
Procurement organization Organized per business
requirements
from ad-hoc/decentralized to
centralized
Customers/stakeholders Limited, some internal and
some external stakeholders
All internal functions/
stakeholders
Control & internal compliance Operations demand, clear
procedures
Limited, ad-hoc, often
unclear procedures
Decision-making unit Engineering or operations
dominant
Fragmented, depends on
each good/service
Product specification Strict specifications From strict to none
Product assortment Limited to large Very large, extremely diverse
Demand & Forecasting Quite stable, possible and
performed
From stable to very fluctuant,
possible to impossible
Average order size Very high Small
Number of PO’s (purchase
orders)
Limited to large Very large
Number of suppliers Limited, transparent Very large, not transparent
Procurement turnover per
supplier
Often very high Limited, minor with majority
of suppliers
22
As the recognition of procurement has increased over the decades, the indirect part of it
has been lagging behind (Barry et al. 1996). Even in the 2010s, indirect procurement’s
significance is still often not understood, and it is left to its own devices. Whereas direct
procurement is usually organized into a function to match the operational requirements,
the tasks of indirect are often decentralized among functions without a proper structure.
(Jayaram & Curkovic 2018; Payne et al. 2011.)
The product assortment of direct procurement is usually well known. Organizations tend
to have clear specifications for goods and services included in their final products, and
established control procedures for ordering. Direct procurement works with specified
operations and engineering stakeholders, and in some cases with external customers also.
Demand is often quite predictable. (van Weele & Rozemeijer 2022, 5–17.) The product
assortment of indirect procurement on the other hand can include pretty much anything,
ranging from specified MRO items with stable consumption rates to one-time-buy critical
services with sporadic, unpredictable demand. IP often lacks uniform processes and
control structures (Jayaram & Curkovic 2018). Customers and stakeholders are located
in every function of a company, and their knowledge and understanding of IP processes
and requirements varies considerably.
Direct procurement is often more concentrated in terms of the number of purchase orders
and suppliers, as well as the value per PO and turnover per supplier. Conversely, indirect
procurement is in charge of numerous low value purchase orders and suppliers. According
to Cox et al. (2005), there is often a 20-80 split between the two, where indirect
procurement is responsible for 80 percent of both PO’s and suppliers.
2.3 Indirect procurement management issues and proposed solutions
Indirect procurement is generally considered to be the harder half of procurement to
manage (Barry et al. 1996). Procurement literature has identified a myriad of reasons with
intertwined causes and effects for this. One of the most commonly cited reasons is that
compared to direct procurement, indirect procurement contains a vastly larger number of
nearly everything: categories, suppliers, purchase orders, customers and stakeholders,
goods and services, etc. This increases the complexity of indirect procurement
exponentially and leads to it having a tendency to cause occasional headaches for
everyone involved with it. However, complexity is only one issue, and there are many
additional ones identified by researchers. Even worse, these issues often have a
23
compounding effect on one another. Interacting with one another, they create vicious
cycles that are hard to break. Figure 3 compiles literature-recognized issues from multiple
sources and illustrates which issues directly aggravate others in turn.
Figure 3 – Indirect procurement issues and their intertwined causalities (compiled from Barry et
al. 1996; Porter 1999; Carter et al. 2003; Cox et al. 2005; Angeles & Nath 2007; Karjalainen &
van Raaij 2011; Payne et al. 2011; Jayaram & Curkovic 2018; COPC Indirect procurement
standard 2019; Israel & Curkovic 2020; 2022 Indirect Procurement Report)
According to Barry et al. (1996) and Jayaram and Curkovic (2018), indirect procurement
is often seen as an obscure entity by both regular employees and higher management. The
general lack of understanding of what indirect procurement is or how it functions causes
harm as management fails to recognize and resource it adequately (Porter 1999). Among
regular employees, lack of understanding leads to problematic behavior such as maverick
buying (Karjalainen & van Raaij 2011). Lack of competence on the part of indirect
procurement personnel can induce distrust in the organization between the indirect
procurement function and rest of the organization (Barry et al. 1996). This in turn leads
24
to even less managerial recognition and an increase in maverick buying, which in turn
aggravates other issues.
Lack of standardization in terms of products, contracted suppliers, and processes is
another commonly cited issue. A higher number of individual items, suppliers and
processes all introduce additional complexity and increase costs, as more time and effort
are required to obtain items and services required (Carlsson 2019). The absence of clear
catalogues and poorly defined processes leads to an increase in maverick buying
(Karjalainen & van Raaij 2011).
Maverick buying is the act of buying contracted goods or services outside of established
contracts (Karjalainen & van Raaij 2011). According to Israel and Curkovic (2020), it
also refers to the act of obtaining goods or outside the established procurement processes
and without adhering to the organization's procurement policies and guidelines. Maverick
buying aggravates many issues. It introduces new suppliers, items, and “processes” to
procure them, increasing the complexity of indirect procurement and causing avoidable
costs to mount up (Karjalainen & van Raaij 2011). According to Angeles and Nath
(2007), the quality of procurement data deteriorates, as goods and services are being
procured outside the established processes and information systems. This hinders the
accuracy of any numerical analyses. In addition, maverick buying can cause over 20%
additional costs. Compliance breaches caused by maverick buying also often introduce
additional workload for indirect procurement, as their input is needed in resolving the
issues.
According to Porter (1999) and Payne et al. (2011), indirect procurement is often poorly
structured. Although there is no single optimal organizational structure for indirect
procurement, it is often organized in a suboptimal, decentralized way. This causes many
issues, ranging from differing practices and additional costs to indirect procurement
activities being managed by personnel without any procurement knowledge. Suboptimal
organizational structure also hinders development activities, as there is no consensus on
how indirect procurement is and should be managed. (Jayaram & Curkovic 2018.)
Reliable data to support decision making is scarce and scattered, and process automation
initiatives are much harder to implement effectively when activities are dispersed around
the company (Angeles & Nath 2007).
25
Lack of comprehensive and reliable data is arguably the most cited issue with indirect
procurement. Practically all the sources used for Figure 3 identify it as a detrimental issue
for indirect procurement. If there is little to no data available about the scale of indirect
procurement spend, it is hard for the management to recognize the importance of indirect
procurement and improve the status and resourcing of it. When there is no data to guide
indirect procurement development, it is hard to make informed decisions. If there is
limited data about goods and services procured or spend per each supplier, it is hard to
standardize items and processes or perform spend analysis. Lack of data aggravates all
the other issues directly, and conversely almost all issues aggravate it.
As Barry et al. (1996) and Cox et al. (2005) point out, indirect procurement activities are
responsible for the majority of operational purchasing activities (POs, invoices, etc.) in a
company. In the absence of automation and E-procurement solution adoption, these tasks
require a high amount of manual work, which strains and employs indirect procurement
resources on low-value operational activities (Angeles & Nath 2007). Lack of competent
resources or resources in general is also an issue for indirect procurement, as this can
hinder developmental actions. According to Karjalainen and van Raaij (2011), lack of
resources can also cause maverick buying as regular employees take matters into their
own hands when they perceive indirect procurement to function too slowly or otherwise
unsatisfactorily.
Literature has also identified numerous solutions for the issues discussed. As with the
issues, the solutions are also intertwined and co-dependent. No single solution will solve
an issue, nor will a single solution work efficiently or even be possible to implement if
nothing else is done. Figure 4 illustrates which proposed solutions would directly affect
each identified issue.
26
Figure 4 – Literature-proposed solutions to indirect procurement issues (compiled from Barry et
al. 1996; Porter 1999; Carter et al. 2003; Cox et al. 2005; Angeles & Nath 2007; Karjalainen &
van Raaij 2011; Payne et al. 2011; Jayaram & Curkovic 2018; COPC Indirect procurement
standard 2019; Israel & Curkovic 2020; 2022 Indirect Procurement Report)
The COPC Indirect Procurement Standard (2019) suggests that indirect procurement
should strive to actively promote itself in the eyes of management. In the end, the
perception of management influences their decisions related to indirect procurement,
which in turn either positively or negatively influence the performance and actions of
indirect procurement. According to Jayaram and Curkovic (2018), this can be done by
both delivering adequate performance and providing data about the relevance and scale
of indirect procurement operations. As the understanding of indirect procurement
relevance and needs increases among management, they are expected to make more
informed decisions, which in turn support the performance of indirect procurement. For
example, management can approve more resources for the indirect procurement function,
or re-structure it into better form. According to Karjalainen and van Raaij (2011),
management can also directly affect maverick buying by implementing and periodically
auditing compliance mechanisms.
27
Optimization of indirect procurement organization is another common solution cited in
the literature. Quite self-explanatorily improvements to the indirect procurement
organization’s structure help to fix issues caused by it. According to Jayaram and
Curkovic (2018), centralization or “center-ledzation” of indirect procurement helps to
reduce complexity associated with indirect procurement, as there now is uniform indirect
procurement organization serving the whole company. Uniform organization allows the
standardization of software and introduction of better new E-procurement tools, while
also improving the quality of indirect procurement data (Angeles & Nath 2007).
However, Israel and Curkovic (2020) note, that the organization needs to be optimized
based on the needs of the organization.
Investments in both additional indirect procurement resources and existing employee
competence development are also seen as prominent solutions to some of the indirect
procurement issues. Employee competence development both ensures the continuity of
adequate performance and enables development of practices through learning new ideas
(COPC Indirect Procurement Standard 2019). Results obtained by Karjalainen and van
Raaij (2011) indicate that increase in indirect procurement resources can reduce maverick
buying. Additional resources and improved practices also allow increased communication
with stakeholders in the company. According to Cox et al. (2005), this helps to “educate”
internal stakeholders about the requirements and practices of indirect procurement while
also demonstrating IP capabilities to stakeholders and management. Improved
communication also allows indirect procurement to obtain more soft data to factor in
decision making and feedback on how to improve their own practices (COPC Indirect
Procurement Standard 2019).
Lack of standardization was identified as an issue causing complexity and additional
costs. Understandably, standardization of items and processes, whenever possible and
sensible, is identified as a countermeasure for these issues. According to Carlsson (2019),
standardization of items leads to savings though better deals of larger volumes.
Standardization of items also helps to control the number of suppliers. According to Barry
et al. (1996), simplified processes help to reduce the complexity of indirect procurement
and make it more understandable for internal stakeholders. Standardization also helps to
tackle maverick buying, as indirect procurement processes are simpler to understand, and
product information (catalogues) more readily available (Karjalainen & van Raaij 2011).
One additional benefit of standardization is that it reduces both the overall workload of
28
indirect procurement staff and the need for manual work, as activities, such as creating
and sending PO’s, can be bundled.
Angeles and Nath (2007) point out that standardization improves both the quality and
quantity of data. This eases decision-making and the implementation of new and more
sophisticated E-procurement tools and information systems. Both E-procurement tools
and process automation-enabling systems are seen as great ways to improve indirect
procurement efficiency. Both Carter et al. (2003) and Angeles and Nath (2007) recognize
a positive cycle within standardization, data quality, and new information system
adoption: standardization improves data quality and eases the implementation of new
systems. New systems further improve data quality and support standardization efforts,
which in turn allow the implementation of more efficient systems. Automation and E-tool
adoption significantly reduce manual work, easing the lack of indirect procurement
resources.
Carter et al. (2003) propose outsourcing indirect procurement activities as a solution to
some of the issues. Outsourcing of indirect procurement can take multiple forms. In some
cases, it might mean outsourcing all of indirect procurement, whereas in others maybe
the outsourcing of some categories. According to Payne et al. (2011), outsourcing the
procurement of non-essential or minor categories can be beneficial, as the suppliers can
often achieve cost reductions through more efficient operations and larger volumes
compiled from multiple customers. Procurement of some uniquely high-value or
technologically complex items can also be outsourced in order to benefit from the
knowledge and expertise of suppliers (Carter et al. 2003). Carter et al. (2003) also note
that the suppliers offering outsourced indirect procurement services can rapidly improve
the service level of indirect procurement activities in a company, especially if it was
lagging behind in terms of endogenous capabilities.
29
3 Maturity models
3.1 Maturity models as assessment and development tools
Knowledge and expertise accumulate in organizations over time. This accumulation leads
to the development of organizational capabilities and implementation of more
sophisticated business processes. However, the accumulation occurs at different rates,
and every organization has its own individual level of development. According to Maier
et al. (2012), the term maturity both depicts the process of growth or development, and
when reached, is the highest and final stage of development. A maturity level is a plateau
or stage somewhere along the path towards maturity (Rendon, 2008).
Maturity models have been developed as a way to assess and improve the performance
of organizations, processes, or systems over time (Wendler, 2012). Röglinger et al. (2012)
recognize three types of maturity models based on their practical applicability:
descriptive, prescriptive, and comparative. Descriptive models provide the means for
assessing the status quo and identifying the current stage. Prescriptive models introduce
development-supporting aspects, indicating how to advance from one stage to the next.
Comparative models allow benchmarking and comparison or practices both internally
and externally. In practice, the models are usually a combination of the aforementioned
types. Pullen (2007) defines maturity model as a structured tool consisting of different
elements, that describes the different stages of development for each element with defined
characteristics, as well as the means for advancing from one stage to another.
According to Maier et al. (2012), the models are usually organized as a matrix or a grid,
with each cell containing a written description of the characteristics for each maturity
stage concerning a certain element. It is important to note that the models are designed to
assess and analyze complex real-world situations. In reality, the measurable elements
have intertwined dependencies and influence the performance of other dimensions and
processes. Changes or improvement efforts with one element or process will affect many
others. Röglinger et al. (2012) note critique towards maturity models to stem from their
tendency to oversimplify reality. In addition, maturity and its stages are also ambiguous
and subjective concepts and are contingent on time and scale. Sending a fax and calling
via landline might have been the pinnacle equipment in the process of communication in
the 1980’s but have since been made obsolete. Similarly, an ERP with top-of-the-line
30
functionalities could be the key enabler supporting the world-class processes of a
multinational corporation, but in an SME would overcomplicate its actions.
According to Burnes (2004), organizations are subject to both internal and external
change. In response to changes, organizations perform development actions. However,
these are often executed as reactive ad-hoc solutions and with short-term perspective. As
a result, their effectiveness soon degrades. This often leads to lost development
opportunities as no lasting long-term improvements are made. By (2005) points out, that
around 70 percent of development initiatives fail. This is due to the lack of a valid
guidance framework and long-term vision. Many scholars have advocated for the
importance of continuous change management practices. In procurement context,
Axelsson et al. (2005) advocate for the importance of sustained, continuous development
over one-off actions. Figure 5 depicts the difference between sustained development and
one-off improvements.
Figure 5 – Benefits of sustained development. (Modified from Axelsson et al. 2005, 23)
Maturity models take an evolutionary approach towards development. It occurs gradually
over time, step by step. Pullen (2007) points out that maturity models can suggest means
for advancing from one level to next. Subsequently, Andreasen & Gammelgaard (2018)
argue that the models can be used to guide development, as they have the ability to act as
roadmaps. Therefore, maturity models have the potential to be used as a framework
supporting managerial decision-making on continuous development, simultaneously
31
providing long-term direction and intermediate milestones (van Weele & Rozemeijer,
2022, 66). However, the development must be gradual, as any development or
improvement efforts for a certain element or process usually influences many others.
There needs to be an established foundation to support new developments. According to
Schiele (2007), prior stages of development must be systemically obtained before
advancing to the next, as attempts to introduce too radical changes usually leads to more
harm than good. This is supported by Lockamy & McCormack (2004), who argue that it
is always necessary to have a solid foundation to build on, as each stage acts as an enabler
for further development.
3.2 Maturity model construction process
There are a few different approaches in the literature to the formulation or construction
of maturity models. They are used in a wide range of different fields and functions from
food production to project management to procurement. Still, they all usually follow the
same basic principles throughout the construction process, regardless of the field of
application or the specific construction framework.
According to Röglinger et al. (2012), there are three levels of design principles for
maturity models. Basic design principles form the basis of construction for every model.
These include defining the scope of the model and intended users, deciding which
elements to include and basic maturity levels for these, and the definitions of concepts
and terms. For descriptive use, the design adds depth to the criteria for different maturity
levels, as well as definition how the model is to be used. Finally, the prescriptive level
builds upon the basic and descriptive levels, adding targets and guidelines for
improvement as well as providing support for decision-making on these actions. Figure 6
summarizes the hierarchy of design principles.
32
Figure 6 – Maturity model design principles (Röglinger et al. 2012)
Although referenced in chapter 3.1, Röglinger et al. (2012) do not provide design
principles for comparative models, as in their view a model becomes comparative after it
has seen proper use and a sufficient amount of data for comparative use has been
collected. However, according to Maier et al. (2012) models can also be comparative if
recognized best practices from literature or practice are included in the model already at
the offset, although they also note that the comparative ability of the model improves after
data collection.
The different development processes of maturity models generally consist of similar
phases. According to de Bruin et al. (2005) and Maier et al. (2012), the phases should in
general be followed in linear order, although there is always iteration between certain
phases, as the model is refined and evolves over time. The model of de Bruin et al. (2005)
is depicted in Figure 7.
Figure 7 – Maturity model development phases (de Bruin et al. 2005)
33
De Bruin et al. (2005) divide the actual development process of maturity models into six
phases, scope, design, populate, test, deploy, and maintain. Maier et al. (2012) propose a
four-phase model. These phases are planning, development, evaluation, and maintenance,
with each phase containing certain decision points. This model is depicted in Figure 8.
As the model by Maier et al. (2012) provides a clear and more in-depth structure to
support the development process, this thesis will next utilize it as a framework for taking
a deeper look into the actual development phases.
Figure 8 – Maturity model development phases and decision points (Maier et al. 2012)
3.2.1 Phase I: Planning
The planning phase acts as the foundation for the latter phases of model development.
This phase defines to whom, why, and to what purpose the model is being created, and
provides purpose and direction for it. The design principles by Röglinger et al. (2012)
need to be taken into account. According to Maier et al. (2012) the first face includes four
distinct decision points. These are specifying audience, defining aim, clarifying scope,
and defining success criteria. de Bruin et al. (2005) cover these topics under scope and
design phases.
Specifying audience covers the definition of expected users. This can include multiple
groups of stakeholders on different levels, such as subjects of the assessment and the
managers making decisions based on assessment results. (Maier et al. 2019.) Defining
aim specifies what the model is going to be utilized for. This decision point relates to the
design principles of Röglinger et al. (2012), whether the model is going to be descriptive,
prescriptive, or comparative. According to Maier et al. (2012), the model is most often a
combination of these. Clarifying scope is the decision about the generalizability of the
34
model, whether it is designed for a specific process or company, or for general use across
industries and fields (Maier et al. 2012). The final decision point in the first phase is the
definition of success criteria. These need to be established in order for the model
developers to know whether the model is good or not. According to Maier et al. (2012),
two good criteria are the usability and usefulness of the model. Usability stems from the
clarity of the model. As Röglinger et al. (2012) point out, the model needs to follow the
basic design principles, such as clear definitions for concepts, in order to be usable.
Usefulness could be measured in terms of the aim of the model. If its aim is to be
prescriptive, the model needs to deliver guidance for development. (Maier et al. 2012.)
3.2.2 Phase II: Development
The first version of the actual model is built during the development phase. This phase
also includes four distinct decision points: Selecting process areas, selecting maturity
levels, formulating cell texts, and defining administration mechanism (Maier et al. 2012).
According to Bruin et al. (2005), this phase defines what needs to be measured, and how
and by whom the measurement is performed.
Selecting process areas is the first decision point. The aim in this step is to select key
dimensions within the scope of the model defined in phase 1. These dimensions need to
be simultaneously exclusive while collectively providing a thorough picture for
assessment. The dimensions are then broken further down into measurable elements
concerning the dimension in question. (de Bruin et al. 2005; Maier et al. 2012.) Example
dimension in procurement context could be strategy and leadership, which could then be
broken down into elements, measuring factors such as streamlining procurement strategy
with corporate strategy, category strategy formulation, leadership of procurement
function, etc. Both Maier et al. (2012) and Schiele (2007) recommend the utilization of a
literature review of the field in question as a starting point for the dimension selection,
provided that the field in question has accumulated a sufficient amount of prior research
literature.
The second decision in the development phase concerns the number of maturity levels in
the model. These levels cover the range of maturity from low or non-existent to the best,
where an element has reached final maturity. The number of levels (or stages) varies from
model to model, but according to Schiele (2007), is usually 3-5. de Bruin et al. (2005)
suggest using 5 levels, but note, that the number of levels is irrelevant compared to the
35
quality of definitions on each level. According to de Bruin et al. (2005), the levels need
to be distinct and well defined, while providing a logical progression from one to the next.
As a result of defining both the X-axis (levels) and Y-axis (dimensions and elements), an
empty maturity grid is now waiting to be populated. Formulation of cell texts needs to be
done with care. Each description should be clear, precise, and concise (Maier et al. 2012).
Röglinger et al. (2012) note in their design principles that the cell texts need to be
formulated in such a way that they are understood in the same way by every user of the
model. According to Maier et al. (2012) a good approach for formulating the cell texts is
to first determine both extremes, characteristics for worst and best levels, and then define
the characteristics for the levels in between. The information used for defining the
characteristics for each element and respective levels can be collected from multiple
sources; literature, used practices, recognized best practices, and exploratory research (de
Bruin et al. 2005; Maier et al. 2012).
The fourth and final decision point in the development phase is about defining the
administration mechanism for the model, how it will be distributed and how the
assessments are to be performed and utilized. According to Maier et al. (2012), the focus
in the utilization can be either in raising awareness or benchmarking, or a combination of
the two. When the focus is on raising awareness, the model is often distributed as a
questionnaire to a small group of people, and the results are interpreted and discussed in
workshops. Here, the focus is more on an internal analysis of the current state of affairs
and how to improve. (Maier et al. 2012.) When the focus is on benchmarking, the model
is distributed to a wider group of recipients. In this scenario, the model is used to assess
the as-is situation in multiple entities (teams, divisions, companies), and to compare them
against one another. (Maier et al. 2012; Röglinger et al. 2012.)
3.2.3 Phase III: Evaluation
The evaluation phase is where the main iteration and refinement work of the model takes
place. Here, the model is tested for relevance, rigor, and generalizability (de Bruin et al.
2005). The validation of the model is performed through testing and feedback from
individuals, preferably unrelated to the author(s) of the base model (Maier et al. 2012).
Interviews and surveys are recognized as good methods for verifying the model (de Bruin
et al. 2005.) According to Maier et al. (2012) the dimensions and elements of the model
and the characteristics (cell texts) of individual levels need to be verified. The
36
intersubjective design principle of Röglinger et al. (2012) also needs to be verified, where
the construct and contents of the model are tested to be understood in the same way by
individuals.
Iterative validation can be performed until the results are saturated. After the saturation,
no more significant improvements or changes are suggested by the participants, or the
model is deemed to be satisfactory. After the validation is finished, the results provided
by the model should be repeatable. (Maier et al. 2012.) Finally, as the second part of the
evaluation phase, the model should be verified against the success criteria defined in
phase I of the development, although if everything has been done correctly up to this
point, the verification results should be positive (Maier et al. 2012).
3.2.4 Phase IV: Maintenance
The maintenance phase covers the evolution of the model over its lifespan, while also
extending it. The model needs to be regularly checked and updated to ensure that it
remains valid for use. (Maier et al. 2012) As discussed in chapter 3.1, maturity evolves
over time. Technological developments or new ways of working might pose requirements
for changes to the model, as they might otherwise render it obsolete. The maintenance
phase also includes the collection and storage of data. According to both Maier et al.
(2012) and Röglinger et al. (2012), this improves the comparative capabilities of the
model over time. Both also note that it is important to keep a record of the development
and changes to the model, as this provides academical utility, while also providing
findings for practical application use.
Although maintenance is a crucial part in the lifecycle of a maturity model, due to the
required longevity, it will be excluded from the scope of this thesis when the actual model
is built.
3.3 Existing procurement maturity models
Procurement maturity can be evaluated through different lenses and with a wide range of
elements. Over the past three decades, many maturity models have been developed to
measure procurement capability. These models have sought to capture the development
level of procurement in different companies and industries, often through common yet
sometimes unique dimensions of measurement. The majority of the models developed
37
have had their focus on direct procurement, as only one model, Barry et al. (1996), has
been created with a specific focus on indirect procurement. Additionally, Jayaram and
Curkovic (2018) have created an indirect procurement framework, which has many
commonalities to a maturity model, and in their paper, they also create specific maturity
ratings for few of the elements in their framework.
According to Schiele (2007) and Ubeda et al. (2015), most models base their lowest level
of maturity on to an assumption that procurement function or a specific procurement
practice is unrecognized, focuses on operative tasks and has little to no structured ways
of working. Van Weele and Rozemaijer (2022, 66) also note that companies with low
procurement maturity are also yet to recognize the value creation capability of
procurement. Conversely, the most mature levels in the measured elements of the models
are characterized by sophisticated processes, use of recognized best practices, strategic
planning and recognition and will to utilize the value creation capability of procurement
(Schiele 2007; Ubeda et al. 2015; van Weele & Rozemeijer 2022, 66–72).
As noted by de Bruin et al. (2005), the number of maturity levels is not as relevant as the
quality of definitions and characteristics describing each level. Existing procurement
maturity models have used a varying number of maturity levels, with each model
containing between three and five levels (Schiele, 2007). The number of levels is either
derived from the combination of theory and author’s judgment, like in Schiele’s (2007)
model, or by first collecting and analyzing empirical data, after which a model and its
levels are built reflecting the results of the analysis, like the model by Barry et al. (1996).
The models use varying naming schemes for their levels. The majority of the models use
descriptive names for the levels, depicting the capability of a particular level. The models
by Schiele (2007) and Ubeda et al. (2015) make an exception to this, as they use only
percentual or numerical levels.
The sophistication of the models has steadily increased over the years. The models
developed in the 80’s and 90’s usually had around 10 individual measured elements, and
lacked the structure where individual elements are grouped under dimensions (Schiele
2007; Ubeda et al. 2015). From 2000’s onwards, the number of elements included in the
models has commonly been closer to 50 than 10. In addition, many later models, like
Schiele (2007) and Ubeda et al. (2015), and the framework by Jayaram and Curkovic
(2018), have adopted a structure where the elements are grouped under dimensions. As
38
Maier et al. (2012) noted, this both improves the structure and usability of the models,
while also providing better overview for high-level stakeholders examining results.
The quality of the characteristics provided for each level of an element, the texts in
individual cells, have also improved significantly in later models, as the cells include
more detailed descriptions. Whereas earlier models included one or two words in a cell,
the later ones often have detailed descriptive texts. Both descriptive and prescriptive
styles for writing cell texts are utilized in the formulation of different models. However,
Schiele (2007) notes that descriptive writing style is better as it will improve the
generalizability of the model.
According to Johnsen et al. (2019), the older models have inevitably become outdated to
a certain degree. Factors such as contemporary thinking about procurement, technology,
and ways of working have all evolved over the years, which has changed the game and
moved the goal posts for the maturity models seeking to capture the essence of
procurement capability. Therefore, Johnsen et al. (2019) argue that the use of earlier
models should be avoided without some updates and adjustments.
Although there is a great deal of variety with the terms used for dimensions and elements,
aspects measuring strategy, employees, procurement processes, supplier management,
control, organizational structure, and performance measurement can be recognized from
almost every model. Schiele (2007) has compiled a comprehensive overview of the
elements included in models earlier than his and grouped them under six dimensions.
Figure 9 is based on his classification and updated with later models. This classification
will be utilized as a framework to discuss the dimensions and elements more in depth.
39
Figure 9 – Comparison of maturity models (Modified from Schiele 2007)
Schiele (2007) classifies the elements in models under six dimensions. In his view
procurement planning dimension covers elements related to the future, both in the short
and long term. Elements such as planning for operations’ needs, supply market analysis,
and innovation planning are included. In other models, like the framework by Jayaram
and Curkovic (2018), these elements are included under planning, procurement process,
and support process dimensions.
The second dimension in Schiele’s (2007) model is procurement organization. This
dimension includes elements measuring the structure, role, and both cross-functional and
strategic integration of procurement. Although many of the models include these
measures in some way at a first glance, Schiele’s (2007) classification disqualifies them
as being prescriptive rather than descriptive.
Procurement processes is the third dimension in Schiele’s (2007) model. This dimension
includes elements measuring procurement strategy, individual procurement processes
(such as supplier selection and development), and procurement’s collaboration with
internal stakeholders. In other models these elements are often split, and in some cases,
more individual procurement processes are measured. Elements related to supplier
management are included in almost every model. However, by Schiele’s (2007) definition
some of the models (like Cousins et al. 2006 and Paulraj et al. 2006) are prescriptive in
40
nature and thus the supplier management elements are separated to their own sixth
dimension, collaborative supply relation.
Elements measuring human resources can also be found in almost every model.
According to Schiele (2007), this dimension includes elements like the competence of
individual employees, career development paths within a company, and HR-staff and
their competence to recruit employees with the right skillset. Jayaram & Curkovic (2018)
and Johnsen et al. (2019) also include an element measuring employee training and
development. Ubeda et al. (2015) introduce an element measuring the incentive program
of procurement staff.
The fifth dimension is procurement controlling. In earlier models, like Freeman and
Cavinato (1990) control is considered to be based on budgeting. According to Schiele
(2007) controlling includes elements like performance targets, evaluation of the
controlling system, and the IT-infrastructure to support it. Jayaram & Curkovic (2018)
also introduce analytics as a control element.
The later models like the framework by Jayram & Curkovic (2018) and especially the
model by Johnsen et al. (2019) also introduce elements belonging to an area which could
be considered as its own dimension. They introduce elements measuring sustainability,
corporate responsibility, and compliance in their models, placing distinct emphasis on
maturity measurement through sustainability indicators. This reflects the increased
importance of these topics in the area of procurement.
There are two papers which are specifically aimed at indirect procurement. The one by
Barry et al. (1996) introduces an indirect procurement maturity model, and the one by
Jayaram and Curkovic (2018) a framework for indirect procurement development and
benchmarking. The model by Barry et al. (1996) is centered purely around indirect
procurement process, as it only measures elements depicting IP process steps. The
elements describing these process steps in the paper can be classified under Schiele’s
planning, processes, and controlling dimensions. Barry et al. (1996) use a three-level
model, where the levels and descriptions for each cell have been concluded from a prior
empirical study. The cell texts are quite outdated, which according to Johnsen et al. (2019)
restricts the usability of the model.
41
The indirect procurement framework developed by Jayaram and Curkovic (2018) is not
a maturity model, but rather a standard for indirect procurement development. It has
commonalities with maturity models in the sense that in the framework there are 28
elements grouped under five dimensions, most of which are also included in Schiele’s
(2007) classification. The standard is prescriptive in nature, depicting what should be
done on a high performance or maturity stage. While heavy on process related elements,
the framework also includes many non-process-related ones, providing breath to the
measurement and development of indirect procurement activities. The framework also
includes measures for responsibility and the use of IP-specific technology. The paper also
includes a benchmarking study of few key elements, while also providing a maturity scale
for them. The downside of the framework is that it lacks a proper matrix structure to
become a real maturity model.
Both the model by Barry et al. (1996) and the framework by Jayram and Curkovic (2018)
seem to have some common deficiencies. They lack a couple of key elements that are
often discussed in the literature of indirect procurement. Both articles imply that indirect
procurement is not understood by higher management and as a result is often neglected,
but yet do not include specific measures for this (Barry et al. 1996; Jayaram & Curkovic
2018). Moreover, as discussed in Chapter 2.3, indirect procurement is often decentralized
among departments and handled by other personnel than procurement professionals. Even
as Jayaram and Curkovic (2018) point this out as an issue in their own article, they still
do not incorporate any elements to measure the organizational structure of indirect
procurement. Both also lack a measure for the level of strategic integration of indirect
procurement.
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4 Maturity model for indirect procurement
4.1 Developing a maturity model for indirect procurement
The creation of indirect procurement maturity model in this study follows the design
principles for maturity models outlined by Röglinger et al. (2012). The model itself is
constructed following the maturity model creation process and its phases proposed by
Maier et al. (2012). These were both discussed more in depth in chapter 3.2. The basis
for the maturity model creation (phase I) and the actual creation of the first version of the
model (phase II) are discussed in this chapter. This literature-based first version of the
maturity model can be found in appendix 1. The empirical validation and verification of
the model (phase III) will be discussed in chapter 6. It should also be noted again that the
maintenance phase of the creation process (phase IV), is left out from the scope of this
study. Therefore, it will not be covered in this nor the following chapters.
4.1.1 Phase I: Planning
The first three steps in the planning phase are defining the audience, defining the aim, and
clarifying the scope (Maier et al. 2012). The model developed in this study is intended to
be used by indirect procurement professionals of various positions and hierarchical levels,
from procurement specialists to heads of procurement. Other relevant stakeholders are
also welcome to use it, and their involvement could also provide valuable second opinions
for indirect procurement staff. The model is written to be descriptive in nature, and the
maturity evaluation is intended to be used for the as-is assessment and benchmarking of
indirect procurement practices, and the identification of both potential development
points and development targets. The results of the evaluation can be utilized by both
indirect procurement teams and general management, hopefully stimulating thoughts and
sparking insightful discussions among both groups, but especially within indirect
procurement teams. In terms of scope, the model is intended to be a generic one that could
be utilized by companies of various sizes, regardless of industry. However, it needs to be
noted that this model probably offers a lesser amount of relevant content for smaller end
SMEs, as in their scale many depictions and elements in the model are irrelevant in
practice.
The fourth step in the planning phase is the definition of success criteria (Maier et al.
2012). Maier et al. (2012) suggest usability and usefulness as good success criteria.
43
Therefore, both are used as such for this model as well. The model needs to be easy to
understand and easy enough to use. The model should also provide useful information
about the state of indirect procurement practices for the user. In addition to providing
information and support for decision-making, the model is also intended to build
knowledge about indirect procurement. This is hopefully reflected in both improved
indirect procurement practices and an increase in the status of indirect procurement in
companies in general.
4.1.2 Phase II: Development
The second phase starts with the selection of process areas (Maier et al. 2012). In the
context of this maturity model, this means selecting the dimensions and elements to be
included in the model. The selection is done through an extensive literature review of
procurement literature, both direct and indirect. The selected dimensions and elements
are derived from both existing maturity models and general articles based on their
relevance and occurrence. The selection is also intended to reflect the indirect
procurement-specific issues and their solutions recognized in the literature. As there is no
single all-encompassing model to base this one on, the final selection of dimensions and
elements has been made by the author using his own judgement and limited experience
in the field of indirect procurement. After the selection process, 7 distinct dimensions
were introduced to the first version of the model, under which a total of 42 elements were
grouped. The selected dimensions are:
1. Strategy, planning, and leadership
2. Indirect procurement organization and integration
3. Key procurement processes
4. P2P process
5. Human resources
6. IT-systems and E-procurement
7. Measurement and control
The first dimension, strategy, planning, and leadership, consists of seven elements, which
are listed below. The selection of this dimension is based on the models of Cousins et al.
44
(2006), Ubeda et al. (2015) and Paulraj et al. (2006). Nearly every model contains some
elements measuring procurement’s strategic involvement and leadership, so it is logical
to contain these elements in their own dimension. This dimension is intended to reflect
factors such as procurement’s status in the company (as a whole, based on the assumption
that if direct has low status, indirect has even lower status), strategic involvement and
involvement in decision making, the role of indirect procurement in the procurement
function, and leadership in indirect procurement. Additionally, elements measuring
responsibility and sustainability are also included in this dimension, as they were
recognized as strategic drivers by Giunipero et al. (2012) and included in the maturity
model of Johnsen et al. (2019).
- E1.1 Procurement and corporate strategy
- E1.2 Indirect procurement recognition and involvement in decision-making
- E1.3 Procurement strategy and indirect procurement
- E1.4 Corporate responsibility and indirect procurement
- E1.5 Sustainability and indirect procurement
- E1.6 Change and development management
- E1.7 Indirect procurement business plan
The second dimension is indirect procurement organization and integration. It contains
five individual elements, which are listed on the next page. This dimension covers topics
like indirect procurement organization, mandate, and cross-functional integration and
cooperation. These dimensions are selected based on the models of Schiele (2007) and
Ubeda et al. (2015), and the framework by Jayaram and Curkovic (2018). Additionally,
Cox et al. (2005) stress the importance of cross-functional communication between
indirect procurement and other departments. IP involvement in product specification and
standardization is included as an element based on the suggestions of Carlsson (2019) and
Karjalainen and van Raaij (2011).
- E.2.1 Organizational structure
- E2.2 Mandate of IP department
45
- E2.3 Communication practices & plan
- E2.4 Cross-functional integration
- E2.5 IP involvement in product specification & standardization
Key procurement processes form the third dimension. This dimension includes eleven
individual elements, all of which are widely covered in the literature, identified as key
procurement processes, and included in some form or another in the existing maturity
models. The procurement processes included in this dimension are selected based on their
longevity, as they generally tend to exceed the duration of operational activities.
Adjustment of process requirements is technically not a process but rather a design step
for the requirements of other processes. It is added as an element based on the author’s
experience, where having one single process model for every indirect procurement case,
regardless of value or significance, often complicates matters unnecessarily.
- E3.1 Adjustment of process requirements
- E3.2 Category strategies
- E3.3 Supplier strategies
- E3.4 Supplier selection
- E3.5 Supplier due diligence
- E3.6 Supplier contracting and contract management
- E3.7 Supplier management
- E3.8 Internal compliance
- E3.9 Risk management
- E3.10 Supply market intelligence
- E3.11 Internal partner management
The operational or daily activities of procurement are compiled to form the fourth
dimension, the P2P process. This dimension includes four elements, which are listed on
the next page. The importance of operational processes seems to be remarkably
46
overlooked in the existing maturity models, as only the relatively old model by Barry et
al. (1996) seems to pay particular attention to their importance. Yet, one of the most cited
headaches for indirect procurement is the high number of individual requisitions, POs,
invoices, etc., which often creates an extensive amount of manual work while also
aggravating other issues associated with indirect procurement (Barry et al. 1996; Cox et
al. 2005; Angeles & Nath 2007). Therefore, operational processes are entitled to receive
attention in the form of an individual dimension, as elements measuring the proficiency
of operational activities are key indicators for indirect procurement maturity.
- E4.1 Requisition & approval
- E4.2 PO placement & compliance
- E4.3 Receiving and inspections
- E4.4 Invoice processing
The fifth dimension is human resources, which consists of seven elements. The
importance of competent procurement, recruitment of the right skills, and talent retention
and development has been widely acknowledged in academic literature (Schiele 2007;
Ubeda et al. 2015; Bals et al. 2019). The elements are intended to reflect the need for
diverse competences, recruitment competence, talent retention and skill development, and
work well-being. As noted in Chapter 4.1, human resources are included in some form or
another in almost every existing procurement maturity model, which again indicates the
level of their importance as a relevant indicator for indirect procurement maturity.
- E5.1 Position descriptions and diversity of competences
- E5.2 Recruitment competency & methods
- E5.3 Staff onboarding, training, and competence development
- E5.4 Adequacy of resources
- E5.5 Performance evaluation
- E5.6 Career development and employee churn
- E5.7 Staff feedback
47
IT-systems & E-procurement are selected as the sixth dimension, and the elements
included are listed on the next page. This dimension is mostly absent or only briefly
covered with one or two elements in the existing maturity models. As discussed in
Chapter 2.3, suitable IT-systems, availability of accurate data, process automation, and
the utilization of E-procurement solutions are all very effective measures for improving
indirect procurement performance. They help to tackle issues like high amount of manual
work, lack of relevant data, lack of resources, and the lack of standardization. (Cox et al.
2005; Angeles & Nath 2007.) Bals et al. (2019) also note that procurement IT-solutions
are constantly developing to become ever more sophisticated, enabling improvements in
procurement management practices. As there is clear evidence for the relevance of IT-
systems and E-procurement solutions as enablers for efficient indirect procurement
management, they are important yardsticks for indirect procurement maturity.
- E6.1 IT-architecture and systems
- E6.2 P2P-process automation
- E6.3 Data collection, quality, and storage
- E6.4 E-X’s
The seventh and final dimension in the model is measurement and control. Almost every
existing procurement maturity model, except the model by Keough (1993), includes some
elements measuring the controlling practices of procurement. Accurate measurement and
control based on numbers are key managerial principles. Therefore, its importance cannot
be understated, and measures of the level of their performance act as indicators for
indirect procurement proficiency. Additionally, stakeholder satisfaction is an important
indicator for indirect procurement. As the function serves internal customers and greatly
affects most internal operations, measuring internal customer satisfaction can be
considered a very relevant indicator of indirect procurement performance. Stakeholders
can also provide valuable feedback for indirect procurement, which, properly utilized,
can help indirect procurement improve.
- E7.1 IP business plan metrics & adjustment
- E7.2 Reporting & data analytics
- E7.3 Stakeholder satisfaction
48
- E7.4 Cost management & measurement
According to Maier et al. (2012), the second decision point in the development phase is
the selection of maturity levels. As mentioned in Chapter 3.2.2, most existing
procurement maturity models utilize between three and five levels. The models can be
split in two in terms of their logic concerning the first level: It either represents non-
existent maturity and practices or rudimentary maturity and practices. In practice,
including or excluding the zero-level from the model makes no difference, as the user of
the model should be capable of identifying a non-existent practice or level of maturity
regardless of a visible 0-column. As noted by de Bruin et al. (2005), the number of
individual levels is irrelevant compared to the quality of descriptions and the logical
progression from level to level. Most of the procurement maturity models developed
during the 2000s utilize either four levels (Cousins et al. 2006; Schiele 2007; Johnsen et
al. 2019) or five levels (Ubeda et al. 2015; Jayaram & Curkovic 2019, on the part of few
elements they measure in maturity-model-like fashion), where the first level is again one
of non-existent maturity or practices. Therefore, the zero-level is omitted from the model
of this thesis, the number of levels selected is four, and a greater focus will be given to
the level descriptions and progression of individual elements.
As discussed in Chapter 4.1, the existing models utilize either descriptive words or simple
numbering, percentual or pure numbers, to name their levels. This model will utilize
descriptive words to name four levels of maturity. These names are derived from
literature, describing the level of maturity through four factors: capability, processes,
technology, and status of indirect procurement. In Chapter 2.3 the literature review
focused on the literature-recognized issues associated with indirect procurement and the
solutions to these issues. In terms of logical progression, the maturity level descriptions
should also adequately reflect a path where these issues are addressed, improved upon,
and eventually resolved. Table 4 summarizes the names of the levels and their
descriptions.
49
Table 4 – Maturity model level names and descriptions
The frame of the model has now been established, as the dimensions, elements, and levels
have been selected. Figure 10 illustrates the skeletal frame of the model prior to the
population of the cells, i.e., writing cell texts.
Maturity level Description
Clerk IP is seen purely as a supportive, administrative function with no
value-creation capability. It has non-existent or unsuitable processes
and low capabilities in terms of both proficiency and technology.
Basic IP is seen as an operational function with savings capability. Its
capabilities range from elementary to good, and it even has a little bit
of shine to it in some respects. It utilizes basic processes and
technology.
Advanced IP’s value-creation capabilities and relevance for the execution of
strategy are becoming increasingly recognized. IP has a good-to-high
level of proficiency. It is able to act quite proactively, utilizing good
processes and advanced technology.
Pioneer of maturity IP is recognized as a value-creating contributor. It possesses a very
high level of proficiency, utilizes best-practice processes and
technology, and proactively seeks to improve its operations further, re-
defining the top level of maturity.
50
Figure 10 – The skeletal frame of the model prior to population
The third step in phase II is the formulation of the actual cell texts, which consists of three
decisions. According to Maier et al. (2012), the first decision in this step is about the
writing style of the cells, whether they are written descriptively or prescriptively. As noted
earlier in phase I, this model is intended to be a generic one. Therefore, a descriptive
51
writing style is chosen for the cell texts, as there is much variation between the situations
of organizations and the environments they operate in.
The next decision in this step concerns the information sources used to populate the cells.
According to Maier et al. (2012), academic literature, organizational publications, and the
opinions of experts and eventual users of the model can be utilized here. For the initial
version of the model, the cell texts are populated based on the author’s synthesis of
academic literature and organizational publications, which have been used as sources in
the thesis. The model is later refined based on the feedback received from indirect
procurement professionals.
The third and final decision in step three is about the strategy of writing the cell texts to
an element. Maier et al. (2012) note that either an extreme approach, where the worst
level and highest level are written first, or a description-based approach, where the cell
text are written based on the maturity level descriptions and their underlying rationale,
can be used. During the population of the first version of the maturity model mainly the
first, extreme approach, is used. However, the writing of the cells is still an iterative
process, where the cells are constantly compared against both one another and the level
descriptions and refined. The populated first version of the model can be found in
Appendix 1.
The fourth step of Phase II is about choosing an administration mechanism. However, as
this step is irrelevant in the context of this thesis and the associated maturity model, it
will not be covered.
52
5 Methodology
5.1 Research methods and positioning of the study
The objective of this research is to create a comprehensive maturity model for indirect
procurement by identifying the underlying issues associated with indirect procurement,
solutions to these issues, and how they are manifested at each level of maturity. As
discussed in earlier chapters, as part of the maturity model creation process, an extensive
literature review has been performed to gain an understanding of the underlying factors
influencing indirect procurement maturity. The problems and solutions identified are
often unstructured and highly complex, and each company has its own peculiar
combination of issues and solutions. Therefore, the empirical validation of the model is
performed qualitatively in order to gain a deeper understanding of the complex real-world
situations and to formulate explanations and suggestions (Ghauri et al. 2020; Hirsjärvi et
al. 2005). In order to improve the generalizability of the model, representatives from
multiple companies are interviewed. According to Quintao et al. (2020) this allows the
identification of trends and similarities from the data compiled from different sources.
The research approach of this thesis can be identified utilizing the framework develop by
Neilimo and Näsi (1980) and later supplemented by Kasanen et al. (1993). This
framework is illustrated in Figure 11. The framework is formed as a grid based on two
dimensions. The first axis, Theoretical-Empirical, divides research approaches into two
based on the data utilized, whether it is theoretical or empirical in nature. The second axis,
Descriptive-Normative, divides research approaches based on whether their aim is to
understand and describe a problem or phenomenon or propose solutions to problems. The
first four approaches identified by Neilimo and Näsi (1980) are conceptual approach,
nomothetical approach, decision-oriented approach, and action-oriented approach. In the
conceptual approach, new knowledge is deducted from existing research. In the
nomothetical approach, efforts are made to generate knowledge from empirical data. A
decision-oriented approach is utilized when existing research is used to produce
knowledge for guiding decision-making. Finally, an action-oriented approach is aimed at
creating guidance for decision-making but is based on empirical observations. (Kasanen
et al. 1993.)
53
Kasanen et al. (1993) also added a fifth, constructive approach to this classification, as
they argued that the original approaches lacked suitability for solving practical problems
of real-life businesses. The constructive approach expands action- and decision-oriented
approaches in the sense that it is aimed at creating a construct of practical applicability
based on empirical data that can be explicitly utilized by real-life organizations.
Figure 11 – Research approach categorization framework (Neilimo & Näsi 1980; Kasanen et al.
1993)
Judged through the lens of this categorization, this research utilizes a constructive
approach. The objective of this research is to create a maturity model, a construct, for
measuring indirect procurement performance and supporting the development of indirect
procurement practices that can be utilized by organizations in practice. Lukka (2014)
notes four elements of constructive research, which are centered around the construct
itself: the focus on real-life problems, the practical applicability of the construct, close
linkage to earlier research, and theoretical contribution through empirical findings. These
are illustrated in Figure 12. Lukka (2014) also notes that the practical testing of the
construct should be performed with experts and should result in lessons learned, further
refining the construct.
54
In their paper, Kasanen et al. (1993) present a process description for a constructive
approach. This was later updated by Lukka (2014) and presented in Figure 13. The
process has many similarities with the process and principles of maturity model creation
introduced by Maier et al. (2012), which were covered in Chapter 3.2. This study first
identified a practically relevant problem, a lack of practically usable scientific tools for
supporting indirect procurement management. After that, a comprehensive understanding
of the topic was obtained through a comprehensive literature review. After this, the first
version of the construct was created based on the literature. The model, i.e., construct, is
then tested for usability and applicability in cooperation with experts. Finally, the
theoretical contribution is analyzed. In the end, this study contributes to both theory and
practice, which is the ultimate goal of constructive research (Kasanen et al. 1993).
Figure 13 – The process of constructive research (Kasanen et al. 1993; Lukka 2014)
5.2 Data collection
Qualitative data can be collected using a variety of means. According to Ghauri et al.
(2020) and Yin (2013), observations, interviews, and documents are useful sources of
qualitative data. For this research, the data is collected through semi-structured
interviews. Interviews, in general, are a good way of obtaining qualitative data. They are
also the suggested method of empirically validating maturity models (de Bruin et al.
2005). According to Hirsjärvi et al. (2005), their greatest advantage is their flexibility;
Figure 12 – Elements of constructive approach (Lukka 2014)
55
they can be modified to suit each individual event of data collection. Interviews also allow
the interviewer to observe the sense, tone, and feelings of the interviewees. Semi-
structured interviews were chosen because compared to structured interviews, they allow
the conversation to flow more freely and enrich the data being collected (Ghauri et al.
2020). They also help the researcher to avoid the downsides of open-ended interviews,
steering off-topic and the high levels of time consumption, as they generally require
multiple rounds of interviews (Hirsjärvi et al. 2005).
The data for this research has been collected from representatives of multiple companies.
The companies and interviewees form a heterogenous group, as they operate in different
industries and scales, different roles, and have different backgrounds. The selection of
interviewed organizations and individuals has been purposefully made diverse in order to
improve the generalizability of the data and the model. According to Yin (2012), this
allows the triangulation of evidence from multiple sources, which in turn increases the
robustness of findings. Companies that had outsourced all or most of their indirect
activities or were considered too small to be relevant for an all-around maturity
measurement were excluded from the selection. All the companies included in the
selection had global activities and were either Finnish or Finnish subsidiaries. In total,
five indirect procurement professionals with varying roles from three different companies
were interviewed. Three of the interviews were done face-to-face, and two of them over
Teams. The interviews were conducted between 6th and 13th of June 2023. Each
interviewee was interviewed once, and an individual interview lasted between 50 and 90
minutes. Table 5 compiles relevant information about the companies and the people
interviewed.
Table 5 – General information about interview participants
Interviewee Position Experience with
IP/procurement
Industry Relative size of
the company
SSM1 Sourcing Manager 9/17 years Security and
Defense
Small
SSM2 Sourcing Manager 1,5/17 years Security and
Defense
Small
ECM Category Manager 5/17 years Engineering Big
EHIP Head of Indirect
Procurement
3/17 years Engineering Big
TSM Sourcing Manager 10/10 years Technology Medium
56
The interviews contained two main sections, derived from the research questions of this
study. The first section is centered around indirect procurement management in general,
the issues interviewees have faced in practice, and the solutions that are being utilized to
deal with these issues. The intention of the questions in the first sections was to compare
indirect procurement literature propositions against the real-life experiences of indirect
procurement professionals, validating the theoretical basis of the model. The second
section brought the first version of the maturity model into focus. Here, the interviewees
were asked questions concerning the structure and contents of the model and, if so, how
they would improve it.
As typical of the semi-structured interview method, the interviews followed a pre-made
interview frame. This interview frame can be found in Appendix 2. Interviewees received
both the interview frame and the first version of the maturity model beforehand, so they
could prepare by checking the topics to be discussed and familiarize themselves with the
model. Four of the interviews were conducted in Finnish and one in English. Each
interviewee allowed the interview to be recorded.
All the participants agreed to the interview on the condition that no identifiable
information about them or the companies they represent would be included in the thesis.
Therefore, only the roles and years of experience are included as information about the
participants, and the industry and relative size of the company as information about the
companies. All research data is in electronic format and is being stored only on a secure
UTU network drive. The data has been separated into original and editable files. Only the
recordings include personal information; however, this is limited to the names of the
interviewees, the companies they work for, and their years of procurement working
experience. Personal information has not been included in the transcriptions, and
acronyms are used instead of the actual names of companies. Research data that does not
contain any personal information will be stored on a secure personal web drive after the
research process for five years. Interview recordings that do contain personal information
will be deleted upon the finalization of the thesis.
5.3 Data analysis
Interview recordings were later transcribed by the interviewer. The transcription was done
manually, without transcription software assistance, in the original language of the
interview while preserving the tone and meaning of the audio as well as possible. After
57
the transcription process, the text files were analyzed utilizing NVivo 12 qualitative data
analysis software. According to Hirsjärvi et al. (2005), there is no single best practice for
analyzing qualitative data, but the method of analysis selected should deliver the best
answers to research questions and problems.
Coding is the process of reducing large quantities of data into a more interpretable form.
During the process of coding, data is compiled and coded, and similar codes are arranged
under labels. (Miles and Huberman 1994.) According to Saldana (2009), coding can be
done inductively or deductively. Inductive coding is an emergent process where codes
and labels are developed during the actual coding process. Deductive coding, on the other
hand, starts with a set of predetermined labels, under which the data is then coded.
According to Miles and Huberman (1994), these predetermined labels are derived from
the theoretical framework of the research. According to Eriksson and Kovalainen (2008),
the deductive coding style is more commonly used when research is aimed at testing a
theory.
As the aim of the empirical research is to test the theoretical assumptions concerning the
factors that influence indirect procurement maturity and the maturity model developed
based on these assumptions, the data is coded and analyzed mainly using the deductive
approach. The basic label structure is derived from the interview frame. The codes are
split between the two main sections of the interview. This structure is illustrated in
Appendix 3. The first part of the structure covers codes that are related to indirect
procurement management in general, the issues interviewees have faced in practice, and
the solutions that are being utilized to deal with these issues. The second part of the
structure covers codes that are directly related to the model, as it is being discussed. This
structure enables the validation of both the theoretical basis of the model as well as the
construct of the model itself.
However, as Saldana (2009) notes, in practice, both inductive and deductive coding
methods are often used in combination. During the interviews and later analysis, some
themes or comments did rise outside of the theoretical frame, which could not be directly
fitted under the premade coding structure. These were then coded inductively and added
as labels under either the basis of the model or to the model part of the code structure.
58
5.4 Research quality
Research quality can be evaluated through a variety of measures. Eriksson and
Kovalainen (2008) suggest using three measures for evaluating qualitative research;
reliability, validity, and generalizability, while Quintao et al. (2020) suggest evaluating
research based on reliability, construct validity, internal validity, and external validity.
Reliability is the measure of repeatability and consistency. According to Eriksson and
Kovalainen (2008), the reliability of research is indicated by how consistently used
methods produce similar results across time, even when used by another researcher. The
higher the level of reliability, the more similar the results. According to Quintao et al.
(2020), reliability can be increased through transparency. Stating how the research has
been conducted and documenting the data used to draw conclusions bot increase
reliability. The research process of this study has been described in the thesis. Data is
documented and saved in both recording and written formats.
According to Eriksson and Kovalainen (2008), validity indicates the extent to which the
findings are accurate. In order for research conclusions to be valid, they must be supported
by the evidence gathered and be truthfully presented. Quintao et al. (2020) divide validity
of research into construct validity, internal validity, and external validity. For a research
to be constructively valid, it must utilize data from different sources, and the conclusions
must be triangulated from this data. Internal validity refers to the researcher’s ability to
draw rigid conclusions from the data. To improve internal validity, a researcher must
thoroughly analyze the data and take alternative explanations into account. This research
has collected data from multiple sources, which have been purposefully selected to be
diverse. The results are triangulated through an extensive analysis from the sources, and
other possible explanations have been considered.
External validity and generalizability are essentially the same thing. According to Quintao
et al. (2020), this can be measured by the extent to which the results of the study can be
generalized into a wider context. According to Eriksson and Kovalainen (2008), if the
results can be connected to the theoretical assumptions, they can be considered
generalizable. The findings of this study have been similar enough to the theoretical
assumptions, providing generalizability for the results. However, there is still a certain
degree of context-specificity included among the data, which stems from the differences
in the environments the organizations selected operated in.
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6 Results
This chapter presents the results of the empirical research conducted and continues the
maturity model creation process into Phase III: empirical evaluation, where the maturity
model is refined based on empirical feedback. Chapter 6.1 presents the results related to
the theoretical basis of the model, as the issues and solutions recognized in indirect
procurement management literature are compared to the views of the interviewees.
Chapter 6.2 draws the focus to the first version of the model and covers the analysis of
the data related to the model itself. Finally, in Chapter 6.3, the results of the analyses are
combined and utilized as the model is updated to reflect reality more accurately. As a
result, the final version of the maturity model is obtained. The presentation of results is
supported by quotations from the transcripts. The quotations have been translated by the
author. To further protect the anonymity of the participating individuals and
organizations, the interviewees are not specified for the quotations.
6.1 Empirical validation of the basis of the model
All the interviewees noted an overall positive development trend for indirect
procurement. Despite the organizations operating on different scales and industries, these
positive developments were similar enough to support the assumption of a common
maturity path. The maturity of indirect procurement had increased over the years,
sometimes incrementally, sometimes by rapid leaps and bounds. In general, the status of
and awareness about indirect procurement, both as a function and as a set of activities,
has increased. The role of indirect procurement has become more recognized and better
defined, and managerial attention has increased. This has been influenced by a variety of
factors and their combinations, such as changes to organizational or operative structures,
increased needs for cost savings, and availability of better cost data. The improvements
have stemmed from both the overall organization and the indirect procurement function
itself.
- Our company and IP organization were restructured few years ago. Since
then, we (IP) have been able to develop our processes with good results.
- We rearranged our procurement into categories a few years ago. This
increased the focus on IP, as the categories became more visible.
- When I first started working in IP, it was like opening a pandora’s box;
everything was scattered all around the organization. Since then, category
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by category, we have moved everything under one roof, into ERP-systems,
and established formal processes for everything.
- Starting from the very basics, we have now captured all the low-hanging
fruits […] and are looking for the next steps of evolving.
All the interviewees recognized a number of issues that had or were still hindering indirect
procurement performance. The issues associated with indirect procurement were
discussed using two approaches: first, through current weaknesses or issues of indirect
procurement management practices in their companies, and later, by referring to the list
of indirect procurement issues derived from the literature. Although some of the issues
were more acute for some of the companies than others, all the literature-recognized
issues were considered relevant and were experienced in practice. As one interviewee put
it:
- All the issues listed here are valid concerns (for IP).
Table 6 summarizes the issues discussed and the number of their occurrences. Some
additional issues that could not readily be fitted into the original list were also brought up
during the interviews. These are added to extend the list in Table 6.
Table 6 – Indirect procurement issues experienced or recognized by the interviewees
Issue # of mentions
Complexity 5
Lack of understanding 5
Lack of data 5
Lack of resources/competence 5
High amount of manual work 5
Lack of management recognition 5
Lack of standardization 4
Lack of E-tool use 4
Maveric buying 3
Suboptimal organizational structure 2
Misaligned incentives 3
Development challenges 3
Lack of power 2
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Complexity did not receive many particular comments but was rather seen as more of an
underlying issue for nearly every other issue discussed. It was perceived as an integral
part of the very nature of indirect procurement itself, resulting from a near infinite number
of suppliers, items, needs, and stakeholders, with a certain level of uncertainty or
unpredictability associated with everything.
- The unpredictability of indirect procurement makes it very hard to manage,
and it is so complex that you’re often unable to grasp and make sense of it
(through numbers).
- The number of unique items and need cases is so large that there is no way
to have a proper level of competency for every case.
- Everything is related to everything, you should always remember to take
everything and everybody into account, and every case is different.
- The smallest of items (in terms of monetary value) can cause the biggest
problems, while the most expensive one might matter the least. There is no
clarity for the importance.
The nature of complexity would also evolve along the maturity path. At lower levels of
maturity, for example, the large number of suppliers and items would cause more
complexity. But after initial complexity-reducing improvements have been made, e.g.,
items have been standardized and suppliers consolidated, further improvements would
become harder due to complexity evolving in terms of more stakeholders required to
participate in order to make improvements.
- Optimizing costs and negotiating better contracts might be easier, but to
achieve the next level of maturity, for example introducing a new travel
claims system, requires a shift in the ways of working for other functions
also, introducing new kinds of cross-functional requirements and
complexity.
Complexity, coupled with and leading to other issues, such as a lack of clear data, can
also lead to a lack of understanding about indirect procurement by both other functions
and management. Complexity causes lack of data in many ways. First, as the number and
nature of items and services procured is often very large and diverse, it is often hard to
make sense of the numbers. Second, as a result of the high number of items or bad
processes, the data is often poor in quality. Third, as there are a high number of unique
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items or services bought only once, they’re often bought using generic codes. Fourth, the
volumes of individual items procured are often so low that there is no sensible way of
making analyses based on the data, even if it is available. Due to complexity causing and
coupling with lack of data, indirect procurement can struggle to present its arguments
with solid enough numerical evidence. The opinion of indirect procurement can also
easily be sidelined or subjected to the will of other functions during cross-functional
cooperation when it fails to back up its arguments. IP can also find it difficult to get its
voice heard in management when it cannot present solid numbers to support its relevance
and position of importance. Compared to direct procurement, the KPIs needed to support
the opinions of indirect are also often more diverse. Whereas it might be quite straight-
forward and informative to follow component cost development with a mass-
manufactured product, following the cost developments of R&D projects or facilities can
be hard to impossible. It can also be hard to find evidence to support developmental
initiatives, as it can be nearly impossible to present numerical predictions of benefits or
even results after successful actions.
- The quality of our spend data differs. I might be able to see that country X
uses this much money in this article, or country Y this much money on this
supplier. But more often than not items or services are bought with generic
codes, so there goes that data.
- We have little to no granularity or sometimes (afterwards) not even a clue
of what we have bought, as the only data we have is a PO with one line,
titled project X-related purchases.
- The complexity of KPIs is a challenge, making things comparable and
benchmarkable is often difficult.
Managerial focus on indirect procurement, or rather the lack of it, was also one of the
most cited issues. In general, all the interviewees confirmed the assumption that
managerial attention is targeted at direct procurement categories much more often and
intensively. As previously discussed, lack of managerial recognition is closely linked with
complexity and lack of data. If indirect procurement fails to deliver understandable and
measurable information about its operations to management, their attention is usually
very limited. Other contributing factors relate to the nature of indirect procurement;
smaller costs and volumes equal less attention. Indirect procurement also serves a
heterogenous group of internal customers and needs, compared to direct procurement
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serving external, often substantial individual customers. This further guides managerial
attention to direct procurement, as the impact of one dissatisfied customer or poor
performance of direct procurement on the bottom line of the company can be direct,
substantial, and clearly visible. In the case of indirect procurement, the impact (substantial
or not) caused on the bottom line of a company by dissatisfaction of internal customers
or poor indirect procurement performance is often less visible and indirect. In addition,
management can more easily choose to shrug off the complaints of some employees (if
they even become aware of them), than the complaints of a big external customer.
- One of the biggest issues with indirect procurement is still the management
recognition […] Management is heavily focused on direct materials, as
issues there are quickly realized negatively in terms of profitability and
customer satisfaction.
- Management attention depends on the category. When the category is
smaller, lacks a clear link to corporate strategy, or lacks indicators that
would interest management, they are not interested.
- We still have issues with management not caring about indirect
procurement or understanding its needs. The issue is often related to the
small spend figures, even if the small spend has substantial effects (to
somebody or something).
The lack of management recognition is also closely tied to other issues, like lack of
understanding of indirect procurement by both management and other functions. These
two combined lead to the three emergent issues: misaligned incentives, developmental
challenges, and lack of indirect procurement power, which in turn have their own ways
of hindering efficient indirect procurement management. The lack of understanding
presents itself and causes problems differently at lower and higher levels. The higher-
level issues are discussed here, and the lower-level issues caused will be discussed a bit
further. As an example, a lack of understanding combined with misaligned incentives can
lead to management mandating the design and use of processes that are too strict and unfit
for the diverse needs of indirect procurement. If a company introduces a strict NO PO-
NO PAY rule (a PO is required in order for payment to be made to the supplier) to
improve procurement compliance, some cases could become “illegal” and introduce a lot
more lead time for obtaining items, leading to a lot of trouble for both indirect employees
and internal customers in dire need. A hypothetical case could be the need to procure
something online, for example, social media marketing services for the marketing
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function, but the supplier considers the spend to be too small to receive PO’s and offer
invoicing and only allows credit card as a payment method. Judged through the internal
compliance rules, this case would be illegal, yet the service is essential for the efforts of
the marketing function. Both indirect procurement and marketing would be in trouble,
but compliance would be happy.
- We need flexible ways to handle a variety of cases […] For example an
interruption with our online marketing spend, however small, is a huge deal
for them.
- A one small missing cable could interrupt a whole R&D project for a long
time, if/when they wait for it be delivered according to process rules.
Misaligned incentives, developmental challenges, and lack of indirect procurement power
also present themselves in a variety of ways. Both business and management have the
attitudinal option of “why fix it if it ain’t broken” available to them. Even if indirect
procurement could present arguments to alter or develop aspect X, business and
management could just choose to ignore this proposition in order to not stir up anything
unexpected. Arguably rightfully so, business often has decision-making power over
indirect procurement, as they’re the ones with budgetary responsibility. However, this
causes issues and conflicts of interest when management expects IP to deliver savings or
improvements on the procurement of different categories. Where indirect procurement is
interested in improving procurement performance, business is centered more around the
continuity and fluency of their operations and could overrule the opinions of indirect
procurement, in turn hindering the efficient management and improvement efforts of
indirect procurement.
- Management attention is one (of the biggest problems), having focus or
interest for cost reduction or other improvements, if business goes well,
there is less willingness for changes […] Other functions don’t want to be
bothered by IP.
- We have a discrepancy where management expects us to deliver
improvements and savings, but our decision-making authority is subjected
to the opinions and needs of business. We lack the power to say no in most
cases.
- For us (IP) it is looking at a report of how much we’re spending on what,
and that’s where we start from, but for business it’s like I need to run a
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certain business with certain budget, I need to certain essential services no
matter how much they cost.
As with all the previous issues, lack of resources, high amount of manual work, lack of
standardization, and lack of E-tool use are all connected to one another and to other issues
on some level. High amount of manual work and lack of resources present an obstacle to
developing indirect procurement. When these two issues roam free, indirect procurement
is in a sort of vicious circle: it suffers from inefficient ways of working that demand a lot
of resources and as a result has no resources to spare for developmental actions (which
themselves require a lot of resources), that would decrease the amount of manual work.
If management fails to understand this dynamic and does not adequately support indirect
procurement, it could condemn it to perpetual ineptitude. All the interviewees seemed to
represent organizations that had already taken steps to improve the operational level
resource constraints, but still identified manual work and lack of resources to cause issues.
These included lack of focus and adequate support for some categories, lack of time to
focus on developing IP practices and change management, and lack of time to focus on
“higher-level” tasks, such as supply marked intelligence and analytics.
- We lack adequate resources to support every country and category equally,
which in turn creates discrepancies in IP management proficiency within
indirect organization.
- Due to the lack of resources, we can’t sufficiently follow events and changes
in the supply market.
Lack of standardization, lack of E-tool use, lack of understanding (lower-level) and poor
process design were seen as issues introducing additional manual work and straining IP
resources. Lack of standardization increases the complexity of indirect procurement. The
use of bad or unsuitable IT-systems, or the need to use too many systems, hinders efficient
actions and creates waste as indirect procurement activities are handled with unsuitable
systems, and the failure to adopt E-procurement tools prevents the realization of the
benefits offered by these systems. Additionally, the introduction of E-procurement
systems, while saving a lot of resources and improving the efficiency of IP operations,
also introduced additional problems, especially during the early phases of adoption. Users
needed to be trained to use the new systems and the mistakes made by users needed to be
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fixed by indirect procurement personnel, and even after training they are prone to make
mistakes while using the systems. Bad process design could also introduce unnecessary
or double manual work.
- Lack of standardization causes many issues with the categories I’m
managing, as it increases the number of individual items and suppliers,
making the management of the categories more difficult.
- SAP is SAP… (interviewee sighs in deep frustration)
- We have some issues with repetitive actions in our processes. Cost
approvals are an example of this, where the approvers need to approve the
same cost multiple times during different phases of the process.
All the organizations participating in the interviews described their organizational
structure employed for indirect procurement. They all felt that the current structure
present was adequate for their needs, and in general worked well in practice. However,
this led to them commenting on it as an issue to only a limited extent. As already discussed
earlier when describing the general evolution of the companies, the participants described
the organizational structure as being something that was fixed relatively early on during
the development of indirect procurement in their companies. This could be interpreted as
organizational structure being a central issue early on during the maturation of indirect
procurement, but also something that is fixed relatively early. However, what they did
comment on more was the integration of indirect procurement with other functions, or the
need for closer cross-functional cooperation. Maverick buying was another widely cited
issue in the literature which received relatively little attention during the interviews. The
organizations seemed to have mostly gotten rid of it with a combination of flexible
process design, suitable tools, and improved control. But it was still something that when
not properly addressed, was seen as a catalyst for other issues.
- We’re missing this cross-functional category management approach; we’re
missing the kind of attention of other functions to the kind of cost sensitivity.
- Our IP organization is structured well, but not integrated enough with other
functions. […] We’re still somewhat separate from budget planning.
- Maverick buying used to be the norm, causing all sorts of issues
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All the interviewees also recognized a number of solutions they had employed to improve
indirect procurement activities and performance. The solutions were also discussed
through two approaches: first, the interviewees were asked what works well for them at
the moment and what are the strengths of their indirect procurement management
practices. Later the literature-derived list of solutions provided in the interview frame was
used as reference for discussion. All literature-proposed solutions were recognized as
usable and employed in practice. Table 7 compiles the literature-recognized solutions and
their mentions during the interviews.
Table 7 – Indirect procurement solutions employed or recognized by the interviewees
Solution # of mentions
Promoting IP to management 5
Optimization of IP organization 5
Increasing IP resources 5
Improving internal communication 5
Standardization of processes 4
Standardization of items 4
Process automation 4
E-tool adoption 4
Improving the competence of IP staff 3
Outsourcing some of IP (1)
Similar to the issues, the solutions are also very much interconnected in practice.
Employing one, for example new and better EPR-system or a P2P-solution helps to
accumulate better quality data and eases the demand for manual work, which in turn
improves the management of indirect procurement through numbers and helps IP to
promote itself and its opinions to management with numerical evidence. As already
discussed during the issues, optimization of indirect procurement organization seemed to
be a solution employed early on during IP development. The procurement of IP categories
is centralized under one function. Later, if required by the scale of the company, a more
complex organizational structure is developed, such as a matrix organization. Fit for
purpose seems to be the guiding principle in structuring indirect procurement. In addition
to many internal factors, the centralized organization also helps to consolidate purchasing
volumes and to gain more leverage with suppliers. Standardization of procurement
processes and principles is also noted to be beneficial; this further solidifies IP under one
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roof and helps to simplify the entity and practices of procurement for everybody in the
organization. Employing smart, fit-for-purpose processes also helps to streamline
activities, reducing e.g., the workload of indirect employees and the lead times of required
items for internal customers. One interviewee also noted that the organization granting IP
a certain level of autonomy with process design has helped them tremendously in
designing and employing very lean and efficient processes.
- Centralization of indirect procurement activities is very important.
- The matrix organization approach works quite well for us.
- We have been able to consolidate our purchasing volumes and have global
volume leverage for some categories and items.
- We have very lean processes. We also have relative autonomy to develop
our practices and processes, which enables us to react swiftly if we notice
that something isn’t working.
Communication and cross-functional integration are also seen as very good practices to
improve indirect procurement activities. Both enable indirect procurement staff to stay
better on track of the events both within and outside the organization, to reduce the
workload of indirect procurement staff, and to focus more on higher-level, value adding
activities instead of manual and repetitive tasks. They also help to reduce the workload
of indirect procurement as other functions have better idea of indirect needs and
capabilities and vice versa, streamlining cooperation. This cooperation should be both
formal and informal, as both provide advantages. Creation and adherence to formal cross-
functional ways of working helps by establishing processes that are familiar, and informal
cooperation can provide insight and whatever useful bits of information about anything.
Communication is also important during developmental projects, e.g., launching a new
P2P tool, as educating employees from other functions is a great way to reduce indirect
procurement workload later on. Communication of procurement principles and rules
coupled with better process design also helps to reduce unwanted employee actions, such
as maverick buying, further reducing issues caused by it. Communication within the
indirect procurement function is also important, as it is a mechanism for knowledge
spillover, and allows greater flexibility during times of e.g., major events in the
environment or simply employees falling ill and others needing to substitute them.
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- We are well organized and relatively well integrated cross-functionally. We
also share a lot of information within our team. This allows us to stay on
track of events both within the organization and on the market and work
proactively.
- Increasing our communication and transparency helps to increase and
maintain our focus and serenity.
- Having the right contacts and regular communication is important. As
people know us, they involve us earlier, and we get our voice heard much
better.
- Regular status updates and discussions, both formal and informal, help us
and other functions to stay on track of details and supplement the big
picture.
- Even as simple act as sitting beside people from both indirect and other
functions and chatting with them as we do our daily things helps us to stay
on top of things, learn useful bits of information, and often saves us the
hassle of booking a meeting for something that can be resolved quickly
through informal means.
Item standardization, process automation, and the adoption of E-tools are seen as
solutions that help to alleviate many issues. These solutions offer many benefits and work
especially well in unison. First of all, standardizing items helps to remove some
complexity. As noted earlier, indirect procurement is responsible for the majority of
individual PO’s and suppliers. As the number of differentiated items is reduced, the
number of suppliers is also reduced, and procurement volumes can be consolidated,
providing increased leverage. Standardization also has the additional benefit that it
enables the collection of better and more relevant data. Both E-tools and process
automation are viewed as offering many benefits. They enable indirect procurement staff
to focus on value-creating activities instead of manual, repetitive tasks. They can also
work well in specific applications, such as obtaining quotations or searching for suppliers.
However, they are not equally useful to different organizations. E-tools and process
automation work well in unison with standardization, each enabling and improving the
other. E-catalogues and P2P-systems are good examples of this; catalogues include
standardized items, which can then be procured through an automated process. The
responsibility of indirect procurement staff is reduced to only maintaining and
supervising the catalogue and the actions of end-users, and they are free to focus on
higher-level activities. This was further supported by the views of some interviewees,
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who expected a lot from the developments of AI, automation, and IT-systems in general.
They expressed that in the future indirect professionals should be ridden of any repetitive
tasks and should be freed to focus purely on value-creating activities.
- The standardization and cataloguing of items and services is a very good
thing, however naturally it is not feasible nor sensible for everything.
- We have catalogued all the basic products, which helps us to focus on the
important stuff.
- The introduction of a P2P-system has helped us a lot. Sourcing managers
can now focus on supervision and actual value-creating sourcing activities.
All purchasing data is also compiled into one system instead of multiple
ones.
- In addition to E-catalogues, we’re currently experimenting with an E-
auction system for certain specific types of services.
The improvements in the quality of data are also beneficial, as they enable indirect
procurement to produce reports and analyses of higher quality. This in turn enables more
efficient management of indirect procurement activities, and the reports can also be used
to validate the opinions of IP with management, enhancing the status of IP. All the
interviewees agreed that increasing the recognition and role of indirect procurement in
the eyes of management is essential. As already discussed, a lack of managerial attention
and support can have many detrimental effects on both IP and overall company
performance. Improvements in this field offer many benefits. They help indirect to gain
more leverage in internal negotiations, ease the handling of its activities on a daily basis,
ease the development of IP actions, and can lead to it gaining more resources overall.
- By having better data, we can provide better reports and more
understandable KPIs for management and stakeholders. […] This in turn
makes people listen to us.
- Improving your status (the status of IP) is essential to gain power, which in
turn leads to people listening to you and you being able to drive home your
initiatives.
- We have a procurement representative in our leadership team, which is a
huge thing for us. She is able to get our voice heard and gather support for
us.
- We need to communicate our message in a way that catches managerial
attention, through numbers and trends.
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Increasing indirect procurement resources and improving the competence of IP staff were
also both seen as solutions to many issues. Simply put, having more resources would help
to ensure more focus on even smaller categories. Additional resources could also help to
reduce the burden of indirect procurement teams and allow more efforts to be directed on
developmental activities in addition to maintaining current activities. Sufficient resources
also enable proactive action instead of firefighting and ensure the smooth flow and
progression of activities.
- By having more resources, we could ensure adequate support and proficient
management of every category.
- With more resources we could better develop our operations
- We can add more value with better tools and people with better analytical
capabilities. Another option would be having analytical support in the
background preparing analyses for IP staff, allowing them to spend more
time with stakeholders and suppliers.
Having competent IP staff can also help with many issues and make up for “missing
things”. Employees with good communications skills, analytical capabilities, and
strategic outlook in addition to “normal” procurement skills were seen as key for
proficient management of indirect procurement activities. One interviewee also noted that
indirect procurement professionals would benefit from having more sales skills, as this
would get their voice heard more in the organization. The role of risk management and
the importance of risk management skills in terms of factors such as sustainability, cyber
security, AI, and geopolitics were also predicted to increase. This coupled with the role
of analytical capabilities and the ability to process large amounts of information was seen
to place new demands and stress the importance of SMI skills of indirect procurement
professionals.
- The right talent is key to have, in my point of view. We can make up a lot of
missing things with the right talent, the right mindset, with strategic outlook.
- Procurement people are typically by nature not so much salespeople, and
they would need to be much more. You need to speak the language of your
customer. If you don’t, another function will turn off the channel. But if you
can convey your message in an appealing way, we get the attention we want.
- The importance of risk management is increasing. Factors such as
geopolitics, responsibility, and the use of AI need increasingly more
attention.
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- One needs to be able to find and compile relevant bits of information from
the market and understand how what factors influence which aspects.
Not a single interviewee particularly commented on outsourcing some indirect categories
as a solution. However, one of the participating organizations had outsourced some of its
indirect categories to its parent company. This solution, where they had compiled the
procurement of some indirect categories at a group-wide level, appeared to work well for
them.
- Basic office IT HW and SW, cleaning and real-estate services are managed
at a group wide level.
6.2 Empirical validation of the model
In the second part of the interviews, the interviewees were asked to comment on the first
version of the model. The model received mostly positive feedback and was considered
very adequate in general. This appeared to actually reduce the number of comments about
the model and its contents, as it was considered to reflect reality very well, and the
interviewees found relatively few aspects that they questioned or that they would change
in any way. The interviewees were also happy that a model like this is also created
specifically for indirect procurement. In terms of practical applicability, the interviewees
found the model to be very useful for real-life measurement of current capability and a
good tool to support developmental actions.
- The model is comprehensive and adequately reflects the entity of indirect
procurement.
- The model has a lot of good content, and I am sure that it will raise
discussions in our team. It is nice that a model like this is created for indirect
procurement.
- From our company perspective the model is very relevant. We’ve had or are
taking developmental actions with regards to every aspect covered in the
model. This seems to be a very useful tool and checklist for developing
indirect procurement, and why not also direct procurement.
The structure of the model, dimensions, elements, and the number of levels and their
names were all considered unanimously good. One interviewee even appeared to be
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positively surprised by the comprehensiveness of the model. The interviewees agreed that
the model contained all relevant dimensions to comprehensively measure indirect
procurement maturity. The elements under each dimension were also mostly considered
adequate, although some suggestions for improvements were made, which will be
discussed further. The number of levels was also considered to be good, and the
progression from level to level was deemed logical.
- This has all the relevant dimensions and elements, and also includes specific
important people-aspects like employee churn and feedback, which are
often overlooked, as most models and activities are focused on hard facts
and numbers.
- Improvements from level to level are logical.
However, the interviewees also noted, as suggested by the literature, that not all aspects
of the model are always applicable to different companies operating in different industries
and environments. Some elements in the model might be much more important to some
companies, whereas nearly or completely irrelevant to others. This is further evident when
the cell texts were discussed. The interviewees noted that some cells, otherwise relevant,
also contained some irrelevant requirements or descriptions with regards to their current
situations. Some individual cell texts were also deemed to require a bit more clarity and
unambiguity, and some of the terms or wordings used in the texts were thought to be too
strict or unfitting. To one interviewees eye, the cells also contained a bit too much text
overall. The interviewees also noted that the highest maturity levels aren’t always
desirable, but instead each company must find the fit-for-purpose level of good maturity
for each aspect of their activities.
- Some cells contained quite a bit irrelevant aspects or requirements in the
context of our activities.
- Level four might sometimes be irrelevant to even such a big company as
ours and could be feasible only to even much bigger companies.
The elements under Strategy, planning, and leadership dimension accrued the most
comments and suggestions for changes out of all dimensions relative to the number of
elements. The relation between procurement, indirect procurement, and corporate
strategy was seen as quite a complex one. On the other hand, all the interviewees agreed
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that both procurement and indirect procurement require and deserve a lot of recognition
and attention and should be seen as significant contributors to company performance.
Indirect procurement especially should have its status improved due to lower current
level. However, they also considered indirect procurement to be a part of procurement,
not something that should be specifically distinguished from it. The role of IP was seen
more as a strategy executer or contributor to strategic goals, rather than a strategy creator,
and IP should link its own actions to overall corporate strategy. The interviewees
advocated that the role of indirect procurement should be improved by increasing the role
of procurement as a whole, and that indirect procurement should have its voice heard, but
through a CPO or similar overall procurement executive, rather than its own individual
executive. The interviewees also noted that indirect procurement does not specifically
require its own strategy but should be part of and utilize the overall procurement strategy.
The same was said about the indirect procurement business plan. Some interviewees
thought that a basic long-term plan for indirect procurement could be useful, whereas
others saw it as a waste of time due to the quickly changing environment or thought that
category strategies already cover the role of a long-term business plan. Change
management was viewed as important, but it should be constant, autonomous lower-level
activity rather than one requiring specific guidelines.
- Indirect needs to increase its visibility within the procurement organization
and strategy and cascade it onwards from there.
- Indirect needs to link its actions to corporate strategy, e.g., through costs
and sustainability. However, this is easier for some categories than others.
- We don’t have any specific indirect procurement strategy, but rather
category strategies that are created with business.
- Some sort of a long-term plan could be useful, but in our fast-paced
environment it can quickly prove to be outdated empty work.
The relation between corporate responsibility and sustainability and indirect procurement
were seen similarly as with strategy. Both sustainability and responsibility should be
implemented into indirect procurement actions, and IP should be contributing as much as
possible to corporate sustainability and responsibility goals. However, the interviewees
noted that implementing sustainability and responsibility into indirect procurement was
much easier with some categories than others, due to the vast differences in the nature of
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the categories. For example, it is much easier to make procurement decisions ensuring
responsibility and contributing to sustainability goals with categories such as utilities
(e.g., use of renewably produced electricity) and fleet (electric cars and green logistics),
than for example with IT (e.g., software and hardware). But whenever possible, both
sustainability and responsibility should be implemented into the actions of indirect
procurement as much as possible.
- We are yet to implement clear sustainability and responsibility criteria into
our indirect procurement. With direct materials we have them, and they
should be implemented into indirect decision-making as well.
- Sustainability and responsibility are much more relevant and
implementable to some categories than others.
- Sustainability and responsibility should be implemented to indirect
procurement decisions, but unfortunately they are still often subordinate to
the need to get things done quickly.
Indirect procurement organization and integration dimension also received many
comments. The element measuring IP organizational structure was deemed to be
somewhat unfitting. The interviewees commented that it was too strict and expressed their
opinion that IP should be structured with a fit-for-purpose principle in mind. They agreed
that all relevant categories should be centralized under one roof and that indirect
procurement should be mandated to handle management of all of these, but the
organizational of IP should still be designed according to the needs of the organization.
For example, for a multinational company a centre-led matrix organization with global-
local interaction is probably much better suited than a purely centralized one.
- I think that centralization has been the traditional path for most
organizations, but we might have reached the peak of it. Companies are
maybe starting to regionalize their operations again and utilize a centre-led
structure.
- IP should be structured on a fit-for-purpose basis.
- For us a matrix organization works well, and all relevant categories are
managed by IP. In general, this is a good way.
Cross-functional communication, cooperation, and integration was seen as very essential
for indirect procurement management by all the interviewees. They generally seemed to
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support the idea that there cannot be too much of it, and it should happen on every level
all the way to the management. In their view, indirect procurement and business functions
should exist in a state of symbiosis, both improving the performance of each other and
having an equal say in matters. Item standardization was seen as one important aspect
where cross-functional integration plays a key role in solving IP issues and enabling more
efficient management of indirect procurement. However, one interviewee also noted that
there should still be a balance between responsibility and power. As business is often the
one with final responsibility for budgets and performance, they should also get the final
say in matters. The interviewees generally agreed on the idea that cross-functional
cooperation should happen on both formal and informal basis, some advocating for more
formal cooperation and decision-making, while others expressed their liking and
preference for more informal. In general, the cell texts in the model were deemed to lean
too heavily towards “established and documented” processes, and that the texts should be
softened a bit, and that they should promote equality and informality more.
- Cross-functional communication is very important. For instance, sales
personnel often have a lot of relevant “quiet” market information for
procurement personnel and vice versa.
- Cross-functional cooperation should be constant practice at every level all
the way to management.
- Targets, incentives, and structures between functions should be aligned.
- Direct materials often have cross-functional category teams. This should be
the norm for indirect procurement also. […] This could help a lot with many
things, among them item standardization.
Elements under the key procurement processes dimension received the most comments.
All the interviewees agreed that the selection of included elements was a good
representation of key procurement processes; thus, they did not want to remove or add
any elements. They focused on describing their views, particularly the highest levels of
maturity for each element, and proposed improvements to some wordings in individual
cell texts. Most cell texts were still deemed to be very fitting and accurate descriptions of
reality.
Most interviewees stressed the need for lean and fit-for-purpose processes. Internal
compliance processes, or rather their bad design, are often one key headaches for IP. Due
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to the enormous diversity of different IP cases, there needs to be flexibility in process
design, while still maintaining structures to prevent e.g., maverick buying. One size
simply does not fit all. As also discussed earlier, interviewees hoped and advocated for
indirect procurement having autonomy in designing and changing processes. According
to them, developmental freedom enables the creation of the best possible processes for
each case. With regards to internal compliance element, they suggested modifying the
wording in the cells to be softer and focused more on rewards instead of punishments.
- There needs to be flexible processes for handling the variety of unique
situations. There is a difference in negotiating a contract for long-term re-
occurring need and a vital tool breaking down during customer project,
which needs to be replaced asap.
- We have autonomy in designing our processes and modifying them if we
notice that something isn’t working. We have created a few distinct process
flows with differentiated compliance requirements to serve diverse cases.
Having this kind of flexibility is great.
As previously discussed, the interviewees advocated for the importance of creating
category strategies in cross-functional cooperation. This was seen as even more important
than the creation of an indirect procurement strategy. According to the interviewees,
category and supplier strategies, along with supplier selection decisions, are the places
where corporate strategy, along with its targets like sustainability, is operationalized and
executed when possible. The cell texts were deemed very fitting and accurate. No changes
were suggested for supplier contracting and contract management and supplier
management elements either.
The importance of supply market intelligence, risk management, and supplier due
diligence were seen to increase every day. The changing environment constantly
introduces new challenges for companies, which they need to be able to proactively
prepare for. Risk management and supply market intelligence were seen to go somewhat
hand-in-hand, as having knowledge of the events in the environment and supply market
also helps to prepare for risks. The role of cross-functional communication and
information sharing was also seen as an important contributor for both. The cell texts in
these elements were seen as mostly fitting but could be improved by stressing the
increased importance and need for constant market monitoring and risk assessment.
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- We need to pay increasing attention to risks in our supplier selection and
contracting due to AI, cyber security, geopolitics, and sustainability
questions.
- Changes in the regulatory environment will definitely affect us and our
contracts.
- The role of risk management and the need for market intelligence
capabilities is constantly increasing. Staying on top of things is vital in
order to stay competitive.
Internal partner management element was seen as sort of an extension to the dimension
of cross-functional integration. Yet, having it recognized as key process was supported
and the removal of the element was not deemed necessary. However, some modifications
to cell texts were suggested, as the interviewees interpreted the texts to advocate for
indirect procurement “dominance” over other functions, whereas they described the
perfect relation to be symbiotic and equal.
- Internal partners should be managed both as customers and as team
members.
- There should be a symbiotic relation between IP and other functions.
Neither side should overrule the other.
The P2P-process dimension along with its elements was deemed very good, and only little
comments or suggestions for improvements were made. The process itself was actually
commented on more later during the discussions about IT-systems and E-procurement.
Only the wording concerning quality assurance was found problematic by one
interviewee. According to the interviewee, quality assurance is challenging with indirect
procurement as the variety of cases is so large but volumes often very low. However, the
interviewee wouldn’t propose actual improvements to the text.
- The elements are relevant and the cell texts well written.
- Standardized quality assurance for indirect procurement items is very hard.
Needs are often unique, item volumes low, and issues usually occur only
after some time.
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Human resources dimension also received very little comments. The dimension in itself
was seen as a very good addition to the model and the associated elements were regarded
as bringing depth into indirect procurement capability evaluation. The cell texts received
only a few suggestions for improvements, and these were aimed at making the differences
among levels clearer. Other than that, all the cell texts were deemed to be very accurate.
- Adding human resources as a dimension in very good.
- Elements concerning and measuring capability in management of people,
employee churn, career development, etc. are all very good inclusions.
- The cell descriptions look good.
IT-systems and E-procurement dimension was also regarded as good addition, and the
elements were found to be fitting. Cell descriptions were also regarded good. Upon further
questioning the interviewees, they also described their visions of the best possible systems
supporting indirect procurement. Their answers were mostly in line with the descriptions
of the model. The IT-architecture of indirect procurement should be tailored to suit
indirect procurement needs. An ideal system would combine data from multiple sources
into one place, and all relevant IP activities from SMI to spend analysis should be able to
be performed within one system. The interviewees also suggested that all processes that
can be automated should be. This includes the likes of P2P-process. For example, one
interviewee noted that in the future the role of a buyer should not exist anymore, or at
least the responsibilities should shift into pure guidance and monitoring. Two of the
interviewees also brought up the need for systems that can be configured and operated
with a variety of devices, including phones and tablets, not just computers.
- A perfect system would support and combine the operational and strategic
aspects under one roof and all relevant data would be available in one
place.
- In the long run I think there should not be any procurement role with
repetitive tasks, those should be replaced by systems. E.g., a buyer should
be a supervisor, or something that adds value to the process, not a person
who manually converts PRs into POs.
- A system should also support mobile use, for example, that a worker in the
field could place a PR for tools there.
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The dimension of measurement and control received relatively few comments. In general,
the cell texts were regarded as fitting. The importance of data and analytics was
highlighted by a couple of interviewees, as they hoped and envisioned indirect
procurement to utilize them much more in the future. However, two of the interviewees
noted again that, due to the diversity of indirect procurement categories, the KPIs used
need to be creative and tailored for the needs of each category. Still very important
overall, but cost-based measurement and KPIs are often not sufficient in and of
themselves for many categories. Further on the topic of KPIs, and as the sensibility of
having an indirect procurement strategy or business plan was questioned earlier, the
element of IP business plan metrics & adjustment was seen as somewhat problematic. A
couple of interviewees suggested rewording it more towards category-specific metrics.
The importance of cross-functional cooperation was again highlighted, as stakeholder
satisfaction was seen as a very important indicator of indirect performance.
- The creation of suitable KPIs and utilization of data and analytics is very
important and should be done much more.
- The term business plan in itself sounds more like indirect procurement is
running an actual business. […] Follow-up of long-term targets is
important, but usually focused on category-specifics.
- Stakeholder satisfaction is very important KPI to follow.
6.3 Refinement of the model
The aim of the interviews was to test the literature-based first version of the model and
collect feedback for further refining the accuracy of the model. This testing has followed
the principles outlined in the literature and presented in chapter 3.2.3. Based on the
feedback received, the model and its contents are refined. In general, the feedback and
views of the interviewees were very similar. There were some differing opinions and
comments on some individual cells of the model, but the modifications to the model can
be made on consensus basis. As the views of the interviewees were in line with each other,
a saturation of results can be claimed.
All dimensions included in the first version of the model remain unchanged. The number
of elements also remains the same, however, some minor changes to the names of some
elements are made. Some elements along with their cell texts received more comments
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and suggestions for changes, whereas others received only approval and were deemed to
be accurate and fitting the way they are. Based on the feedback received, a number of
changes to the literature-based model were made and actions taken to obtain the final
version of the model. These changes included modifications to the cell texts and element
names and are listed below. The refined and final version of the model is presented in
Appendix 4.
- The strategic relevance of indirect procurement is adjusted to reflect the views of
interviewees
- Requirements of and references to a distinct indirect procurement strategy are
removed
- Fit-for-purpose – notions are implemented more into the texts, e.g., in the context
of organizational structure or long-term planning
- The importance of cross-functionality is promoted further
- References to strictly defined processes are softened, leanness and informality are
promoted
- Emphasis on documentation is reduced
- The importance of diverse KPIs is brought up more
- Some terms, such as business plan, are changed to more universal ones or an
explanation is added
- Intersubjectivity of the texts is improved
- Some wordings are softened
- Logical progressions from level to level is improved and ensured
- Contents are proofread
The success criteria set for the model were its usability and usefulness. The interviewees
were very pleased with the model and appreciated the quality and clarity of it. The model
was deemed to have both good structure and contents, and the comprehensiveness of it
also received positive feedback. The model was viewed as a good tool for benchmarking
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the state of current practices, and to provide a good framework to support developmental
actions. Therefore, both criteria can be claimed to be fulfilled.
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7 Discussion and conclusion
7.1 Discussion
The relevance of procurement and the importance of proficient procurement management
have become increasingly evident over the years. The role and recognition of procurement
has increased from a clerical support function to one of strategic contributor and value
creator. However, in real-life businesses, direct procurement is still capturing most of the
managerial attention, whereas indirect procurement is left on the back burner (Jayaram &
Curkovic 2018). The same trend is also present in academic circles, where the vast
majority of published research articles and education materials are centered around direct
procurement management. Even worse, as noted by Israel and Curkovic (2020), the scarce
research there is has issues with differing use of terms and definitions. Yet, according to
Cox et al. (2005) and Iloranta and Pajunen-Muhonen (2015), the spend of indirect
procurement categories can easily account for more than 20 percent of all expenses in a
company. Therefore, for the sake of competitiveness, no company should overlook or
manage these categories haphazardly.
As noted by van Weele and Rozemeijer (2022), indirect procurement has many features
that differentiate it from direct procurement. These features present distinct issues and
challenges to the management of indirect procurement and, in turn, require specific
solutions. Maturity models have been recognized as good tools for measuring capability
and guiding development (Wendler 2012). Some maturity models have been developed
to measure procurement (Schiele 2007). However, they are relatively few in number, of
varying quality, and mostly focused on direct procurement (Jayaram and Curkovic 2018).
Therefore, this thesis set out to study indirect procurement management with the aim of
creating a comprehensive indirect procurement maturity model that could be utilized in
practice to measure and develop indirect procurement management proficiency. To
support this aim, two research questions were placed:
RQ1: Which issues and management practices characterize indirect procurement
management?
RQ2: What are the characteristics of a comprehensive indirect procurement
maturity model?
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The issues-solutions approach for the first research question was adopted in preparation
for the construction of the model. The basic assumption was that at lower maturity levels,
issues characteristic to indirect procurement management are prevalent, and that maturity
increases as the issues hindering performance are solved through the implementation of
solutions and the adoption of best practices. The literature presented a variety of issues
associated with indirect procurement management. Although differing in their use of
terminology, all the issues covered in Chapter 2.3 were identified in multiple sources.
Indirect procurement was seen as an overly complex, under-resourced, and under-
appreciated function and entity, which lacked structure, proficiency, and suitable tools.
These issues were all either directly or indirectly linked to each other and had
compounding effect on one another. The empirical evidence supported the views of the
literature, as all of the issues identified in the literature were also experienced by
professionals in practice. The complex nature of indirect procurement was seen as a root
cause of the issues. However, the empirical evidence seems to suggest that some issues
are not as relevant today as they were 10 or 20 years ago. Issues such as poor
organizational structure (Barry et al. 1996) and maverick buying (Karjalainen and van
Raaij 2011) were not seen to cause as many challenges as the views of the literature would
suggest. This hints at the maturation of indirect procurement practices in general and
suggests that some issues are fixed earlier on during the maturation path than others.
Another general observation about the differences in the views of literature and empirical
evidence is that the literature seems to place more focus on harder, more quantifiable
issues such as lack of E-tool use (Angeles and Nath 2007), whereas the interviewees were
more focused on softer, more dynamic issues such as the lack of management recognition,
lack of understanding, misaligned incentives, lack of power, and resulting developmental
challenges. However, this could also be the result of academic research having very
specific focuses on their topics.
The literature also recognized multiple solutions and best-practices to the aforementioned
issues, which were presented in Chapter 2.3. Again, the suggestions of the literature were
mostly in line with the empirical evidence, and the identified solutions and best-practices
were widely acknowledged to be accurate and relevant by the interviewees. As with the
issues, the interviewees placed more emphasis on softer solutions. Promoting IP to
management, improving communication and cross-functional cooperation were seen as
the keys to success in indirect procurement management. Furthermore, they were seen to
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act as enablers for other aspects of development, a view which is also shared by the
literature (Brandon-Jones and Knoppen 2018). Some of the suggested solutions, such as
optimization of IP organization, standardization of processes, and automation of manual
processes were already more widely adopted than others, such as E-tools, again
suggesting that some aspects are developed earlier than others during the maturity path.
The importance of developing indirect procurement employee competence was also
highlighted in the empirical evidence. However, whereas the literature of indirect
procurement discusses competence development on a more general level, the
interviewees placed special emphasis on some skills, such as SMI, risk management, and
analytical capabilities of employees. The importance of these skills for procurement
professionals has also been highlighted in the literature, e.g., by Lorentz et al. (2020), and
the empirical evidence suggest that these skills are just as important for indirect
procurement personnel. Outsourcing of some or all indirect procurement categories was
the solution where the views of literature and empirical evidence diverged the most.
Whereas e.g., Carter et al. (2003) and Payne et al. (2011) propose it as a prominent
solution, the empirical evidence provided only limited evidence to support this view as it
received no particular promotion. However, the fact that rationales behind outsourcing
indirect categories (consolidation of volumes, increased proficiency, cost savings, etc.)
were supported and one of the organizations had outsourced some of the categories to its
parent company, suggests that it can also be a usable solution in some instances.
The second research question posed in this thesis concerned the maturity model itself.
Literature suggests a few approaches for constructing a maturity model. In essence, these
approaches introduced very similar processes, albeit with slight variations. For the
creation of the model presented in this thesis, design principles proposed by Röglinger et
al. (2012) were adopted, and the process presented by Maier et al. (2012) was followed.
The model was developed iteratively, first through a comprehensive literature review and
later validated by interviewing indirect procurement professionals and updated based on
empirical evidence. Although interviewees did not comment on the creation process in
particular, they appreciated the structure and clarity of the developed model. Based on
this, following characteristics for a comprehensive indirect procurement maturity model
were identified:
- The model is clearly structured
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- It includes a variety of elements to comprehensively measure every aspect of
indirect procurement management
- There are 4 levels of maturity
- The cell texts reflect reality accurately
- Progression from level to level is logical
- Cell texts are written descriptively and intersubjectively
- The model can be readily applied to practice
In the end, the refined version of the model after empirical validation came to include the
same number of dimensions and elements that were identified by the literature review.
The same characteristic issues and management practices, solutions to the issues, were
identified by both literature and interviewees. The literature-based version of the model
required only a relatively small number of updates to its terminology and cell texts and
no changes were made to the structure of the model. This suggests that the literature of
both indirect procurement management and maturity models, although scarce and partly
outdated, mostly of good quality and in line with practice and practical expectations and
needs.
From a broader perspective, maturity models generally appear to be a tool more used by
consulting firms and seem to be underutilized or under-researched in academics. There
are at least two potential explanations for this. First, as pointed out by Schiele (2007),
maturity models, however generic, are still bound to present one “optimal” solution or set
of propositions, which often gathers criticism in academic circles. The second possible
explanation relates to the nature of constructive research itself. Kasanen et al. (1993) note,
that constructive research is often criticized for the lack of objectivity on the part the
researcher, as it is hard for the views of the researcher not the somehow influence the
construct, which in turn decreases the academic credibility of the research.
In practice, however, as also evidenced by the results of this study, maturity models are
seen as very useful tools, and there is a clear demand for tools such as the one developed
in this thesis. In addition, academic researchers such as Tanskanen et al. (2017) also
advocate for bridging the gap between academia and practice and support the notion of
using scientific research in support of real-life business decisions. This thesis and the
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model developed fill that gap. However, it needs to be noted that the model developed is
intended to be a general one. To tackle the aforementioned critique towards constructive
research and maturity models, the statements in the model cannot be taken for granted.
The model was created as a generic tool, to support and encourage organizations and
indirect procurement professionals to think and find optimal solutions for developing
indirect procurement management in their unique situations. Each user of the model must
think through the extent to which it applies to each situation and find the fit-for-purpose
optimal solutions in their context.
7.2 Conclusion
This thesis has answered the calls of both academia and practice and developed a
research-based tool to support decision-making in indirect procurement management
context. While doing so, it has made both theoretical and practical contributions. On a
theoretical side, it has performed a systematic and comprehensive literature review of the
fragmented indirect procurement management literature and formed a synthesis of it,
while supplementing the gaps in it with the views of procurement literature where
applicable. Based on the literature, the thesis identified issues and managerial solutions
characteristic for indirect procurement. As a large part of indirect procurement
management specific literature dates to the 1990s and early 2000s, this thesis has also
provided a much-needed update and supplementation to the views and gaps of the existing
literature through empirical data. The thesis has also identified and filled a gap between
literature and practice, and created for the first time, a comprehensive, up-to-date indirect
procurement management specific maturity model.
In terms of practical contributions, this thesis has created a research-based tool to support
real-life decision-making. The model is intended to help organizations to overcome the
issues characteristic for indirect procurement by presenting and promoting managerial
solutions to them identified by scientific literature. The maturity model can be used to
comprehensively benchmark and measure current capability, identify weaknesses, and to
guide developmental actions and progress.
The thesis has also shown that indirect procurement is a diverse and complex field to
understand and manage. The development of indirect procurement requires consistency,
long-term focus, and a comprehensive, all-around understanding of the area, as both the
characteristic issues and solutions are interconnected and affect one another. Maturity
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development is a gradual process that does not tolerate shortcuts, as previous development
steps act as a foundation for the next ones and developing one aspect while neglecting
others will not truly develop anything. Furthermore, as the field of indirect procurement
is often hard to quantify, developing it also requires the ability to see beyond numbers
and tolerate risk. As one interviewee put it:
Too often people don’t see the forest from the trees. Even if management and
stakeholders in principle understand the implications and benefits of
developmental initiatives, they are too focused on short-term gains and
numbers, and afraid to commit resources now.
Yet, when resourced, developed, and appreciated correctly, indirect procurement can
offer a sought-after source of untapped potential in cost reduction and additional value
creation. As the function serves internal customers and keeps the wheels of an
organization turning, it affects and has the potential to improve everything from
functional performance to work-wellbeing of all employees in an organization.
7.3 Limitations and future research
This research also has some limitations. First, the empirical research was conducted
within the limits of the workload of a master’s thesis. Although the views of the
interviewees were in general in line with each other and a saturation of results could be
claimed, the reliability and saturation of results of the empirical research could have been
further improved by introducing more organizations and interviewees. The second
limitation of this research relates to the quality of the model. It is intended to be a generic
model which can be utilized by various organizations operating in different industries. As
suggested by the interviewees, the model in fact is very generalizable, and to a large extent
also applicable for direct procurement. However, there still are some limitations to its use.
First, it probably offers more relevancy for organizations larger than an average SME.
Second, as there are as many different situations and environments as there are
companies, the model will inevitably be more relevant for some organizations than others.
This thesis and indirect procurement management in general offer multiple avenues for
further research. The first suggestion for future research is to extend the creation of the
indirect procurement management maturity model into Phase IV of maturity model
development. Collecting data about the utilization of the model in terms of results and
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keeping it updated over time could provide intriguing possibilities for further research
into indirect procurement maturity development in real-life organizations, both on a more
general level and also deeper into the factors most influencing it. The usability of maturity
models in general as practical tools is another area which could be investigated further.
Lastly, as indirect procurement management in general is still a very under-researched
area, one could pick up almost any topic mentioned in this thesis, or an element included
in the maturity model and research it further.
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96
Appendices
Appendix 1: Literature-based maturity model
97
98
99
Appendix 2: Interview frame
Do you allow this interview to be recorded?
Background:
The aim of my thesis is to create an all-around maturity model, which can be utilized by
organizations to measure their indirect procurement maturity and plan for improvements. I have
created the first, literature-based, version of the model. I have done my best to write the cell texts
in way that they reflect what assumes a proficiency or practices to be at a given level.
This interview aims to improve the validity of the model by collecting qualitative data about the
issues and best practices of indirect procurement recognized and used in practice. This data will
be analyzed and used to refine the model.
1. What is your current position and what responsibilities does it include?
2. How long have you worked in this position?
3. How long have you worked in similar/related positions, and in indirect procurement?
4. What companies and in which positions?
5. How have the role, activities, and practices of indirect procurement evolved during your
career/time working with indirect procurement categories?
6. How indirect procurement is organized in the company / What are the management
principles of indirect procurement in your organization?
7. What are the strengths of your current practices / approach to managing indirect
procurement?
8. What are the weaknesses?
9. What do you consider to be the biggest problems hindering indirect procurement
performance and causing issues for its management? What of these have or are affecting your
company?
a. What do you think about these / have you recognized additional issues in practice?
i. complexity
ii. general lack of understanding
iii. lack of management recognition
iv. lack of standardization/high number of different items
v. maverick buying
vi. lack of data
vii. poor organizational structure
viii. lack of E-tool use
ix. high amount of manual work.
10. What are the best solutions for the issues previously discussed in your view? How have
these issues been tackled or resolved in your company?
100
a. What do you think about these / have you come up with additional solutions in practice?
i. Promoting the relevance of IP among management
ii. process automation
iii. centralization of IP activities/organization
iv. increasing IP resources
v. Standardization of processes and items
vi. improving communication with internal partners
vii. use of E-tools
viii. improving the competence of IP staff
11. What factors do you see or consider affecting the role and activities of indirect
procurement the most in the future? (E.g., new technologies (what?), sustainability,
responsibility, any others?)
Questions about the model:
If an element is marked as relevant:
12. Do you consider cell texts to adequately reflect reality and your views about each level
of maturity?
13. How would you change them?
If an element is market as irrelevant:
14. Why is this element irrelevant in your view?
15. How would you change it, or would you leave it out completely?
Dimension related questions:
16. Do you consider that this dimension should include some additional elements? Is there
something missing from the model?
Finally:
17. To conclude, what is your general view of the model as a whole?
101
Appendix 3: Data structure
102
103
Appendix 4: Refined maturity model
Elem
ent
Q
uestion
Level 1: Clerk
Level 2: Basic
Level 3: Advanced
Level 4: Pioneer of m
aturity
Level
E1.1 Procurem
ent and corporate
strategy
How
is Procurem
ent recognized in
corporate strategy?
Procurem
ent as a w
hole has little to
no recognition in corporate strategy.
Procurem
ent is not expected to
deliver value.
Procurem
ent is recognized as a
potential contributor for strategy. It
is included to it based on
m
anagem
ent's perception of it.
Procurem
ents value creation
capability and relevance for the
actualization of strategy is
recognized, and the organization
utilizes procurem
ent near its
potential.
Procurem
ent in its diversity is an
integral part of the corporate
strategy. Its value creation capability
is em
phasized, and it is seen as a
m
ajor source of com
petitive
advantage.
E1.2 Indirect procurem
ent
recognition and involvem
ent in
decision m
aking
Is the scale and relevance of
Indirect procurem
ent recognized?
Is procum
ent included in strategic
decisions?
M
anagem
ent has little to no
know
ledge of indirect procurem
ent.
CPO
(or sim
ilar) has little say in
strategic decisions. IP's reports are
sporadically utilized in decision
m
aking.
The scale and relevance of IP is
starting to em
erge. CPO
(or sim
ilar) is
som
etim
es consulted during decision
m
aking, IP's voice is heard in som
e
instances.
M
anagem
ent recognizes IP as a
relevant contributor to the bottom
line. CPO
(or sim
ilar) is on the board,
but largely focused on direct
procurem
ent.
IP is w
ell know
n and recognized. CPO
(or sim
ilar) actively contributes to the
form
ulation of strategy, IP gets its
voice heard w
hen needed.
E1.3 Procurem
ent strategy and
indirect procurem
ent
How
indirect procurem
ent is
view
ed in procurem
ent strategy?
O
rganization has only vaguely
defined procurem
ent strategy. There
is no m
ention of IP.
O
rganization has form
ulated a clear
procurem
ent strategy docum
ent. IP's
role how
ever is lim
ited.
Procurem
ent has a com
prehensively
form
ulated and docum
ented
strategy. IP is a part of this strategy
w
ith som
e ow
n objectives.
Procurem
ent has a com
prehensively
form
ulated and docum
ented strategy
w
hich is actively executed and
developed. If needed, IP has its ow
n
indipendent strategy w
ith IP specific
policies and objectives. The strategy
is aligned w
ith procurem
ent and
corporate strategy.
E1.4 Corporate responsibility and
indirect procurem
ent
Have corporate responsibility
policies been included to indirect
procurem
ent policies and activities?
Indirect procum
ent lacks policies
about reponsibility. Realization of
corporate policies is not m
easured,
and is dependent on the integrity
individuals.
Indirect procurem
ent has a
responsibility policy. Its
im
plem
entation varies betw
een each
individual, and it is not system
atically
follow
ed.
Corporate responsibility policy is
noted in IP planning and included as a
key part of IP policy. Responsibility is
im
plem
ented to a high degree, and is
being m
onitored.
Corporate responsibility policy is
integrated into IP activities and
policies in practice. Responsibility
im
plications of decisions and actions
are proactively evaluated, and
audited.
E1.5 Sustainability and indirect
procurem
ent
Have sustainability initiatives and
policies been included to indirect
procurem
ent policies and activities?
Indirect procum
ent lacks policies
about sustainability. Som
e corporate
initiatives are introduced by
individuals.
Indirect procurem
ent has a
sustainability policy. Its
im
plem
entation varies betw
een each
individual, and it is not system
atically
follow
ed.
Sustainability is noted in IP planning
and included as a key part of IP
policy. Sustainability initiatives are
im
plem
ented to a high degree, and
are being m
onitored.
Sustainability is integrated into IP
activities and policies in practice.
Sustainability im
plications of
decisions and actions are proactively
evaluated and audited.
Procurem
ent's (as a w
hole) vital role
in sustainability efforts is recognized
and exploited for additional value.
1. Strategy, planning and leadership
104
E1.6 Change &
D
evelopm
ent
m
anagem
ent
How
does indirect procurem
ent
m
anage change and developm
ent?
How
autonom
ously can it operate?
IP does not have any notable
developm
ent ideas nor is it allow
ed
initiatives of its ow
n. It reacts to
external changes on m
ust-basis and
w
aits for m
anagem
ent to tell it w
hat
to do.
Changes often have IP on the
passengers seat. There are som
e
irregular developm
ent initiatives, but
these com
e as given or m
ust each be
approved by higher m
anagem
ent.
IP strives to proactively m
anage
change and continuously develop its
operation. There is a policy for
change m
anagem
ent and
developm
ent. IP needs
m
anagem
ent's approval for som
e of
its initiatives.
IP has a structured approach to
proactive continuous developm
ent. It
is rooted in the departm
ent's culture.
Change is seen as an opportunity to
develop and im
prove current
practices. IP has a high level of trust
and autonom
y to develop itself.
E1.7 Indirect procurem
ent long-
term
plan
If deem
ed necessary, has IP
developed a long-term
business
plan? W
hat is included in this plan?
IP does not have a recognizable long-
term
plan.
IP has a basic long-term
plan for the
year. The plan is loosely based on
procurem
ent strategy and includes
som
e quantitative, m
ostly price
reduction-related targets.
IP has form
ulated its ow
n long-term
plan. It includes som
e analysis of past
and current situation. It defines
m
ultiple business targets for the
year.
IP has a long-term
plan based on
procurem
ent strategy. The plan
includes analysis of the environm
ent
and past perform
ance, and also both
quantitative and qualitative targets
for IP activities.
E2.1 O
rganizational structure
How
is IP structured?
Indirect procurem
ent activies are
dispersed to individual functions,
w
hich have individuals handling IP
tasks.
O
rganization has dedicated IP staff,
w
ho are m
ostly under centralized IP
departm
ent. The departm
ent is
looking for its place in the com
pany
and lacks relevancy.
O
rganization has centre-led or fit-for-
purpose designed IP departm
ent
under procurem
ent function, but the
departm
ent still sits quite low
in the
hierarchy.
O
rganization has the best possible fit-
for-purpose IP departm
ent under the
procurem
ent function. CPO
(or
sim
ilar) is a board m
em
ber and
Procurem
ent is a 1st tier function.
Structure is continuously developed
to answ
er business requirem
ents.
E2.2 M
andate of IP departm
ent
To w
hat extend IP departm
ent
handles IP activities?
N
early every function has their ow
n
w
ays of procuring IP goods and
services. O
fficial guidelines or
com
pliance policies do not exists or
are not enforced.
IP departm
ent is established and
handles >50%
of IP activities, but
m
any categories are still scattered.
Com
pliance guideline exists, but is
not m
onitored. M
averick bying is still
a com
m
onplace practice.
IP departm
ent handles >80%
of IP
activities. Som
e categories still
rem
ain scattered. Com
pliance is
m
onitored, but som
e form
s of
m
averick bying still rem
ain.
Fit-for-purpose designed IP
organization handles nearly all IP
related activities. Clear com
pliance
processes are in place, w
hich are
actively m
onitored.
E2.3 Com
m
unication practices
How
does IP com
m
unicate w
ith
other departm
ents? W
hat is the
level of cross-functionality? How
know
n are IP needs and capabilities
w
ithin the organization?
IP is scattered. There is litte cross-
functionality, com
m
unication is
siloed w
ithin functions.
IP is centralized, but com
m
unication
w
ith other functions happens on as-
needed basis. IP needs and
capabilities are not w
idely know
n.
IP departm
ent has established
com
m
unication practices.
Com
m
unication and cooperation
w
ith other functions happens on a
regular basis. IP strives to
com
m
unicate its needs and
capabilities to all em
ployees, but is
yet to reach that goal.
IP has highly established
com
m
unication practices. Cross-
functional cooperation is very fluent
and happens all the tim
e. IP
requirem
ents and capabilities are
know
n to everyone w
ithin the
organization, and changes/updates
are com
m
ucated to all em
ployees in
every function.
2. Indirect procurem
ent organization and integration
105
E2.4 Cross-functional integration
How
are tasks and responsibilities
for cross-functional cooperation
defined and agreed?
There are only som
e established
practises w
ith som
e departm
ents,
but little structure to m
ajority of
cross-functional cooperation. M
ost of
it happens on ad-hoc basis.
Cross-functional cooperation is quite
regular, practices have becom
e
som
ew
hat established.
Responsibilities for both parties are
generally agreed on, but no official
guidelines exist.
Form
al and inform
al cross-functional
cooperation is com
m
onplace practice
w
ith all functions. There established
practices for all cross-functional
operations.
Cross-functional cooperation is the
norm
on both form
ally and
inform
ally. W
hen needed,
responsibilities are clearly defined,
even through SLA's. Cooperation is
continuosly developed.
E2.5 IP involvem
ent in product
specification &
standardization
How
is IP involved in product or
service specification? Is there an
effort to standardize item
s &
services?
IP is rarely included in product
specification, products &
services
com
e as given. The num
ber of goods
and services keeps m
ounting, and
there are not efforts to reduce or
standardize them
.
IP is still com
m
only excluded from
specification. M
ajority of purchases
are for unique item
s or services.
How
ever, there are som
e efforts to
standardize and catalog som
e item
s
or even categories.
IP is regularly included or consulted
in specification. M
any categories
have been standardized &
catalogued, w
hich has in part
decreased the dem
and for new
item
s. The num
ber of unique item
&
service purchases has greatly
decreased.
There is a w
ell-established cross-
functional process for new
item
or
service introduction. U
ncatalogued
item
s or services are checked for
existing substitutes and added to
catalogues if deem
ed necessary.
E3.1 Adjustm
ent of process
requirem
ents
Are processes designed for IP and
can IP influence their design? Are
processes and requirem
ents being
adjusted based on the significance
of the m
atter, e.g. m
onetary value
or im
pact?
Processes and requirem
ents com
e
straight from
direct procurem
ent,
and are not being adjusted. E.g.
Heavy com
pliance processes im
pede
efficient handling of m
inor actions.
M
any IP processes and their
requirem
ents are adopted from
direct procurem
ent. They are
m
odified w
ith a varying degree to fit
IP purposes.
M
ost processes along w
ith their
requirem
ents are designed by and
fitted to IP needs. There is som
e
degree of adjustability in the
processes based on the significance
of the m
atter.
Processes and requirem
ents have
been designed specifically by and for
IP, and are being adjusted based on
the significance of the m
atter. IP
operations rem
ain agile, IP has
autom
ony in process developm
ent,
and there is a great fit betw
een
process requirem
ents and purpose.
E3.2 Category strategies
Are goods &
services categorized?
Are there strategies for different
categories?
IP does not differentiate betw
een
categories, and there are no form
al
category strategies.
IP has identified few
key categories
and form
ulated basic approaches for
them
. These are executed to a
variying degree.
All goods &
services are group into
categories. M
ost categories have
differentiated strategies, created
w
ith other functions, and w
hich are
executed in practice.
IP has structured approach for
creating category strategies in cross-
functional category team
s. A
differentiated strategy is form
ulated
for each category based on a
thorough analysis of m
ultiple factors,
and executed in practice.
E3.3 Supplier strategies
How
are suppliers analyzed? Do
suppliers or supplier groups have
different strategies or m
anagem
ent
approaches?
Suppliers are neither analyzed nor
grouped by any indicator. There are
no form
al strategies for m
ajor
individual suppliers or groups of
suppliers.
Suppliers are analyzed irregularly.
They are grouped by som
e indicators,
m
ainly spend, and there are som
e
com
m
on practices for each group.
Suppliers are regularly analyzed for
m
any factors. Biggest suppliers and
m
ost im
portant groups have their
ow
n strategies w
hich are generally
executed in practise.
Suppliers are continuously analyzed
based on m
ultiple factors. Supplier
strategies are form
ed and executed
for big individual suppliers and
groups of suppliers.
3. Key procurem
ent processes
106
E3.4 Supplier selection
How
are suppliers selected? Is there
a defined process?
There is no form
al process for
supplier selection. Suppliers com
e
often as given to procurem
ent.
There is an established
undocum
ented procedure for
selecting suppliers. Selection is
usually perform
ed by IP.
There is a uniform
process for
selecting suppliers, w
hich is usually
follow
ed. Selection is usually done in
co-operation betw
een procurem
ent
and users.
There is a structured and
docum
ented process for supplier
selection. Suppliers are selected
based on clear criteria. Decisions are
done in cooperation w
ith
stakeholders.
E3.5 Supplier due diligence
How
are suppliers' backgrounds
checked? W
hat aspects are
checked, are responsibility and
sustainability m
easures included?
There is no form
al due diligence
check done for new
suppliers. DD is
entirely up to each individual staff
m
em
ber.
There is a sim
plistic due diligence
procedure in place. M
ost suppliers go
through it, but som
e exections are
m
ade. M
ajor suppliers are seldom
ly
audited.
There is quite extensive due diligence
procedure perform
ed for alm
ost all
new
suppliers. Responsibility and
sustainability aspects are also
included. M
ajor suppliers are
som
etim
es audited.
All new
suppliers need to pass an
uniform
due diligence process. This
check includes w
ide range of
m
easures, including responsibility
and sustainability aspects. M
ajor
suppliers are periodically audited.
E3.6 Supplier contracting and
contract m
anagem
ent
How
are contracts issued? How
are
they m
anaged?
There is no form
al process or
requirem
ents for contracting.
Contracts are created for ad hoc
purposes and they contain
deficiencies. Contracts are not
system
atically stored, and their
inform
ation is scattered around the
organization.
Requirem
ents for contracting are set.
Contracts are created on regular
basis, but there are som
e deficiencies
both in the process and contracts. In
m
ost cases, they are only revisited in
case of problem
s w
ith deliverables.
>50%
are stored centrally.
There are established guidelines to
support contracting. N
egotiations
and contracts are punctual, and
delivered quality is regularly
m
easured against the contract. M
ost
of the contracts are stored centrally,
and their status is regularly
m
onitored.
There is a structured process in place
for contracting. Contracts are drafted
and revised m
ultiple tim
es.
Deliverables are m
easured against
the contract. Contracts are m
anaged
system
atically and their inform
ation
is readily available for use.
E3.7 Supplier m
anagem
ent
How
are suppliers m
anaged? W
hat
is the m
anagem
ent approach based
on?
Supplier m
anagem
ent is perform
ed
haphazardly. Decisions are based on
the gut feeling of individuals. There is
no effort to m
anage the supplier
base.
Supplier m
anagem
ent is still highly
dependent on individuals. M
ost
im
portant suppliers have been
recognized and relations w
ith them
are being m
anaged &
developed.
M
ost of the supplier base is yet to
receive attention.
Supplier m
anagem
ent is a regular
activity. Supplier base has been
segm
ented, and recognized valuable
suppliers are m
anaged and
developed. Supplier m
anagem
ent
strives to com
plem
ent category
strategies. Som
e term
ination effort
takes place.
Supplier m
anagem
ent is a continuous
process, decisions are based on data.
Suppliers are actively evaluated,
tiered, and developed, and
relationships are m
anaged or
term
inated. Supplier m
anagem
ent
decisions support category strategies.
E3.8 Internal com
pliance
Are there internal com
pliance
processes in place for IP activities?
How
is the com
pliancy of IP
ensured?
There are no established com
pliance
processes to adhere to. The level of
com
pliance is dependent on the
integrity of individuals.
There are either defined com
pliance
processes w
hich are not adhered to,
or ones that are overly heavy, include
douple elem
ents and unnecessarily
com
plicate m
any activities.
Com
pliance processes are m
ostly
good fit for purpose, and are
generally adhered to. N
on-
com
pliancy is m
onitored.
There are established, fit-for-purpose
designed and differentiated
com
pliance processes for IP
activities, w
hich are adhered to
w
ithin the organization. N
on-
com
pliance is m
onitored and
adherence rew
arded. Com
pliance
processes are robust but lean.
107
E3.9 Risk m
anagem
ent
How
does IP approach risk
m
anagem
ent?
There is no proactive risk
m
anagem
ent. Risks are only dealt
w
ith upon m
aterialization.
Risk m
anagem
ent is still m
ore
reactive. Som
e of the m
ost severe
risks have been identified, and plans
have been draw
n up to deal w
ith
them
. M
any risks are still
unidentified, and efforts to reduce
exposure are sporadic.
O
rganization has a structured
approach to risk m
anagem
ent. Risks
are periodically assessed and efforts
m
ade to prepare for &
reduce
exposure to risks.
Risk m
anagem
ent is a continuous
proactive process. Risks are
constantly assesed, efforts m
ade to
reduce exposure, plans draw
n for
potential events, and actions taken
to m
itigate the effects of occured
events.
E3.10 Supply m
arket intelligence
How
does IP collect and utilize
external inform
ation?
There is no form
al effort to collect or
utilize supply m
arket inform
ation.
Inform
ation is asym
m
etrically bound
to and utilized by individuals.
Inform
ation is collected w
hen
needed in reactive fashion.
Inform
ation is still accrued unevenly
betw
een individuals and team
s.
There are no system
atic practices for
storing or distributing inform
ation.
Inform
ation is collected and analyzed
in both proactive and reactive
fashion. Efforts are m
ade to have
accrued inform
ation readily available
for everyone, and inform
ation is
exhanged betw
een functions. Supply
m
arket inform
ation is increasingly
utilised in decision m
aking.
There is a proactive, cross-functional,
and system
atic process for gathering,
storing, and analysing supply m
arket
inform
ation. This inform
ation is
accessible and w
idely utilized in
decision m
aking.
E3.11 Internal partner
m
anagem
ent
How
are internal partners
m
anaged? How
is the balance of
pow
er?
There is little effort m
ade to m
anage
internal stakeholders, neither as
custom
ers nor suppliers. The internal
acknow
ledgem
ent of IP is poor, and
it is often being dom
inated.
IP is a recognized internal function.
Different functions place unequal
value on the partnership w
ith IP. Co-
operation and m
anagem
ent of som
e
functions is easy, but w
ith others
exceedingly difficult.
IP is generally recognized as a valued
internal partner. Cooperation
betw
een IP and other functions is
fluent and equal. IP provides internal
custom
ers w
ith value, and in
exchange receives needed services
and support from
other functions on
a satisfactory level.
IP is seen as a trusted supplier and
preferred custom
er by internal
partners. There is a sym
biotic
relation betw
een IP and other
functions. In supplier role, IP is able
gratly to m
eet stakeholder
requirem
ents. As a custom
er,
internal partners deliver best possible
service for IP and constantly strive to
im
prove their efforts.
E4.1 Requisition &
Approval
How
is the requisition for goods &
services set up? How
are
requisitions approved?
A requisition process and an approval
logic are poorly defined and end-
users have lim
ited know
ledge about
them
. Requisitions com
e in random
form
s and have insufficient
inform
ation. Approval bureaucracy is
unnecessarily com
plicated and tim
e
consum
ing. Cycle tim
e of requisitions
varies w
ildly and end-users have little
visibility over the status of
requisitions.
Requisition and approval process has
been defined and is generally know
n
w
ithin the organization. Requistions
still lack relevant inform
ation causing
delays and approvals take tim
e, but
requisition rules have been m
odified
to reduce the num
ber of requisitions
and PO
's. There are efforts to further
stream
line the process.
Requisition and approval is an
established process. Requirem
ents
for requisitions have been
stream
lined and distinguish betw
een
trivial and non-trivial needs. Approval
process is sw
ift, and m
any
requisitions lead to an autom
atic
PO
's as the quality of requisitions is
sufficient. Procurem
ent/purchaser
involvem
ent is reduced to
special/problem
atic cases.
Requisition and approval process is
w
ell defined and know
n throughout
the organization. There are different
flow
s based on the value and
triviality of the need. Requisitions are
of uniform
quality, contain all
relevant inform
ation, and after lean
approval process lead to an
autom
atic PO
in m
ost cases. End-
users are able to place and follow
the
status of their requisitions w
ith a
variety of devices, including m
obile.
4. P2P process
108
E4.2 PO
placem
ent &
Com
pliance
How
is the creation and delivery of
PO
's set up?
Virtually all PO
's are created and
delivered m
anually. Som
etim
es there
is not even a PO
, orders are placed
via em
ail or in a vendor w
eb-shop.
Com
pliance of PO
's is questionable or
unnecessarily heavy.
PO
's are created and delivered
m
anually, but their num
ber has been
reduced through the utilization of
blanket PO
's and system
s
contracting. Com
pliance of PO
's is
rationalized.
The creation and delivery of PO
's is
m
ostly autom
ated, but som
etim
es
requires m
anual steps due to system
m
alfuctions or com
lexity of individual
cases. There is som
e
interconnectivity betw
een the
system
s of organization and vendors.
Com
pliance is stream
lined.
The creation and delivery of PO
's is
autom
ated in m
ost cases.
O
rganization and vendor system
s are
often interconnected. Requisition
inform
ation and approvals are
sufficient. In m
ost com
plex cases
m
anual efforts are needed for
creation and delivery of PO
's.
E4.3 Receiving/inspections
How
is receiving of goods and
sercives set up? How
is quality
assurance perform
ed?
There is no established process for
receiving and quality assurance is
reactive. Efficiency is low
, as PO
creator m
ust also ensure and update
orders as delivered.
There is an established process for
receiving. End-users are supposed to
notify procurem
ent and som
etim
es
update delivery inform
ation to ERP.
Q
uality assurance m
echanism
s have
been introduced to m
ost im
portant
categories.
Receiving and inspections are m
ostly
integrated to the sam
e process as
requisitions and PO
's. End-users are
expected to confirm
deliveries and
periodically report quality.
Procurem
ent involvem
ent and
m
anual action is greatly reduced.
Responsibility for quality assurance is
increasingly on the supplier.
The system
s betw
een organization
and vendors are often
interconnected. Deliveries are
autom
atically m
atched to PO
's and
w
ith som
e categories also confirm
ed.
End-users receive notifications, and
are expected to confirm
deliveries of
som
e goods or services. Q
A is m
ostly
on suppliers, and end-users audit &
report the perform
ance.
Procurem
ent receives regular
updates on supplier quality.
E4.4 Invoice processing
How
are invoices processed?
Procurem
ent m
anually checks
invoices against contents and
delivery statuses of PO
's and
approves them
for paym
ent.
Accounting m
atches invoices w
ith
PO
's for paym
ent.
M
any invoices are still m
anually
checked by procurem
ent. W
orkload
has been reduced by the use of
blanket PO
's and system
s
contracting, for w
hich invoices are
only review
ed periodically or w
hen a
budget is reached. Accounting still
needs to m
atch all invoices by hand.
Invoice checking is now
autom
ated.
Procurem
ent is still quite regularly
involved due to discrepancies
betw
een invoices and PO
's. O
nce end-
users have confirm
ed a delivery and
check is ok, invoice is autom
atically
m
atched for paym
ent and paid
according to contract or vendor data. Invoices are autom
atically com
pared
to and m
atched to PO
's if there are
no issues reported. Paym
ents are
autom
ated per contract or vendor
inform
ation. Procurem
ent
involvem
ent is reduced to
problem
atic cases and spot audits.
E5.1 Position descriptions and
diversity of com
petences
Are the tasks and responsibilities of
different positions defined? Are the
com
petences required for these
positions know
n?
Positions are not defined, tasks and
resposibilities vary by individual
em
ployee regardless of position.
Com
petence requirem
ents for
positions have not been set.
Com
petence of individuals vary, and
their com
petence areas do
com
plem
ent one another.
M
ost procurem
ent positions along
w
ith their com
petences have been
defined. Com
petence of em
ployees is
on a satisfactory level, although there
still is m
uch variation in
responsibilities and com
petences of
individuals in sam
e positions.
Positions are defined, and the
com
petencies required are w
ell
know
n. O
verall com
petence of
em
ployees is on a good level, and
each individual offers valuable skills
for the IP function.
All procurem
ent positions are
defined and com
petencies required
for each position are know
n and
docum
ented. Positional com
petence
requirem
ents are updated regularly
and adjusted based on e.g.
categorical and geographical
differences. Individual staff m
em
bers
offer unique areas of com
petence,
com
plem
enting one another.
5. Hum
an resources
109
E5.2 Recruitm
ent com
petency &
m
ethods
How
are recruitm
ent decisions
m
ade? Does HR understand IP
com
petence requirem
ents?
There is no form
al process for
recruitm
ent, previous experience is
heavily em
phasized. HR does not
have any particular know
ledge of the
skills and com
petences required by
IP. Recruitm
ent decisions are often
m
ade by individuals.
There is a general process for
recruitm
ent w
hich is m
ostly
follow
ed. HR has som
e know
ledge IP
com
petence requirem
ents. H
ow
ever,
as there is lim
ited cross-functional
evaluation, this leads to a few
com
petence areas dom
inating
recruitm
ent decisions.
Recruitm
ent decisions are a result of
a structured process. HR has good
know
ledge of com
petence
requirem
ents and consults IP about
recruitm
ent decisions.
Recruitm
ent process is w
ell defined
and m
odified based on the particular
position. HR has excellent know
ledge
about the skills and com
petences
required from
IP personnel.
Recruitm
ent decisions are m
ade
through cross-functional evaluation
of candidates, and external
consultants are utilized w
hen
necessary.
E5.3 Staff onboarding, training
and com
petence developm
ent
Are there training plans available
for IP staff? Are other kinds of
developm
ent possibilities offered?
There are no form
al training plans for
em
ployee onboarding. N
ew
com
ers
are usually taught the basics, but
after that left to fend for them
selves.
There are little to no trainings or
educational possibilities offered for
the IP staff. Each em
ployee is
responsible for their com
petence
developm
ent, in m
ost cases on their
ow
n tim
e.
There is a general training plan for all
new
com
ers. IP specific aspects are
taught on the side of other tasks.
O
rganization offers lim
ited training
and developm
ent opportunities.
There is a structured training plan for
all IP new
com
ers, w
hich also includes
som
e cross-functional elem
ents.
N
ew
com
ers have nam
ed support
persons. O
rganization offers regular
training opportunities to ensure and
im
prove the com
petence of
em
ployees.
There is a structured process for
em
ployee onboarding. Each
em
ployee receives extensive, cross-
functional training that is m
odified
depending on their position.
N
ew
com
ers also have a dedicated
contact persons for support and to
help them
adapt. O
rganization
encourages em
ployees to develop
their com
petence by offering
regularly updated trainings and
endorses participation in further
com
petence developm
ent.
E5.4 Adequicy of resources
Do available IP resources m
atch the
IP w
orkload? How
m
uch tim
e is
spend firefighting vs. developm
ent
tasks?
IP is drastically under-resourced. The
w
orkload and prevalence of m
anual
tasks m
akes m
ost days a struggle.
Excessive w
orkload prevents
m
eaningful developm
ent w
ork, as
there is no tim
e for it. Response tim
e
to issues is long, as there are m
any to
begin w
ith.
IP is under-resourced on average.
Focus is still m
uch on the daily tasks
and issues often overload the
capacity of IP for extented periods of
tim
e extending response tim
es to any
particular request. During quieter
tim
es IP is able to focus on higher-
level topics and developm
ent
iniatives.
IP is appropriately resourced.
Autom
ation of m
any daily activities
allow
s IP staff to increasingly focus
on higher-level activities. IP is still
som
etim
es overw
helm
ed, but not for
extensive periods of tim
e.
IP's resourcing level is very good.
M
ost daily activities have been
autom
ated, thus relieving IP staff to
focus m
ostly on developm
ental and
higher-level tasks. In case of issues IP
has the capacity to resolve them
quickly and efficiently.
E5.5 Perform
ance evaluation
Is there a policy for perform
ance
review
s? H
ow
is em
ployee
perform
ance tracked?
There is no official policy for
perform
ance review
s. Perform
ance
targets are only set for higher
m
anagem
ent or heads of team
s or
departm
ents. For low
er-level staff,
review
s are perform
ed based on
request, w
ith little to no continuity.
There is a com
m
on guideline for
perform
ance review
s, but not all
m
anagers or team
leaders follow
it.
Review
s are done in som
ew
hat
regular intervals, w
ith no or just a
few
targets set for the next
evaluation period.
Perform
ance review
s are done w
ith
regularity w
ith all em
ployees. Key
perfom
ance targets are set
periodically for every em
ployee,
results follow
ed and targets updated. There is a policy of regular
perform
ance review
s w
ith every
em
ployee. Review
s are perform
ed at
least annually, or w
hen needed.
Perform
ance targets are
individualized and include both
qualitative and quantitative
m
easures. Review
s prom
ote
continuous im
provem
ent.
110
E5.6 Career developm
ent and
em
ployee churn
W
hat kind of career developm
ent
opportunities does the com
pany
offer? Is there a structured process
to identify potential candidates?
O
rganization has very little career
developm
ent opportunities, or does
not value internal em
ployee
advancem
ent. Em
ployee churn is
high.
O
rganization offers lim
ited career
developm
ent opportunities. It is able
to retain som
e talent, but still suffers
from
relatively high churn rate.
O
rganization offers m
any possibilities
for career developm
ent. Em
ployee
perform
ance is m
onitored and
talented individuals retained.
The organization offers em
ployees
num
erous options for advancem
ent,
both w
ithin IP/Procurem
ent and
cross-functionally. O
rganization has
an aptitude to recognize talent and is
successful in retaining com
petent
em
ployees.
E5.7 Staff feedback
How
is staff feedback collected and
utilized?
There is little to none staff feedback
collected let alone utilized.
Staff feedback is collected on
irregularly for ad-hoc purposes. It it
utilized to som
e extend in decision
m
aking.
Staff feedback is collected regularly.
Results are com
pared and
m
anagem
ent decisions adjusted
based on it.
Collecting staff feedback is continious
process. Periodical surveys are also
perform
ed. Feedback is seen as a
valuable source of inform
ation, and is
system
atically analyzed and utilized
in decision m
aking.
E6.1 IT-architecture and system
s
How
suitable are current system
s
for IP? H
ave/are IP needs been
identified &
taken into account
w
hen selecting IT-solutions?
Current system
s degrade the
efficiency of IP. IP is forced to handle
activities w
ith a m
ixture of different
system
s, w
hich for the m
ost part are
neither designed nor suited for
handling IP activities. IP w
as/is not
involved in any w
ay in system
selection, and little to no
configuration is done.
IP is forced to rely on a m
ixture of
system
s w
ith varying quality. Som
e
are decently fit for purpose, som
e
aren't. IP is supported by som
e
configuration effort, and often
consulted before m
aking decisions.
System
s used by IP enable efficient
perform
ance. They're generally fit for
purpose. IP is alw
ays consulted
before decisions about new
system
s,
and there is alw
ays effort to
configure the system
s per IP
requirem
ents.
System
s greatly enhanse the
perform
ance of IP. The system
s are
top-tier solutions, integrated w
ith
both internal and external system
s.
They are either designed or
configured for IP per its
requirem
ents.
E6.2 P2P process autom
ation
To w
hat extend is P2P process
autom
ated?
There is very little to no autom
ation
in P2P process. It is alm
ost fully
m
anual, and includes som
e physical
paperw
ork.
There are som
e autom
ated elem
ents
in the P2P process, m
ainly w
ith
regards to invoice processing. M
ajor
IP benefits are yet to be obtained.
The m
ajority, if not all, steps of the
P2P process have been autom
ated
and m
oved to end-users. IP
involvem
ent has been reduced
considerably but is still often
required due to issues w
ith the
autom
ation.
The P2P process is end-to-end
autom
ated. It is easy to use for end-
users, and nearly carefree for IP,
w
hose involvem
ent is only needed in
case of issues. The system
is also
accessible on m
obile devices.
E6.3 Data collection, quality, and
storage
How
is data being collected and
handled?
O
nly a sm
all am
ount of data is being
collected. M
ost of it is general P2P-
process data. It is generally of poor
quality and is stored here and there.
There are som
e generalized
procedures in data collection. G
ood
am
out of P2P process data and also
data from
other processes is
available. There is variation in the
quality of data, and it is being stored
in m
ultiple locations.
Data collection is partly autom
ated.
Large am
ounts of m
anual w
ork is still
required, but the data is generally of
good quality and readily available
from
m
ultiple processes. Data
storage is being centralized. IP is able
to obtain som
e cross-functional data. There are extensive, m
ostly
autom
ated processes for data
collection. Som
e additional data is
inputted by hand. The data is of
uniform
quality, stored centrally, and
readily available for use. Cross-
functional data is also readily
available for IP.
6. IT-system
s and E-procurem
ent
111
E6.4 E-X's
Does IP utilize E-catalogues, E-RFX's
etc.?
IP utilizes em
ail and google as their
m
ost advanced E-tools.
Som
e basic ERP ad-ons and
com
pilatory w
ebsites are used from
tim
e to tim
e. How
ever, their usage
varies betw
een individuals.
E-catalogues have been introduced. E-
sourcing solutions are under
investigation and som
e are already in
use.
All possible IP processes utilize
autom
ated E-tools. M
ost categories
have been inducted into E-
catalogues. Contracts are aw
arded
based on E-RFX's and E-auctions.
Tools provide in-depth data and
ready-m
ade analyses for IP
personnel.
E7.1 IP category strategies and
long-term
plan m
etrics &
adjustm
ent
Are the m
etrics in category
strategies and/or long-term
plans
being follow
ed? How
are
m
easurem
ent results utilized?
Category strategies and/or long-term
plans are either non-existent or
include only a few
quantitative
m
etrics. These are not actively
follow
ed, and are analyzed only
annually or so. Results are used to
define targets for next period.
category strategies and/or long-term
plans include a few
quantitative
m
etrics, that are m
onitored from
tim
e to tim
e. Results are used to
squeeze m
ore price reductions &
savings from
w
here they can be
found.
Innovative quantitative and
qualitative KPIs set in the category
strategies and/or long-term
plans are
m
onitored on regular basis.
M
easurem
ent results are used for
som
e adjustm
ent in activities.
Category strategies and/or long term
plans include m
ultiple innovative, fit-
for-purpose KPIs. These are
continuously m
onitored, and
activities are regularly adjusted based
on the perform
ance data. Targets set
in the strategies or plans could also
be altered.
E7.2 Reporting &
data analytics
How
is data utilized in decision
m
aking?
Reports are utilized only for ad hoc
purposes. They're based on poor
quality or lim
ited data, w
hich
severely lim
its the use of data
analytics.
There is som
e regular reporting. P2P
process data is analyzed periodically,
and used to support decision m
aking.
Q
uality and am
ount of data still
restricts analytics utilization.
The organization has placed
em
phasis on data analytics and is
able to bring forw
ard valuable insight
to support decision-m
aking. Som
e
reporting is being autom
ated.
The organization is able to
im
plem
ent top-of-the-line data
analytics as there is an abundance of
good quality data available. Regular
reporting has been autom
ated and
the reports are utilized in decision
m
aking. Ad hoc analyses are able to
provide deep insight.
E7.3 Stakeholder satisfaction
How
is stakeholder satisfaction
m
easured? How
is the inform
ation
utilized?
Stakeholder satisfaction is not
m
easured. O
pinions of stakeholders
are rarely taken into account in IP
decision m
aking.
Stakeholder satisfaction is m
easured
irregularly. O
nly quantitative
indicators are used. Som
e em
phasis
is placed on the opinions and
feedback of stakeholders.
Stakeholder satisfaction is recognized
as an essential m
easure of IP
perform
ance. It is m
easured regularly
w
ith both quantitative and
qualitative indicators. IP activities are
adjusted based on the inform
ation.
Stakeholder satisfaction is m
easured
nearly continously w
ith m
ultiple
indicators, both form
al and inform
al,
and sudden issues resolved quickly.
Stakeholders are consulted and their
opinions appreciated in IP decision
m
aking. Special em
phasis is placed on
the opinions of m
ost im
portant
stakeholders.
E7.4 Cost m
anagem
ent &
M
easurem
ent
W
hat cost-related KPI's are
m
easured? Are m
easurem
ent
results utilized in decision m
aking? IP does not actively m
anage costs or
m
easure cost-related KPIs. Decisions
are solely based on and aim
ed at
achieving price reductions.
IP perform
s som
e spend analysis.
Efforts are still m
ainly focused on
price reduction.
Spend data is regularly analyzed, and
costs are being m
anaged based on
the analysis. Analysis extends from
the use of pure price indicators
tow
ards m
easuring TCO
and cost
reductions.
IP has a structured approach to cost
m
anagem
ent and m
easurem
ent.
Volum
es of spend data is continously
collected and analyzed. Decisions are
based on m
ultiple KPI's, such as TCO
,
Cost savings, Spend under
m
anagem
ent, etc.
7. M
easurem
ent and control
113