Elsevier

Knowledge-Based Systems

Volume 142, 15 February 2018, Pages 127-148
Knowledge-Based Systems

Smart Buyer: A Bayesian Network modelling approach for measuring and improving procurement performance in organisations

https://doi.org/10.1016/j.knosys.2017.11.032Get rights and content

Abstract

Procurement, the act of buying goods or services from an external supplier, plays an important role in any organisation. To measure how well an organisation undertakes this activity, it needs to measure all associated Key Performance Indicators (KPIs). The current literature's major drawback in performing such a measurement is how to integrate the different KPIs, each of which captures a specific aspect of the organisation's performance. In this paper, we highlight this drawback and present our proposed Smart Buyer framework that is based on a Bayesian Network (BN) model capable of capturing and integrating the different KPIs. The measured procurement performance value can then be used by organisations to identify the areas in which they need to improve and develop plans to achieve this. Four scenarios are presented to show how the proposed BN model can be further used for analysis and decision making within organisations. Finally, a recent real-world procurement example is studied to demonstrate the applicability of the proposed Smart Buyer framework.

Section snippets

Introduction and motivation

Procurement as the enabler of acquiring goods and services is undoubtedly an inevitable part of any business. It is also an increasingly complex activity in relation to the features that it provides, thereby requiring the cooperation of different disciplines and departments to achieve its final goal successfully. The effective management of the supply chain in any organisation is the key to achieving a competitive advantage and procurement is one of the critical activities in building and

Literature review

In this section, we present our survey of the literature from three perspectives. The first perspective discusses those approaches that focus on improving different activities that come under procurement. The second perspective discusses those approaches that aim to evaluate performance in general, and the third perspective is related to the work that deals with procurement performance evaluation.

Preliminaries

Before we explain the Smart Buyer framework for procurement measurement and management, we explain the important preliminary concepts as follows.

Smart Buyer: Previously, we highlighted the need for organisations to measure and manage their procurement performance by considering all the KPIs. Accordingly, a Smart Buyer is defined as a buyer or organisation which first measures its procurement performance by considering all the KPIs and then uses this for managing and improving its practices.

Smart Buyer framework for achieving procurement excellence

The Smart Buyer framework for achieving Procurement Excellence as shown in Fig. 2 comprises three stages. Stage 1 deals with performance measurement whereas stages 2 and 3 deal with performance management. Stage 1 enables organisations to know, understand, quantify and rank their current procurement level. Stage 2 assists organisations to determine if their current procurement level is the best they can achieve according to their limitations and stage 3, depending on the procurement standing

Bayesian Network construction

To build a BN, firstly create a causal graphical model using a directed acyclic graph that will represent interdependencies among the different KPIs. The associated probabilities with BNs’ nodes are belief degree that can be assigned by the knowledge engineer who uses BNs for modelling. There are two ways of constructing BNs. One way is to use structure learning algorithms [18], [29], [30]. Since these algorithms require a great amount of data, it is a common practice to use the second method

Using a BN model to achieve procurement excellence

In the first part of this section, we build our BN model based on the proposed algorithms in Section 5. In the second part, we demonstrate different types of reasoning which can be utilised for procurement performance measurement and procurement management, thereby leading to procurement excellence.

Application showing the applicability of the smart buyer framework to measure and improve an organisation's procurement performance

In June 2017, USA TODAY reported that in the previous decade, the Pentagon wasted $28 million on supplying free camouflage uniforms to the Afghan military troops [93] which were the wrong colour. Unfortunately a “forest” pattern was chosen for these uniforms while only 2.1% of Afghanistan is covered by forest, making troops extremely vulnerable to attack. The Afghan troops avoided using the uniforms, resulting in the waste of the money spent on them. Let us consider this a procurement

Conclusion and future work

In this article, we reviewed existing literature on how an organisation can achieve procurement excellence. We divided our review into three categories, one that focused on improving activities that come under procurement and the other two that focused on performance evaluation in general and procurement performance evaluation in particular. As we reported, while there are many approaches in the existing literature aiming to improve procurement practices, very few efforts consider all these

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