Knowledge matters: how new knowledge affects procurement operations

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School of Business | Master's thesis
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In today's digital world efficiency and effectiveness in value chains are important for the survival and wellbeing of whole chains of companies. One view how continuously changing value creation needs are possible to keep up to date has been presented by Cohen & al. (1990). They wrote in their research article, that organizations need to be able to recognize, digest and apply new external information in to their core operations in order to build competitive advantage. This has since formed the core of the Absorptive Capacity theory, which has been used during the last decades to explain learning and new knowledge creation in individuals and organizations. Many writers have quoted Cohen & al. and some have also extended their work to also other areas than production and R&D, but mainly the core has remained the same during the last 25 years. Why is Absorptive Capacity then so widely used and important? Key to this is in the four step approach that Zahra & al. (2002) defined leading from new information acquisition and association to assimilation and exploitation. Each step is crucial for both individuals and organizations, so that they have a balanced knowledge development process, that can secure current, short and long term competitive advantage creation. How is Absorptive Capacity then connected to Procurement operations and their effectiveness and efficiency? It is connected to them as they are also highly dependent on experience and knowledge build up. Typically Procurement is measured with savings and for example based on Schiele's (2007) research, the savings potential for different commodity groups, also known as categories, in different companies with different knowledge build up and development levels, was ranging between 0,3% and 18,3%, while average potential was 7,3%. This could mean the whole operating profits of some companies. This thesis was written to have two parts. First an extensive literature review of the current and past academic views around Absorptive Capacity. Second part was dedicated to hypothesis creation and testing with purchasing related survey data. Based on the analysis results we can conclude, that it was proven than when data is valid and usable, there exists a connection between new knowledge and Procurement operational efficiency and effectiveness. The more advanced the individual and company knowledge levels are, the higher performance the organization should be able to reach, as all the tested connections independent and dependable variables were positively linked.
Procurement operations, Procurement efficiency and effectiveness, Purchasing, Sourcing, Absorptive Capacity, AC, ACAP
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