Total value contribution in project procurement

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School of Business | Master's thesis
Degree programme
Information and Service Management (ISM)
Procurement function has become more central in generating added value to companies. Global companies have been focusing on their core activities and increasing the share of products procured from third parties. Meanwhile the markets have become more volatile. To be able to increase competitiveness and to safeguard operations, the emphasis of procurement has shifted towards creating value and mitigating risks beside understanding the total costs. The theoretical background of the study is based on a new framework, total value contribution (TVC), which considers foremost value factors and risks of a procurement. The focus of the study is recognizing value factors in capital equipment procurement as well as evaluating the decision-making processes that enable them. The aim is also to contextualize the TVC framework. The research was conducted as a single case study in April 2022 for the case company Metso Outotec. The main research methods included observations of a procurement of flotation equipment and semi-structured qualitative interviews. The interviewees were 14 professionals who contribute to project procurement in the case company including project management, quality, logistics, sourcing, and procurement. The deductions made from the interviews were triangulated with other sources of information. The interviews and observations provided valuable information that supported the prior theoretical findings and expanded them. Several value factors were recognized with additional insights how they function. Interesting was how value can be added with attention to contractual terms, risk mitigation and supplier selection. New findings included that technical, and commercial specifications were high in importance which underlined the tailored elements of capital equipment deliveries that sets different demands to procurement than other types of products. Everything must be considered case by case which is a strong recommendation for TVC framework as it guides to evaluation of case specific value drivers, risks, and costs. The findings illuminated the decision-making processes that enable to reach best value. The cooperation and information flow of the cross-functional procurement team ensured the cumulation of know-how within the team and proactive, skilled response to changes and problems. On the other hand, the emphasis on the request for quotations allows for most value-adding with least cost impact which was a new finding. The TVC framework also complements the fast-paced decision-making in capital equipment procurement. Propositions were made to the case company based on the findings to help develop their existing processes as well as to introduce new tools and ways of operating.
Thesis advisor
Kim, Seongtae
procurement, value, risk management, capital equipment, total value contribution
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