Savings measurement for capital equipment purchasing: challenges and conceptual model

Purpose - – Many companies are not satisfied with the methods used to calculate savings for capital equipment purchasing (CEP), and the existing academic literature does not provide adequate suggestions for solving this problem. Therefore, the authors will aim to analyze how companies measure savings for CEP and attempt to identify the main challenges in this area. In order to understand which savings measurement system for CEP is appropriate in a specific situation, they will explore the relevant determinants and effects of savings measurement for CEP. Design/methodology/approach - – After presenting a description of the theoretical foundations of CEP and savings measurement, the article presents three cases of savings measurement for CEP from manufacturing industry and pinpoints the major challenges involved. These challenges are then discussed with reference to the relevant literature and a conceptual model for savings measurement for CEP is developed. Findings - – The authors identify six procedure-specific and seven behavior-specific challenges. Procedure-specific challenges in savings measurement for CEP primarily address topics concerning components and calculation methods, while behavior-specific challenges mainly involve manipulation, trust and judgment. The authors’ formulated propositions state that savings measurement for CEP is influenced by internal and external determinants and affects CEP's performance, manipulation and trust, as well as judgments which may be made about CEP's savings measurement results. Practical implications - – The managerial implications of the authors’ research concern the successful design and process of savings measurement for CEP. Originality/value - – Savings measurement for CEP, as a special case of purchasing performance measurement, has received little attention in the academic literature. Thus, the authors will present calculation methods, along with identifying and discussing challenges and revealing relevant determinants and effects.