Today, procurement must not just find ongoing opportunities to reduce cost, but also mitigate risk, improve supplier performance, improve cash management, unlock innovation, support CSR objectives and a long list of other goals. Those increasingly include ensuring agility in the face of Covid-19 and the next crisis. As the list of procurement’s objectives continues to expand, continuous improvement is essential. It is not just the number of goals but their broad scope that make transformation a must, and a lengthy journey. Success requires mapping the right path, continuously tracking progress and course-correcting along the way.
As renowned management guru Peter Drucker famously said, “if you can’t measure it, you can’t improve it.” Unfortunately, all too often, procurement leaders can’t measure everything they need to or measure it in the right way. When looking at any challenge, it often helps to investigate how the very best operate and what distinguishes them from the rest. So Ivalua partnered with Forrester to take a broad look at Effective Procurement Performance Measurement across over 400 organizations globally. The study showed a marked difference between the performance of the most advanced procurement teams and the rest (categorized as either beginners or intermediates), and similarly noticeable differences in measurement.
The Best Measure More
On average, procurement teams that are most advanced measure roughly 50% more KPIs than beginners (and around 30% more than intermediates). They don’t just measure more, their performance reviews and bonuses are tied to those KPIs.
In previous blogs, SIG has covered the basic concept of sustainability, including an overview of its various dimensions. In this post, I will touch on the role that sourcing professionals can have in meeting corporate sustainability goals.
Why should sourcing have a role?
Sourcing is uniquely positioned to contribute to meeting a corporation's sustainability goals because sourcing typically has expertise in:
Creating alignment to corporate goals
Building frameworks to measure success
Researching market conditions and supplier capabilities
Conducting strategic negotiations
Designing innovative methods for value creation
Ranking the priorities of stakeholders with supplier offerings
Identifying risk and mitigating responsibly
The reduction in costs after implementing a sustainability program can exceed the costs of implementation – in other words, you’re spending money up front but in the long run, you save more than you spend. For example, if an organization were to target the spend category of corporate services and facilities management (FM), capital may be invested in working with a supplier to install a new system that reduces energy consumption at the company's North American headquarters, but in the long run, the reduction in energy costs saves the company money – which of course, can then be reinvested.
In this example, procurement and sourcing are uniquely positioned to make this happen. Most likely Sourcing negotiated the original FM contract, understands the innovative capabilities of suppliers, has heard many recent pitches on new products, and is adept at performing the analysis that proves an investment can have a significant return in hard costs, and even soft costs.
Mary Zampino, Vice President – Content, Research & Analytics
In Part 1 of this series on procurement’s key performance indicators (KPIs), we discussed how legacy KPIs need to be augmented to help procurement expand its value proposition. In this second installment of the series, we’ll focus on how to build a balanced “360-degree” procurement scorecard and highlight some truly KEY performance indicators that help foster the right behaviors and alignment across the source-to-pay (S2P) process and the broader value chain.
Everyone knows the old adage, “What you measure is what you get.” Known as the “Hawthorne Effect,” it has been shown that performance will improve when those performing the process know they’re getting measured on it. So, designing stakeholder-specific KPIs is critical to ensuring business alignment. The “SMART” (specific, measurable, achievable, relevant and timely) metrics model is an excellent framework to apply here. Still, the first step is ensuring a 360-degree measurement system that aligns procurement with:
Pierre Mitchell, Spend Matters’ Chief Research Officer
In this introduction to KPIs and related considerations, we’ll examine not only which KPIs matter, but also how to use them and expand them to support procurement’s broadening role — and also how certain KPI approaches can mislead.
Procurement leaders know that managing spend (what you pay) and supply (what you get) is much more than tactical efficiency improvements and short-lived price reduction efforts. Enabling this procurement evolution requires a balanced scorecard to measure procurement contribution and key performance indicators (KPIs) that quantify the return on investment (ROI) of current procurement processes and also new and improved processes that are increasingly powered by emerging digital capabilities.
In this introduction to KPIs and related considerations, we’ll examine not only which KPIs matter but also how to use and expand them to support procurement’s broadening role — and also how certain KPI approaches can mislead.
What’s the problem with KPIs?
When measuring procurement’s value contribution to the business, the first questions to raise are these: (i) What KPIs should I use (ii) and why?
Although year-on-year purchased cost reduction has been a key historical value proposition of procurement, companies can't "save their way to zero." As businesses are evolving and digitally transforming, procurement organizations must also transform their KPIs to not just measure legacy procurement processes (or procurement services), but to also guide the transformation efforts themselves and build better procurement scorecards that reflect how procurement can enable broader business objectives.
Pierre Mitchell, Spend Matters’ Chief Research Officer
As part of Spend Matters' recently announced partnership with SIG, we’re excited to share exactly what Spend Matters brings to the table (deep insights into procurement software) and why that matters for SIG members.
Spend Matters reaches a global audience of procurement professionals and provides coverage of procurement software and services vendors across the source-to-pay spectrum and other areas, like contingent workforce and AP automation. You can find many of the key players in the Spend Matters Almanac, a directory of 500+ vendors and consultants in procurement.
Through SolutionMap, anyone doing a procurement technology selection can explore 12 categories to get a snapshot of those markets for absolutely no cost. Players are ranked in areas like Source-to-Pay (S2P), E-Procurement, Contract Lifecycle Management, Sourcing, Supplier Management and more.
SolutionMap helps procurement organizations save time in their technology RFP processes by relying on the Spend Matters analyst team, who have already assessed capabilities at a granular level, validating them through live demos. Because technology is developed and updated so quickly these days, SolutionMap is updated quarterly.
The SIG Peer2Peer (P2P) program allows members to access benchmarking insights and best practices on topics specific to their needs. Using the Peer2Peer resource, members can leverage the experience of other industry professionals by posing questions to the greater SIG community on issues they are facing within their organization. Members use the forum to locate resources, source providers, seek advice on hot topics and share their lessons learned.
Below are the latest Peer2Peer inquiries. You or someone on your team may know the answer to one of the questions below. If you do, please take a moment to help a SIG member from the buy-side. You may need their help one day, too! To submit your own Peer2Peer inquiry, get in touch and we’ll pose your question to the SIG Community.
This buy-side member is re-writing their procurement policy and revamping their process for the requested addition/approval of a new supplier. They are seeking best practices for procurement policies, specifically covering the following topics:
What spend does/does not require a PO?
What are the consequences for procurement policy violations? For example: Committing company funds without a PO or contract.
How are violations to the procurement policy enforced?
What is the process for requesting a new supplier add? Who reviews/approves/denies this request?
The month of June is a time for reflection. As you approach the halfway point in the calendar year, it is a good time to consider what you've learned in the past six months and how you can apply those learnings going forward. Some changes will be easy, such as process improvements, but changes in partnerships or relationships will require more stakeholder support. Reflection coupled with bold action can make for transformative change at the end of the year.
SIG has a variety of resources, thought leadership and crowd-sourced best practices and benchmarking studies to help you navigate any challenge you encounter so you don't have to reinvent the wheel every time something pops up. Here's a rundown of how SIG can help you meet your goals in June.
Summer Enrollment Savings
SIG University's summer programs begin July 16. A dedicated member of our team will help up-skill you or your team, with options to enroll in a five-week Certified Supply Management Professional program or a twelve-week Certified Sourcing Professional program. Enroll in our summer programs now and you’ll be ready to implement what you’re learning as early as Q3. While you are planning ahead, consider enrolling in our new Risk curriculum and earn a Certified Third Party Risk Management Professional designation. This eight-week program launches September 24.
These comprehensive programs provide professionals with principles that can be immediately put into practice, including:
In many places, the summer months tend to be quieter than the rest of the year. Take advantage of this “down time” to stay up to speed. Check out the upcoming networking events and webinars, download the SIG Global Summit Presentation Anthology for all the trending topics from the Spring Global Executive Summit, and meet the prestigious panel of judges who will help determine 2018’s Future of Sourcing Awards.
PROFESSIONAL DEVELOPMENT OPPORTUNITIES
SIG is hosting three exciting events in May on the east and west coasts. Pencil in these professional development and networking events to get up to speed before the third quarter sets in.
Join fellow CPOs in New York City for engaging discussions led by executives from Deutsche Bank and Guggenheim Partners, and a keynote presentation on the Transformation Journey for the Mayor's Office of Contract Services in the City of New York, by Ryan A. Murray, First Deputy Director of the Mayor's Office of Contract Services.
For those who work in any area of the supply chain, diversity is a word that comes up often. Supplier diversity or diversity in contracting are programs that can be either mandatory (i.e., requirement to fulfill state or federal contracts) or voluntary (i.e., procurement/social responsibility strategy).
Whether your organization chooses diverse suppliers for advocacy and social responsibility reasons, to comply with state or federal regulations, or to simply meet your stated requirements and work scope, the benefits of supplier diversity can have lasting impacts on your community and your organization.
Starting a Supplier Diversity Program (SD Program) in your organization requires input and collaboration from various stakeholders at all levels. The SIG Resource Center has a wealth of information to help you begin the process to implement an SD Program, including how to make the business case to internal stakeholders, best practices and benchmarking studies from your peers.
Mary Zampino, Senior Director of Global Sourcing Intelligence
In recent months, Warren Buffett signaled what many saw as the death knell for the future of retail by selling off his company’s position in Wal-Mart, which Berkshire Hathaway had held for ten years. Simultaneously, ten national restaurant chains with more than 1,000 locations in total have filed for bankruptcy protection since 2015, and others are reporting disappointing sales. In contrast to all of that, however, Amazon reports growing sales this year in their home delivery service for groceries, trumpeting the growing trend that many people are beginning to embrace of ordering anything and everything online.
Welcome to the Digital Age.
We now live in a time when a hefty 74% of customers rely on their social networks to guide their buying decisions, and 92% of customers feel that online information is more trustworthy than other sources. Digital technology is becoming omnipresent, and it’s doing nothing less than rewiring human society. The critical inflection point at which technological innovation and human experience converge is called Digital Singularity.
There is profound uncertainty in all this, but more importantly, there is profound, unparalleled opportunity. Up until recently, technology was simply a physical tool, like a phone or typewriter, that was used to supplement our lives. Today, however, our relationship with technology has become much more cohesive. Technology is becoming part of how we live, work and play. In fact, it is becoming an extension of us.