“It’s not just about cost savings--which was the traditional mindset of the Procurement function. It's about continually improving and re-evaluating how we’re buying to make sure we’re getting the best business outcomes.” - Neil Aronson, Head of Global Strategic Sourcing for Uber
Across all industries, margin and growth pressures are heating up. By 2021, 55 percent of technology procurement staff will require additional digital and analytical skills to enable their desired business outcomes (Gartner 2017). To succeed in this environment, CPOs must focus on closely aligning their team’s strategy and objectives with broader company goals. That requires changing the way their procurement and sourcing teams operate.
Changes of this nature call for a clear blueprint for transformation. And it starts with taking a closer look into current Procurement processes--and determining how success is being measured. A key insight: when organizations evolve alongside new technologies and market trends, so must the metrics needed to track performance.
Evolving Beyond Cost Savings to Accelerate Change
Historically, Procurement and Sourcing teams have been accountable for cost savings as the ultimate measure of success.
But as teams look to transform, they need to reshape their success metrics to chart a path forward. While anecdotal and periodic measurements are helpful, they are forgotten without a consistent stream of key performance indicators (KPIs) to indicate the overall direction of progress.
In fact, without clear, effective KPIs to back up these plans, securing executive support for transformation becomes unlikely. When executives understand how metrics and ongoing improvements directly align with the business, they’ll confidently support an initiative that delivers real value to the company.
Seeing the Procurement Process from a New Angle
Reshaping KPIs is the first step toward rebuilding better processes. New research shows that many organizations are making this change by viewing their process through a new lens--a pipeline of sourcing opportunities (“Funnel Vision: Procurement’s Unlikely Blueprint for Transformation.” Scout RFP, accessed Nov. 29, 2018). And it’s a near-perfect parallel to the familiar and trusted sales pipeline process. By emulating this blueprint, sourcing can develop a system for eliminating waste and gaining efficiencies. These efficiencies benefit not only the Procurement team but also their stakeholders and end customers.
Step 1: Identify Operational KPIs to Actively Monitor Progress
There are some important questions you should be asking (and answering) to actively monitor progress:
- Where are there existing bottlenecks in key processes?
- How do you identify what’s working well?
- Which investments should you prioritize, and what improvement could they deliver?
To get beyond measuring cost savings, teams who have effectively managed this transformation focused first on tracking one powerful thing: where a project or assignment is in the pipeline. This transparency fosters both collaboration and tighter adherence to timelines. Can a schedule be pulled in a week? Why are projects slipping? What is the likelihood of realistically meeting a delivery date?
The good news: answers to these questions can easily be assessed by employing new sourcing tools tuned to provide these insights. But there are pitfalls to avoid. Choosing a system that doesn’t prioritize high-adoption and accelerated time-to-value risks exposure to inaccurate data and therefore the metrics fail to tell a complete story. Get ahead of this by choosing a tool that can be customized to your journey.
7 New KPIs to Optimize Your Procurement Pipeline
To help kickstart your transformation, the following operational KPIs can be used as a blueprint to design your own optimized pipeline. With these as your target, you’ll quickly establish a clear baseline and direction for your team’s new focus.
Step 2: Look Ahead to the Next Set of (More Strategic) Metrics
Keeping the big picture in mind, mastering these operational KPIs will put you on the path to achieving a true transformation that proves collaborative business impact. Once you have that covered, the sky’s the limit for addressing strategic return on investment and becoming an indispensable advisor to the business. And this is only the beginning.
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Stan Garber is the president and co-founder of Scout RFP. He got his start in entrepreneurship early, founding ONOSYS while he was still a student. His experiences at ONOSYS, which was acquired by LivingSocial in 2012, made him acutely aware of the need to make enterprise commerce faster, safer and more transparent, which led him to co-found Scout in 2014.
Stan holds a degree in Finance and Management from the Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio. Outside of Scout, you can find Stan cooking, running and traveling, plus being thankful he didn’t become an investment banker.