So how do you get from tactical procurement metrics to more powerful spend/supply measures that help build new capabilities and favorably impact critical business outcomes?
We have mentioned some of the more expansive sets of metrics that organizations use to measure several areas:
● Spend/cost management and savings
● Supplier/supply performance
● S2P process metrics for process performance
● Underlying capabilities in talent management, digital, etc.
● Stakeholder-specific metrics related to the above
In this third installment, we’ll dive a little deeper into some example metrics, but the first order of business is to provide a framework giving the backdrop on the KPIs and use it to hone in on metric types before listing individual KPIs.
The enterprise value framework below shows where spend/investment is made to business units (and supporting functions like procurement, finance, IT, HR, etc.) that delivers business performance/returns — and enterprise value (e.g., as measured by EVA, ROIC or equivalent). Organizations that use such enterprise value metrics also tend to have more robust strategic planning and FP&A (financial planning and analysis) processes that in turn help procurement organizations align to.
Pierre Mitchell, Chief Research Officer, Spend Matters
The concept of sustainable sourcing, also known as green purchasing or social sourcing, is nothing new. Sustainable sourcing is impacting nearly every area of corporate business and the consumer’s mindset. Everything from sourcing materials, talent attraction and consumer purchasing habits are changing because of the growth of sustainable sourcing. However, the term gets thrown around in the procurement industry quite a lot and is often misunderstood or misused. So, here’s a guide with all the basics you need to know about sustainable sourcing.
WHAT IS SUSTAINABLE SOURCING
First and foremost, we have to define the term. Sustainable sourcing is the integration of social, ethical and environmental performance factors into the process of selecting suppliers. It includes purchasing sustainably preferable products and services (products made from recycled or remanufactured materials), as well as green purchasing guidelines that might pertain to certain products or commodities.
What’s keeping you up at night? CPOs today are under continued pressure to reduce costs and find new sources of value – and of course, manage risk.
At the same time, CPOs want to become more strategic advisors to the business. We’ve found the perfect opportunity to help you achieve those goals and more.
As a CPO, you probably manage millions of dollars’ worth of spend on services. Think of all the money your company spends on consultancies, IT services providers, marketing agencies, law firms, accounting firms, facilities management companies and more. These services providers operate across the enterprise, perform vital work and deliver enormous value.
You manage the contracts and rates for these services, but beyond that, how much attention do you pay to that spend? Do you know whether these services providers are delivering high-quality work? Do they hit deadlines? Is your business getting good value for money?
Most of us are guilty of under-managing services providers. That’s one of the key findings from a groundbreaking new research study published by SAP Fieldglass in collaboration with Oxford Economics, titled Services Procurement Insights 2019: The Big Reveal.
America’s love affair with e-cigarettes evaporated quickly as millions of users were recently confronted with unnerving news—their vapes could actually contain toxic chemicals powerful enough to be deadly.
The CDC issued words of caution on September 27, “Anyone who uses an e-cigarette or vaping product should not buy these products off the street.” The sentiment is clear—consumers need to avoid e-cigs from potentially shadowy manufacturers and distributors fed by an unregulated supply chain.
Duty to the Consumer
E-cig manufacturers have a responsibility to pinpoint precisely what in their products is harmful, just as distributers must be confident they are only carrying reputable items that are sourced through a responsible supply chain. Many vaping products have been found to contain illegal synthetic marijuana, even when consumers believed they were buying THC-free products such as CBD pods.
In an industry as young and unregulated as e-cigs, it’s not surprising an unknown health consequence was lurking on the horizon. Consumers had no idea what ingredients or manufacturers to be wary of because no one yet knew there was a concrete hazard.
Liz Mantovani, CSP, CSMP, C3PRMP, Director of Operations, SIG
When Barry Kull was going through the recruitment process at Novo Nordisk, his son was diagnosed with diabetes. Walking into his meeting, Kull was apprehensive about mentioning his son’s diagnosis, but when the conversation went such, Kull brought up it up. He was glad he did. “When I mentioned my son’s diagnosis, the CFO’s body language and energy absolutely changed. He leaned into the conversation and was genuinely curious about my son. He told me how Novo Nordisk addresses challenges that adolescent type 1’s encounter.” Kull realized that the executives at Novo Nordisk care. He is now proud to represent a company that, throughout the organization, empathizes with its customers.
Finding Suppliers That Care
Kull doesn’t expect suppliers to care as much as Novo Nordisk, but he expects them to understand why they care so much. He expects the suppliers to lead, to anticipate and to push their thinking. Kull believes that all procurement professionals should have supply partners that are good people with strong ethics.
The Cooperative Ecosystem
A cooperative ecosystem is a combination of different partners and suppliers that bring their own set of values to the table. The partners and suppliers work together to solve a specific problem or to create an opportunity.
In the context of launching a new pharmaceutical brand, the following is Kull’s (paraphrased) list of potential partners and suppliers that might be part of a brand-viable ecosystem:
SIG University student Moath Alswaidan enrolled in the Certified Sourcing Professional (CSP) program and works at Mitsubishi Heavy Industries – MHPS Saudi Arabia. He shares what he’s learned in the program and how his team plans to implement best practices in supplier performance management.
Supplier performance management is one of the most important areas in sourcing and supply chain management and I feel fortunate to have worked on both the sell side and buy side of the table. Most of the sourcing process requires much effort from both sides until the work is awarded to the supplier. Supplier selling teams spend time and effort to prepare to negotiate a proposal that best fits the buyer. At the same time, the buyer team needs to put the same effort in searching and selecting the best proposal for their organization. It is a waste if the agreement doesn't last due to the lack of supplier performance management.
The supplier performance management process begins by selecting the team from both the buyer and supplier organization. The mission is to translate the contract into the operation language and identify the measurement and monitoring criteria. This task is called transition. The team should have enough knowledge of the business and the scope of work defined in the contract. The transition process requires a joint effort from the transition team and may also require the support of other teams in the organization. The transition process is considered a change from an existing state to the desired state. Therefore, it is recommended to adapt to Lewin's Change Management Model: Unfreeze, Change and Refreeze.
Moath Alswaidan, Supply Chain Manager, Mitsubishi Heavy Industries – MHPS Saudi Arabia
Many companies are on missions to improve their procurement processes. One technique that caught my eye is an approach used by the U.S. government, which started in 2011 when the Office of Federal Procurement (OFPP) , a unit of the Office of Management and Budget began disseminating a series of “myth-busting” memos.
The concept is interesting because it is aimed at helping procurement people (many of whom have been in their jobs for their entire career) realize that policies and practices are much different than what they have learned over the years. The first memo explains that “with expenditures of over $500 billion annually on contracts and orders for goods and services, the federal government has an obligation to conduct our procurements in the most effective, responsible, and efficient manner possible.”
So what are some of the common myths? One is a major misconception that the government can’t meet one-on-one with potential suppliers as they seek the best way to develop a strategy or prepare for a competitive bid. Sadly, many in government procurement believe this is not allowed, because talking to one supplier can unfairly disadvantage other suppliers that are not also called into meetings.
The myth-busting memo sets it straight, pointing to the Federal Acquisition Regulation (FAR), in Part 15, which actually encourages exchanges of information with interested parties during the solicitation process; this then ends with the receipt of proposals. “There is no requirement that the meetings include all possible offerors, nor is there a prohibition on one-on-one meetings,” the memo says.
Kate Vitasek, Educator and Expert, University of Tennessee
In 2019, global supply chains are focused on technology and innovation. Today’s global supply chains are often complex, with many moving parts. However, procurement professionals are facing increasing pressure to manage them with efficiency and transparency. Creating a successful supply chain requires building a sustainable foundation. Though technology mobilizes supply chains to compete faster and better in today’s global economy, having a strategy to optimize your talent is just as important. Technology that gives business users more autonomy and security are reflected in a positive impact on your organization’s bottom line.
Based on my experience, many businesses have separate initiatives that fragment their supply chains and could benefit from pooling resources and aligning different stakeholders to the same common goals with the use of technology. For example, many businesses have separate supplier diversity processes. They have supplier diversity experts who don’t collaborate with their larger procurement teams. Sourcing and procurement professionals are often incentivized differently and often don’t communicate nor see eye to eye on the same overall strategy. With collaboration, your organization can streamline its supply chain and build a stronger foundation for process-driven results.
In today’s market, you can no longer ignore the rapidly changing landscape of digital transformation. Companies that are reluctant to embrace the technologies that bring better visibility and security to supply chains risk being left behind. To avoid that fate, here’s what companies can do in 2019 to improve supplier diversity and overall supplier relationship management process.
Daryl Hammett, CSMP, CSP, General Manager/Chief Operating Officer at ConnXus
Situated in the southernmost part of the Brazilian state of Minas Gerais, nestled among green rolling hills, coffee plantations and dairy farms is the small town of Santa Rita do Sapucaí. A cursory glance shows Santa Rita as a charming town full of farms and churches but in reality, this picturesque little city has so much more to offer. In recent years, it has become known as “Vale da Eletrônica” or Electronics Valley because it is home to the highly respected technical school, Escola Técnica de Eletrônica Francisco Moreira da Costa and is also known as a hub for technological applications, from carpool and table service apps to toothbrushes with sensors that connect to children’s games. And Santa Rita isn’t the only city in Brazil ramping up their efforts.
Plagued by years of upheaval economically, Brazil is making a comeback and relying on the IT sector to help make their triumphant return. A $200 million joint investment with chipmaker Qualcomm, was welcomed in March by the federal government to build a semiconductor factory in the state of São Paulo where other major tech companies such as Samsung and Lenovo already have operations. Their hope for the investment is that this will be the first step for Brazil in becoming a noteworthy player in the manufacturing of high density semiconductors that are used in 4G and in the future, 5G devices, as well as IoT applications. The investment from Qualcomm is expected to bring in about 1,200 new jobs which only makes a tiny dent in solving Brazil’s unemployment rates—at 11% there is still a long way to go, but it’s a step in the right direction.
The global regulatory environment is heating up – and not just because it's summer. As government enforcement actions capture headlines, corporate leaders are rightfully concerned about whether their due-diligence strategy can hold up to the increased scrutiny. Richard Girgenti, KPMG LLP's National and Americas leader for Forensic Advisory Services, wrote in an article in Metropolitan Corporate Counsel recently, that the rapid and ongoing nature of regulatory changes, the array of agencies involved in bringing enforcement actions and the aggressiveness with which they are enforcing such actions are resulting in "record fines and penalties, class action lawsuits, lost earnings and reputation damage." Girgenti would know, having more than three decades of experience – not just in advising organizations but in conducting investigations and overseeing policies on the enforcement agency side of the coin. So, what does he see as some of the top of mind issues for corporate leaders who want to stay out of hot water with regulators?
Three Enforcement Areas that Demand Enhanced Due Diligence
Mark Dunn, Segment Leader, Entity Due Diligence and Monitoring, LexisNexis