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.
“Resilience is accepting your new reality, even if it's less good than the one you had before. You can fight it, you can do nothing but scream about what you've lost, or you can accept that and try to put together something that's good.” – Elizabeth Edwards
When I was a kid, we never said the word resilience, but we did use the word tough. Being tough is just what we need right now; toughness is our ability to spring back, even when the world around us crumbles (think COVID-19). Our resiliency grows every time we flex – just like a muscle in our body. Developing a resilient procurement team likely means you are “starting over” – or creating a fresh start in some areas of your procurement ecosystem. If you’re feeling stuck or unsure where to start, you aren’t alone. Below are five ways that Procurement can help improve business resiliency:
SIG University Certified Sourcing Professional (CSP) program graduate Diane Bradley discusses how CSP modules on vendor relations and category management improved her vendor management and negotiation skills.
I would like to start my essay by saying "thank you." BNY Mellon has invested in its employees and is providing us with this training. I feel that is something that should be recognized, and I do appreciate the opportunity to expand my knowledge, which will ultimately increase my value with the bank. With that said, the SIG University training has provided me with a lot of valuable information and has also given me guidance, which I have started applying in my day-to-day activities
I feel the units focusing on vendor relations have been extremely helpful. As I continue to negotiate more and more contracts, I have reminded myself to go into the call with my goals established and I have them written down in bullet points, so they are easy to refer to while on calls. I have also made sure to have internal calls with the stakeholders prior to reaching out to the vendor. So when the call is conducted, I am confident that we are on the same page and present a consistent and concise dialogue. I feel this preparation has given me confidence, and I strongly feel that it is represented in the call. I am also very focused on the partnership that we are building with our vendors. I realize I am an essential aspect of the partnership. My dealings with the vendor will make a significant impact on the success or failure of the relationship.
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
We live in a dynamic world where billions of people make billions of choices daily. The sheer multitude of choice makes it increasingly difficult to have shared experiences – those kind of global watershed moments that push change and innovation forward at an accelerated pace. Covid-19, in its own terrifying way, stopped us all and immediately narrowed our choices. But it also gave us one unified experience and one unified goal: Fight the virus, stop the spread.
A true global watershed moment had arrived. Suddenly, the whole world understood the importance of the supply chain. Procurement had been thrust onto center stage, and the spotlight was both harsh and illuminating.
Spotlight on Procurement
There’s no way to plan for every outcome. There just isn’t. No risk plan can predict the future with 100% accuracy. There’s no judgement to be laid at anyone’s doorstep. The impact of COVID-19 wasn’t something supply chain professionals could have easily seen coming. So, as the whole world watched the demand for certain products like N-95 masks, PPEs, disinfectant and toilet paper soar, they also saw the dramatic consequences of supply chains that weren’t built for pandemic-driven demand.
The links between the supply chain and business continuity, between business continuity and employment, between employment and economies, those links were now on stark display for everyone to see. Interdependencies that were once just the language of procurement professionals had become the common language of the world.
Chris Haydon, President, SAP Procurement Solutions
What is your role and your day-to-day responsibilities?
I am head of WNS’ Procurement Services Business Unit. We support procurement organizations globally across all industries. In my organization, there are over 3,000 procurement professionals in 53 locations across the globe. We touch over $85 billion in spend globally and provide a wide range of services. Clients partner with us to operationalize their procurement function and improve financial performance and efficiency.
My responsibilities are broad, I spend most of my time running our business, engaging my team, focusing on building a stronger organization, meeting with clients and industry leaders, and solutioning. But I am always happy to roll up my sleeves and jump into any project. I am passionate about expanding procurement’s influence and helping our clients boost their performance.
Twelve years ago, I started Denali Sourcing. As a procurement professional myself, I know what our clients face daily. I’ve been asked to deliver on similar mandates and create value for the business that goes beyond cost savings. I founded and grew Denali Sourcing Services into a leading global procurement services organization and then joined WNS as part of our acquisition in 2017. In my current role, I work with a larger and more global client base. The evolution of the last decade has proven to me the significance of the value that procurement adds to the business, regardless of industry. I’ve always known that procurement was a huge value-driver, but I needed time to prove it.
Now, I am helping procurement organizations think about ways to transform operating models and enhance the procurement ecosystems across our entire client base. This includes helping companies with any of the following:
What is your role and your day-to-day responsibilities?
I have been CPO at several global companies, where I had responsibility for all procurement, sourcing, P2P automation, as well as global real estate and facilities. I’m currently the President of Collabra Consulting, providing support to clients for procurement, sourcing, cost reduction initiatives, vendor risk management, advisory projects and interim leadership.
What is something that you wish more people knew about sourcing and procurement?
It’s exciting! Sourcing and procurement are mission-critical business activities and done well, they can provide significant bottom-line impact, strategic support, and risk and governance controls to a company.
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
Business today isn’t business as usual, as the COVID-19 pandemic impacts organizations and supply chains across the globe. And in uncertain times such as these, leaders in every industry and business function must step up. New leadership skills and traits will be necessary to ensure business continuity, and to inspire teams to work together to support each other and remain productive.
We recently interviewed Dawn Tiura, President and CEO of Sourcing Industry Group (SIG). Dawn will be presenting a thought-leader keynote titled “Leadership in Uncertain Times” at Ivalua NOW, the premier virtual event for procurement leaders, on May 5. During our interview, she shared with us her thoughts about how leaders must draw on different skills and traits when unexpected circumstances arise, and how the COVID-19 pandemic is inspiring them to employ different leadership styles to unite and motivate employees.
Today, procurement leaders have a seat at the table in e-staff meetings. How has the role changed over the past few years?
It’s changed dramatically. In the past, we were seen as overhead, not as a strategic partner. Procurement teams were just buyers who delivered what other departments told them to buy. Organizations viewed procurement as the bottleneck between what they wanted and when they received it. In reality, procurement sees all the waste and redundancy that exists in the supply chain, and has a significant impact on a business’s bottom line.
Aurelie Teyssier, Sr. Director of Marketing, Americas
SIG University Certified Intelligent Automation Professional (CIAP) Program graduate Daryl Hammett discusses the three key questions organizations should ask when framing technology decisions in procurement functions to best suit their business needs.
While legacy resource planning systems are key to all global supply chains, they are also cumbersome, expensive and not designed to support the type of relational data businesses deal with to drive decisions.
Procurement organizations are thinking more often about innovating old processing systems. What areas have inherent risks in innovating? To what degree do we change? How do we manage it? Who do we get involved? A lot of attention is focused on getting the results from innovation and change, especially those associated with people. Most companies have implemented procedures to manage and grow innovation, but I believe one of the most under-analyzed risks in innovation, and one that could be the biggest threat going unaddressed today, is the risk of group think in implementing change in procurement teams.