Procurement GPS

In light of the current economic climate, procurement performance measurement has become a highly topical area and in many organisations a potential bone of contention.

In the PIU’s recent webinar on performance measurement (PIU members can view this by logging in), Neil Deverill former CPO of Anglo American and Royal Philips quoted a former colleague, "what gets measured gets done". It sounds obvious but what you measure has to be relevant to what you want to improve. Procurement is arguably still an evolving function, and in many organisations ‘excellence’ may still be a pipe dream.

When it comes to measuring performance it is incredibly important to understand the process, and simultaneously know the constraints of what is being measured. The key is not to measure for measurement’s sake, but to indentify gaps, and following that, to be able to implement progress and change.

Measurement should be a part of an improvement process, if you are being measured purely to sweat assets, if investment and development are not occurring, if you’re simply being beaten to produce more, change jobs. If an organisation doesn’t believe in improving, don’t get beaten for the sake of measuring.

Start simple, only measure the aspects that procurement can influence and where it can affect change. Agree to be measured on KPIs that you have the ability to affect, otherwise you may be setting yourself up for failure, and allowing your success to be related to other areas of the organisation upon which you may have little real influence.

Procurement in many aspects needs to be aligned to the wider business, and this should also be reflected in what is measured. Work with Finance and keep your metrics simple, avoid the forensic definitions, as this leads to endless conversations with little progress and in reality, little impact. As the function matures, you can alter the measures accordingly. Use price savings as a measure, and do it well. Develop your credibility and establish yourself as doing something simple, successfully. Through price management of performance you can lay strong foundations, and as change occurs and the maturity level increases, you can introduce new reflective measures.

The difficulty comes once you mature as a function and move beyond price negotiation because then, softer issues will come into the fray. Aspects such a relationship management and trouble shooting become key components. These aspects are not as easily measured and are far more subjective in terms of success and failure. The problem that couples itself with subjectivity is cynicism and you may have to defend the way you measure and what you measure. Therefore, ask those who challenge you, how they would do it and their justifications for it. But first and foremost, be excellent from the basics up and your credibility will already have been established.

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