Procurement KPIs Matter: Are You Just Keeping Internal “Customers” Happy?

Few things are thrown around as easily and loosely as KPIs – that is, without analyzing what the number really stands for, what the underlying data is, what a change in the number really means, and whether it actually delivers any value to end-users, the true clients. To clarify, much reasoning around satisfying “internal customers” is utter rubbish, if it doesn’t also address the needs of the real, external customer. You know, the ones who write the checks, and can vote with their feet as well as wallets.

Take this example from the education world: my middle school daughter goes to a school that tracks student performance via a balanced scorecard of sorts. Subjects are broken down into two semesters per year, semesters are divided into two halves, and grades for each quarter are further minced into subset areas that are weighted to created a total grade. I can see what her weighted average is for each class and what she scored on given tests, off a baseline 100 points. You can see her average score, though, curiously, not the average in the class. But more about that later.

It all appears to be very scientific – until you stop and think about whether these numbers correlate to actual learning, both general knowledge increases and process thinking improvements. What does a 92 really mean? Is it good, bad, or without tangible value? To illustrate, if my 6th grade daughter (who, according to the language arts teacher, has a reading ability that is close to 12th grade level) were given a college-level English literature exam and managed to score an 80, I’d be positively thrilled. Conversely, if she scores 100 on a test that is at a basic middle school level, I’m not particularly impressed.

She recently changed schools. Her previous school wasn’t as challenging as we’d like, so we switched. I’ve tried to convey to the new school that to me, as a parent, I’m mainly concerned with whether or not she keeps pace with her peers. I’ve already determined that the school delivers a good education, or I wouldn’t send her there, duh! (Ah, the beauty of being able to vote with your wallet...) I’m still trying to get this message across to the educators. They are stubbornly clinging to the notion that their number has primary relevance. All this effort spent on building a scorecard that has such little meaning to the end customer! 

Ironically, they sit on the data that I’m interested in – i.e., the class average and how my daughter’s results measure against it. The former tells me how difficult a given test was, and the latter tells me how she did in comparison to her peers. If the class average on a test is 70 and she scores 80, that’s still good and shows that the class wasn’t ready for that test.

This has relevance in the corporate supply chain too. Are you measuring supplier performance in a similarly introspective way? Do your scores merely satisfy a perceived internal need? That’ll leave you behind your competitors in a hurry; third-party benchmarking is critical. Someone with a bit of perspective likely needs to be involved, whether it is your customers, industry analysts, consultants, or third-party benchmark providers. Obviously, most private sector firms – because of competitive pressures – eventually have to look outside their own supply chain to improve.

The takeaway is to regularly challenge KPIs. What are they good for? How do they drive changes in behavior, and is this change for the better? You get what you measure and reward/penalize – it had better lead to change for the better.

Voices (3)

  1. b+t:

    KPIs are a tool for continuous improvement. Any other use is stupid and wrong.

  2. Ron Larimer:

    I recently wrote about the lack of a customer service mindset in many procurement organizations and touched on how many common KPI’s actually alienate the procurement function from the rest of the company.

    As for my children I am constantly asking them… “Compared to what?”

    * Daddy, am I tall?
    * Daddy, is a Corvette fast?
    * Daddy, is it late yet?

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