Spend Matters welcomes another guest post from Ian Dagg and Simon Hurst of Xoomworks.
There are several key parts to getting BI working well for you – working out what to measure, getting the right data together, presenting the information coherently, and finally, using the results to change behaviour.
There is no doubt that procurement needs BI to respond intelligently, as it is driven to deliver greater savings, improve efficiency, manage risk, and increasingly, play a more strategic role in the business’s direction. But is it being used as effectively as it could be?
For the purpose of this article, we’ll assume data is complete, accurate, and optimised for procurement (a big assumption, but there’s a whole other article on this). We’ll also assume that you have the people to build user-friendly, good dashboards that can be easily understood and used (if you use BI on a tablet, then you know that Apple has already taken care of some of the hard work here anyway).
Our focus here is on the two areas of BI that get less attention than they deserve: what to measure and what to do with it.
What to measure?
Most companies have a defining vision, which should act as a guide for everything they do (including procurement). What springs to mind when you think of Volvo? Safety. Our mantra at Xoomworks is “engaging people” – it’s our mission to truly engage with our colleagues and clients – after all, procurement is about people, not about systems.
So, your organisation’s vision statement should be the guiding principle for your BI requirements, which will help align procurement with the rest of the business. If it isn’t, then you’re not measuring the most important aspects of your business.
For example, the safety first approach may translate to a tight control of risks in the supply chain with thorough business continuity planning. A company with innovation at the heart of its culture may be driven in other ways – working collaboratively with suppliers in the design of products or services could be more important.
It is then vital that you balance your BI requirements across procurement. This can be done by segmenting what you want to measure into four categories – all aligned to your overall vision for procurement:
Operational Management – BI, integrated with analysis such as Six Sigma, can eliminate waste, such as duplication of effort, excessive time consumption, and so forth. The end result is the opportunity for the business to perform the same functions, with fewer individuals involved. These can be turned into hard repeatable savings, monitored for their impact through a well-implemented BI system.
Stakeholder Satisfaction – The satisfaction of procurement’s stakeholders, both internally and externally, continues to be a key goal for top performing procurement functions. Top performers are achieving 45% of their savings through supplier relationship management and closer integration with the business.
Including all key stakeholders (especially suppliers) within a procurement satisfaction analysis will not only drive you towards best in class standards, it will also help identify savings opportunities and improve the internal and external image of the business.
Spend Analysis – Your ability to determine savings opportunities, let alone realise them, is significantly reduced without solid spend analysis. One of the key concerns of most top CPOs in 2013, determined by Procurement Leaders, is the continual delivery of hard savings to their organisations and the oft-complicated task of tracking them. As such savings can and should directly impact an organisation’s bottom line, you need rapid access to this information within your BI.
Project Management – Although the temporary nature of projects differentiate them from standard Business As Usual BI, their continued and structured monitoring should still feature as part of a CPO’s BI strategy and dashboards.
A project’s progression towards milestones and consumption of budgets should be tracked at a high level, to ensure targets will be met and projects finished. Whilst more detailed reporting will come from the respective project teams, CPOs should understand how their progression fits within the context of the other BAU activities and, ultimately, whether they are on track to deliver benefit.
What to do with it?
In our experience, this is where most companies fall short as we’re straying beyond the boundaries of systems and processes – the mechanics – and delving into the behaviours instilled in organisations. Changing behaviours is a far greater challenge than implementing new technology but delivers significantly greater benefits, if done well.
We have worked with a number of clients using BI to make positive changes and found that the key theme is engagement. If your stakeholders in the business are not engaged with your vision, then nothing will change. It sounds fairly obvious, but it is interesting how many companies don’t publish the results of their BI.
So, the key question is how do you effectively engage people? The most effective projects we’ve implemented have used a number of different methods to get the right people involved:
Benchmarking against industry peers can be an effective way to get senior management bought into your targets. Being able to call your function “World Class” and have that recognised by a credible third party is very powerful. It helps to build the brand of procurement internally, as well as your organisation as a whole externally.
It also helps you prioritise – which is hugely important as the resources at your fingertips are squeezed more and more. Understanding what “good” looks like means you don’t waste time and money on unachievable goals that ultimately don’t pay back. But remember to keep this in the context of your business and what it is trying to achieve overall.
We worked with a UK company recently that took this approach, and the results speak for themselves. The CFO was engaged from day one and the mission to become best in class was communicated throughout the organisation with regular updates on progress of the key KPIs. When benchmarked in year two – they had achieved their goal.
The next tool at your disposal is creating competition across the business. Publishing your KPIs broken down by business area or region in a leader board style can create an element of competition, pushing people to engage and think about why they are at the bottom of the table.
To do this successfully requires a sensitive approach. You need to put the BI in context of what it means for the business, and ultimately persuade people that improvements in performance will have a positive effect on both the individual and the organisation.
Working with the business to assign owners for each KPI or groups of KPIs really adds value. KPI owners can set targets and forecast how they expect to reach those targets. They also help to drive the agenda from within the business and ultimately take the actions that lead to positive change as outlined below.
The business owners mentioned above are critical in helping the business take the necessary steps to put your BI into action. Setting up user groups and forums further engages people and also helps you understand why a process might not be working.
This was recently exemplified by a company working to make its P2P processes more efficient. By using their BI to drill into the business areas constantly causing invoice exceptions, we were then able to use our user group in that area to determine what the problem was, which lead to a new process being used to cover their specific needs and reduce invoice exceptions.
Ultimately, BI will show you where you are underperforming but your BI process and strategy needs to include the steps of determining the root cause and an appropriate remedy. This is how you achieve a return on your investment in BI.
Procurement functions need to deliver greater savings with a limited budget, and to do this, they need to be innovative. Having a good handle on what you’re doing well and what you could improve on is a good place to start, and good BI will help you do this.
Our approach is simple: align your BI with an overall strategy for procurement – or even better – the business as a whole. Once you have this information at your fingertips, make sure you use it effectively by engaging the people who can make a difference.