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Procurement Metrics

Purchase Price Variance (PPV) in Procurement and Savings Strategy: Limitations and One Potential Use [PRO]

- July 9, 2014 3:24 PM

There are many reasons why purchase price variance (PPV) is not the best metric to track procurement performance. In last week’s Spend Matters PRO research brief, Why Purchase Price Variance (PPV) Should Be Banished From Procurement Measurements and KPIs, Jason Busch (Managing Director) and Pierre Mitchell (Chief Research Officer) gave 10 reasons why PPV can be misleading and how smart procurement organizations in the market have long since moved past it. These reasons include the fact that declining and rising cost variables outside of a buyer’s control can have a significant effect on individual part costs not reflected in the actual performance of a procurement manager and the fact that PPV fails to measure true lifecycle costs. In today’s Spend Matters PRO research brief, Jason and Pierre start by providing a summary of the first analysis and then explore a scenario where PPV may actually be a useful means of measurement, courtesy of Tungsten’s new network analytics capability.

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Why Purchase Price Variance (PPV) Should Be Banished From Procurement Measurements and KPIs [PRO]

- July 3, 2014 2:26 AM

One of the biggest challenges to overall program impact and improvement in all but the most advanced procurement organizations are the raw elements that many procurement organizations measure themselves against: key performance indicators or KPIs. One of these, purchase price variance or PPV as it is often known, is particularly obnoxious in all but certain cases. PPV measures the difference in price paid for across a range of purchases for a similar SKU, part, or service.

There are many reasons why PPV can be such a misleading figure.

In this first of a two-part Spend Matters PRO research series, Managing Director Jason Busch and Chief Research Officer Pierre Mitchell explain why precisely PPV is a KPI that procurement organizations should stop measuring internal and individual performance against. Part 2 will present the one case in which it might be helpful to police suppliers more accurately (courtesy of a new, real-time network approach to gathering spending data from Tungsten based on actual line-level invoice information that we believe will eventually become standard across many supplier networks).

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What Really Drives Valuation For Technology Companies These Days? [PRO]

- June 11, 2014 2:21 AM

We’ve always found the subject of valuation for technology companies a curious topic, one that we could probably bore too many people with during cocktail hour conversations. Last fall, we wrote about the topic of valuation in the Spend Matters PRO brief Procurement Vendor Valuation, M&A, and IPOs: Recent Deals and 2014 Forecast, touching on many of the elements in valuation play right now. But this analysis says little for the fact that we appear to have a market at the current time that is bifurcated between certain vendors (e.g., Fieldglass) worth 8-12X topline revenue (or higher in the case of certain private investment rounds) and those like Intesource and Iasta which are going for less than two times their topline. In today’s Spend Matters PRO research brief, Group Managing Director Jason Busch and Spend Matters Group Managing Richard Lee offer up a perspective on what elements appear to be driving valuation and multiples in this market beyond the basics of SaaS and related valuation drivers in the procurement, supply chain, and finance areas.

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Analyzing the 2014 Forrester eProcurement Wave – SAP, Ariba, Coupa, Oracle, and More [PRO]

- May 28, 2014 3:13 PM

The 2014 Forrester eProcurement Wave is out (Coupa and Basware have both made free versions of the report available on their sites). In short, Garrison Keillor would be happy with the results. I can almost hear the radio program now: "Welcome to this installment of the Forrester eProcurement Wave … where all the women are strong, all the men are good looking, and all the vendors [at least those who made the cut] are above average.” All vendors listed rank as "Leaders" or "Strong Performers" – no provider falls under the "Contenders” or “Risky Bets” areas of the comparative graphical chart. However, the report is as important for those providers that are not included, as those that are (and their relative comparative rankings). Generally speaking, the Wave appears to be a thoughtful piece of research – albeit one we don’t agree with in every area. But most important, the ratings transparency – readers can see the ratings that led to the conclusions – makes it more useful than Gartner Magic Quadrants, which are more opaque. Spend Matters PRO readers can read our commentary on the report, strategies for eProcurement technology selections, links to more tailored vendor lists / selection strategies and providers for shortlist consideration that Forrester did not include.

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Diving Into the Hackett Performance Exchange: Automated P2P Benchmarking for SAP and Oracle ERP Users [Plus +]

- May 22, 2014 4:08 PM

One of the key techniques to process improvement is performance benchmarking. For those firms that use Oracle and SAP ERP applications, particular those running single instance environments, The Hackett Group offers a hosted performance dashboard for P2P (and other processes – but P2P is the only procurement-specific one) called The Hackett Performance Exchange. It is a subscription-based solution that marries Hackett’s procurement and finance benchmarks for P2P with data extracted from a client’s SAP (ECC) or Oracle (E-Business Suite) ERP system to provide the firm with a monthly view of their performance relative not just to themselves (i.e. trending), but also to top quartile performers (and peers) from Hackett’s ongoing benchmarking database. Read on for Chief Research Officer Pierre Mitchell's analysis of the service.

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Tungsten/OB10 Releases Networked, Invoice-Based Spend Analytics: Impressions and Implications [PRO]

- May 13, 2014 3:05 PM

Earlier in the month, Spend Matters had the chance to catch up with the team behind Tungsten Network’s new spend analytics offering (note, OB10 is now Tungsten Network). The solution is quite different from just about any other approach to spend analysis in the market today. It’s not perfect and it’s not a full replacement for other spend analysis tools – yet. But it very well could be the future of how procurement and finance organizations together look at spend and supplier analytics on a near real-time basis using network data exhaust rather than taking an ETL- or batch-based approach to manually extracting data from systems (in the case of Tungsten, network data is updated hourly). Moreover, the model could prove initially to be a complement to other solution approaches while ultimately upsetting the entire analytics apple cart based on a different philosophy and approach to actively capturing highly granular line-level invoice information. Jason Busch, Managing Director of Spend Matters, covers Tungsten analytics for PRO subscribers and provides a list of recommendations to potential customers.

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Benchmarking the Procurement Benchmarkers – An Insider’s Guide (Part 3) [PRO]

- April 2, 2014 4:45 PM

In part three of Pierre's four-part series on benchmarking procurement benchmarks, he examines two larger consulting organizations, A.T. Kearney and Accenture. Beyond A.T. Kearney's ROMSA benchmark is the company's AEP study (Assessment of Excellence in Procurement). AEP is primarily an assessment around procurement capabilities, with some level of measurement surrounding performance. Additionally, Pierre explains the mixed bag that is Accenture in regards to benchmarking and how their recent acquisition of Procurian affects their benchmarking capabilities.

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Benchmarking the Procurement Benchmarkers – An Insider’s Guide (Part 2) [PRO]

- March 19, 2014 5:29 PM

In Part 1 of this series, we began our coverage of the procurement benchmarking market (starting with non-profit providers such as CAPS Research and APQC) and also dove into some of the organizational questions and issues to consider before embarking down the benchmarking path. In this second installment, we will review some of the major commercial service providers in the market and their respective offerings. Read on for our analysis (including strengths, weaknesses and differentiators) of The Hackett Group (Hackett) and Corporate Executive Board (CEB). Hackett and CEB are big annual checks to write. But are they worth the annual investment? And what can you expect to get out of the relationship? Let us peer behind the ivory wall, as we help you decide which are the best fit for your organization as we continue our analysis that "benchmarks the benchmarkers".

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Benchmarking the Procurement Benchmarkers – An Insider’s Guide (Part 1) [PRO]

- March 18, 2014 3:30 PM

Here at Spend Matters, we’ve been on a bit of a Procurement Performance Measurement kick lately. We started with a three-part series on A.T. Kearney’s ROSMA metric, and then we did a three-part series on improving procurement scorecards, which was then followed up by a deep dive on Implementation Considerations in Quantifying and Tracking Hard Cost Savings. One of the things that we mentioned a few times was the importance of linking external benchmarks into a procurement scorecard – and that we would follow up with a piece on procurement benchmarking firms. And so here we are. Before jumping into procurement benchmarking solutions in the market, it is critical to highlight the perhaps obvious statement to that you should know why you are benchmarking before you start looking for providers.

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Metadata Explained: What it Means for Spend Analytics, Supply Risk, Supplier Performance, and More [PRO]

- March 18, 2014 2:23 AM

What exactly is metadata, you ask? It’s all over the media these days. Although not quite metaphysical, metadata is essentially data about data. In procurement and supply chain, especially in areas of risk management – which obviously can take just about any shape or form depending on just what risk means to your business – the opportunity for solution providers to develop additional value from metadata analysis is enticing. This is practically a freebie value-add that allows solution providers to remain far stickier with their clients. Sure, it requires a bit of initial programming and possibly some hardware to really massage the data, but after that there’s really no variable cost associated with this. The benefits can be tremendous – done right, this will be the most power risk analysis and opportunity assessment approach supply chain has ever seen. Read on for discussion of the benefits, use cases, as well as takeaways for suppliers and for practitioners.

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A 21-Point Punch List to Diagnose Your Procurement Scorecard [Plus +]

- March 13, 2014 2:15 AM

For our PRO members, we developed a full diagnostic questionnaire regarding procurement scorecards, but it’s a valuable topic, so we wanted to at least offer an abridged punch list for our Plus members to consider. After all, “what gets measured gets done.” This is certainly true in procurement. If you want to do the right things for yourself and your stakeholders, you need to measure the right things and do it efficiently. You also need to ensure that you are measuring what your stakeholders want and what you are in fact delivering. It’s a foundational competency.

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A 21-Question Health Check to Score Your Procurement Scorecard (Part 3) [PRO]

- March 12, 2014 3:39 PM

As the old business adage goes, “what gets measured gets done.” This is certainly true in procurement. If you want to do the right things for yourself and your stakeholders, you need to measure the right things and do it efficiently. You also need to ensure that you are measuring what your stakeholders want and what you are in fact delivering. It’s a foundational competency. In fact, in the most recent Hackett Group procurement key issues study, “value contribution visibility” ranked third in terms of procurement key capabilities that were viewed to be major or critical. This is the last post in a three-part series providing a 21-question “health check” for your procurement scorecard, this time covering questions 16-21. We will also be publishing an abridged version of this series for our Plus subscribers.

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