In previous installments of our 50 Shades of Pay series, we dove into spend analytics related to identifying potential savings from strategic sourcing, such as reduced pricing via competitive bidding to aggregate spending to preferred suppliers. Most large firms have some type of capability here, namely because of its criticality to strategic sourcing, a methodology that has been around for decades. In this installment, we will focus on how firms can expand their spend analytics to identify and fix non-compliance scenarios that cost real money and introduce real business risk. In this first of a 6-part mini series on spend compliance, we’ll introduce a framework you can use to guide your compliance efforts to get some hard ROI rather than just reduced risk. Let’s get started.
Spend Matters Premium Content:
In this Flashback Friday, we look back to another one of our most popular Ask the Expert webinars, Upgrade Your Procurement Scorecard – and Upgrade Your Procurement Performance. Originally recorded back in March 2014 and led by Chief Research Officer Pierre Mitchell, this webinar takes listeners through a variety of steps and questions a procurement organization will need to address to create an effective scorecard for tracking performance.
As our Spend Matters PRO analysis of procurement key performance indicators (KPIs) continues, we will turn our attention to additional metrics by which you can measure procurement performance including supply base development and spend under management. We will also examine how to discover if organizational procurement KPIs are off balance, favoring one area over another or the strategic over the tactical, or if they’re just right. While intended for everyone in procurement from buyers to chief procurement officers, this series is particularly suited for individuals and organizations looking to put in place the right measurement foundation to change how procurement is viewed by the business from a function that only reduces input prices and “keeps the production line running,” to one that brings new areas of value, from supply chain risk reduction to creativity and innovation.
This research brief is intended as an aspirational piece for more transactional-focused procurement team members who are aiming to add value to procurement and the business beyond mere efficiency improvements and price reduction efforts. It is our hope that this series will leave you with a laundry list of prioritized ideas and open your mind to the qualitative side of the business – and the ways in which you can begin to measure procurement contribution and key performance indicators (KPIs) to quantify the return of the various activities you’re up to. n the first installment of our introduction to KPIs and related considerations, we will examine why KPIs matter and how to use them and discuss basic procurement metrics, the role of innovation in setting measurement variables and how certain KPI approaches can mislead.
Adopting a Perfect Order Metric: Considerations, Tips and Benefits For Your Procurement Organization [Plus +]
Over on our sister site, Chief Procurement Officer, I have been discussing the perfect order measurement and how to adopt the metric for your procurement organization. While the perfect order metric may sound simple, the implementation can be complex. This Spend Matters Plus article will focus on how to address and overcome this complexity, as well as how to implement the perfect order effectively. I also touch on the benefits of perfect order, including how it enables better measurement of supply chain performance. If you want to measure perfect order performance, you have to ask yourself a lot of questions. Here are 5 key questions to ask and adapt to your organization regarding the perfect order metric.
Data ‘Enrichment’ is the Future of Spend Analysis: A Flashback to Our Most Popular Ask the Expert Webinar [Plus +]
It’s another Flashback Friday where we feature one of our most popular Ask the Expert webinars. Today's pick: Spend Analysis and Analytics: Theory and Practice, which was led by Gert van der Heijden, editor of Spend Matters Netherlands, back in March 2014. In this webinar, Gert focuses on the future of spend analysis, which he said would include advanced analytics and better data to improve risk management. Gert predicted “data enrichment” would be the next “buzzword” for procurement and spend analysis. While spend analysis is the basis for every procurement department, he said, that data needs to be “enriched” in order for the spend analytics process to be effective and valuable. Check out the full webinar recording here...
Spend visibility is foundational to any procurement transformation because to better manage supply, you have to manage spend. Spend is what you pay and supply is what you get, and to manage spend you have to see it. Yet too many procurement organizations work hard to put basic spend analytics in place but don't have a broader vision, strategy and roadmap for strategic supply analytics (i.e., the analytic capabilities to support strategic supply management). We use the term “supply analytics” instead of “procurement analytics” to reflect procurement’s increasing role in managing broader supply outcomes than just its own performance – especially in direct procurement. This Spend Matters PRO article is designed to provide you such a roadmap. It is not a step-by-step, one-size-fits-all approach because every firm will have a different experience. It is, however, a map that can guide you through plotting out your supply analytics journey.
On this Throwback Friday (#tbf, anyone?), we've thrown open the doors to our archives to bring you our second-most-viewed recording of an Ask the Expert webinar of all time. Spend Matters Chief Research Officer Pierre Mitchell takes participants through the important procurement topic of PPM in Ask the Expert: Procurement Performance Management (PPM): The Ultimate Alignment Tool - Not a Dashboard! . Procurement performance management can transform a procurement organization – but only if you know how to apply and maintain the tool or process properly. Pierre walks us through a number of steps to properly integrate PPM into your procurement organization. If you missed this webinar late last year, luckily as a Plus or PRO member, you can view the entire recording right here.
Earlier this week, we began our series analyzing the new AT Kearney 2014 ROSMA Benchmark Report, “Building the Brand of Procurement and Supply.” I first talked about the context and how the report analyzes ROSMA’s scores. Then, in a Plus post, I dove deeper into our analysis of the report, and I shared some of its highlights. Today, I’ll talk efficiency – what firms are the most efficient and why.
We've been talking for some time on the different Spend Matters sites about how social media principles and approaches will inevitably make their way into the business and procurement world, yet progress has in reality been pretty slow. The innovative Rollstream has been assimilated into GXS, now itself part of OpenText, and seems pretty low-profile these days. However, there are signs that things are changing. Sourcemap is a more recently established firm that has an interesting approach, including some aspects of supply chain collaboration with a social media slant. Mark Perera, one of the founders of Procurement Leaders, is involved in Old Street Labs, whose new Vizibl platform is in its testing phase (we'll feature it as soon as you're ready, Mark). The platform looks to use some of the core social media principles in a business environment. And now we have LeanLinking starting to make a splash. This Spend Matters Plus research brief, by Peter Smith (managing editor of Spend Matters UK/Europe), looks at what LeanLinking has to offer and which organizations would benefit from the technology.
Purchase Price Variance (PPV) in Procurement and Savings Strategy: Limitations and One Potential Use [PRO]
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.
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).