Procurement Metrics — You Are What You Can Measure

Knowledge@W.P. Carey recently ran a useful little number that describes how procurement organizations need to focus more on metrics to get the most from their efforts. But "to be successful in setting up purchasing metrics, firms must look beyond simply figuring out what to measure, and focus instead on an entire measurement program: establishing the processes, ensuring compliance, and determining how to act upon the results. Taking this end-to-end approach helps companies ensure that measuring becomes ingrained in the purchasing department's procedures, and not just a one-time exercise." In other words, metrics should define how the organization functions rather than just serving as a periodic check up. Put yet another way, it's not like the fat man who goes to the doctor once a year and is told he has high cholesterol and blood pressure and should do something about it -- it's the obese guy or gal who changes his/her lifestyle, drops the pounds and exercises daily, using a check-up only as a way to gauge an overall path to progress. The article recommends starting with a scorecard to measure overall performance that goes beyond just cost savings.

Merck, as an example, "maintains a scorecard that tracks the areas of finance, customer service, internal business drivers, and company culture. Within those areas, its measurements include such wide-ranging examples as: budget; percentage of spend with diverse suppliers; supplier performance; and talent management." The article also suggests for organizations without Merck's scale and expertise, to start small and work up. Which isn't bad advice after all -- because if you can't measure, as the saying goes, you can't manage. Just don't get caught up in the type of metric-driven analysis paralysis which doomed six-sigma cultures like Motorola to global mediocrity.

Jason Busch

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