A Procurement Health Check

Spend Matters welcomes a guest post from Geoff Peters, Principal at Archstone Consulting.

Have you ever had the opportunity to stop, take a deep breath, and ask yourself: "How are we doing as a procurement function?"

Many consultants, my current firm included, offer comprehensive benchmarking and opportunity assessments that will provide a very clear picture of just where an organization stands in terms of its peers, corporate goals and industry standards. These assessments take a substantial commitment on the part of your organization to gather accurate data (frequently at a detailed level) and aggregate it in a manner that allows for consistency across organizations and functions. The value is enormous; benchmarking allows you to assess where there are opportunities for improvement, and then quantifies the benefits or "gaps" that will be eliminated when you improve the operation's efficiency or effectiveness. For a procurement organization considering a transformation process, there really is no substitute for accurately drawing that "line in the sand" so that you will be able to measure success in the future!

However, when we work with an organization, sometimes it can be valuable to get the pulse of the operation by asking ten simple questions to gauge the relative maturity of the organization and identify where there might be opportunities for improvement. The questions will seem very basic, but if you answer them all, no answer key will be necessary to understand what some of your next steps might be!

Remember, this is not meant to be a questionnaire that someone is filling out - you are gathering this information yourself! The questions work if you are evaluating a new client, a new job opportunity, or just stopping for a minute to take a deep breath and ask "how are we doing"!

Adapt the questions to the size, complexity and breadth of the procurement operations you are looking at. A CPO may have both direct and indirect materials within their purview - or this may be targeted at one or the other. In any case -- a negative or incomplete response usually indicates an opportunity for improvement.

  1. Does the procurement organization have a mission and vision statement? Is it recent, and do all procurement professionals know that it exists?
  2. Is there a procurement organization chart? Is it current and accessible to professionals outside the procurement team?
  3. Does the procurement team, as an organization, have clearly defined targets for success in 2011? Can all the procurement professionals articulate them?
  4. Is there a "spend tree" which summarizes the top suppliers, categories and types of spend across the organization's remit? Is it refreshed on a regular basis?
  5. Can the senior leaders identify, unaided, the top 10 suppliers to the organization? How many of them has the CPO or his direct reports met face-to-face with during the past quarter, past year?
  6. Does the organization have standard contracting requirements? Do they adhere to them?
  7. Is there a centralized contract repository? How complete is it?
  8. Does the organization have standard payables terms (may vary by category) that are communicated across the organization?
  9. How much of the spend of the following areas is directly supported by the procurement organization: Marketing, Real Estate, HR, Finance, Logistics and IT? Is it more than 75%?
  10. How much of the enterprise's transactional spend is captured on purchase orders or in a formal front-end purchasing system? Is it more than 75%?

Obviously these questions are not comprehensive, but for a quick assessment, they can serve you well. The next step is to prioritize the negative answers and start thinking about what the gaps might be, and where there are opportunities for improvement.

-- Geoff Peters, Principal in the Operations Practice of Archstone Consulting, a divison of The Hackett Group

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