Cost Management Resolutions Can Count: New Metrics For Purchasing, Procurement

It's hard to keep personal resolutions. Today, for example, I'm already into my third cup of coffee and second breakfast. Maintaining or losing the waistline is easier said than done, especially when you're on vacation! Holiday vacations are rough as they create a vicious cycle, in my case, of drinking good wine, eating too many rich meals (and snacks) and then working out twice a day because you feel guilty based on all the gluttony. Of course running and the gym only makes you hungrier in the end (it's a bit like reverse auction addiction in lesser performing procurement organizations, but let's not go there so early in the year!)

Yet the good news is that charting and pursuing professional resolutions is easier than personal ones, especially if we can tie them into how organizations measure both personal and procurement performance. Still, to evolve the role of procurement, we need to think of resolutions as something more than concrete measures, even incomplete metrics such as PPV. So perhaps the first resolution should be to create a handful of different metrics to measure overall individual performance, stakeholder engagement, and supplier collaboration.

Here are a few ideas we've gleaned in new metrics/measurement areas from talking to creative procurement, supply chain and finance organizations:

  • Supplier creativity index (based on bottom or top-line improving contributions); put another way, are we measuring how our suppliers contribute to new ideas in our business?
  • Resiliency ratings – how resilient is a supply chain to both potential and actual disruptions? This can and should include the services supply chain as well
  • Supplier focused corporate social responsibility (CSR) efforts for top-line contribution (versus just compliance) such as speeding up new product introductions
  • Multi-tier supply chain awareness and risk reduction (based on both data visibility and predictive analytics)
  • Sourcing innovation (yes, there's also a great blog by that name) and innovative sourcing practices; by sourcing innovation we mean applying non-traditional sourcing methodologies to data gathering and negotiation such as what specialized providers enable through optimization and then measuring the outcomes compared with past approaches
  • Localization effectiveness – this type of metric focuses on measuring procurement's ability to support globalization and localization efforts in emerging and world markets

Of course it would also be helpful to include creative metrics like this personally, not only for New Year's resolutions but in how to apply them as well. Yet like procurement functions of old, it's easier to look at isolated metrics than to come up with new ones that truly measure. For example, "exercise twice a day" versus the more effective and nuanced: "exercise twice a day and measure perceived effectiveness of diet changes in output and recover." Alas, with only the former approach, exercising multiple times just becomes an excuse to eat a second and third dessert! It's the same story with purchasing and supplier engagement, where "more of the same" does not necessarily improve or change our overall value contribution to the business.

- Jason Busch

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