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Procurement Metrics

Procurement Metrics: Understanding the Economic Language of Value (Part 2) — Expenditures, Expenses and Financial Reporting (CapEx, COGS and G&A) [Plus +]

finance

In the first installment of this series, we discussed the term “spend” (the noun, not verb), in the context of supplier spending, in a fair amount of detail. We discussed addressable spend, and what's included and excluded for the purposes of spend visibility/management, but also for the purposes of using spend within procurement performance measurement and benchmarking. In this installment, we dive a little deeper in terms of comparing and contrasting spend to other terms, as mentioned in the title.

Procurement Metrics: Understanding the Economic Language of Value (Part 1) — Spend [Plus +]

buzzwords

One of the challenges that procurement faces is "speaking the same language" as finance, as well as the language of its stakeholders. A marketing department, for example, may use the term “investment” for its spending. Similarly, many procurement organizations categorize some of their added value in a category called “cost avoidance,” even though the term is not taught or recognized formally by the finance function.

Even within procurement, many terms are used inconsistently. Consider the term “addressable spend.” Is all spend addressable, as represented by cash disbursements going to external parties? Or is it supplier spending that is reasonably under the influence of procurement? If you say the latter, what defines “reasonable”?

The friction and misalignment common between various functions often results from stakeholders not having a basic understanding of terms that seem similar but yet can be very different. This problem is exacerbated when the stakes are high and you start getting measured and benchmarked on these metrics. To prevent this, procurement needs to be “business multilingual” and understand the variations of terminology so that it can best speak these languages and help the organization make the best decisions to create value.

This is what we’ll address in this analysis, with a focus on procurement and finance within the enterprise. Clearly defined terminology is the foundation from which higher-level concepts, performance metrics and benchmarks can be consistently understood — and improved.

How to Justify Spend Analysis to Finance/IT When There’s No Clear ROI (Part 1) [Plus +]

finance

Analytics are all the rage. And spend analysis is Procurement 101. So, getting some reasonable investment shouldn't be a problem, right? Wrong. The problem with analytics is that the identified value is all “option value.” You don't know how much value opportunity you will uncover with the analytics until you actually perform them (and implement the identified opportunities)! This article is designed to help you overcome this catch-22. We've prepared 10 strategies to help you get the ball rolling with IT and finance (even if the ROI isn't clear).

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

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.

A 21-Question Health Check to Score Your Procurement Scorecard (Part 2) [Plus +]

health

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 second in a three-part series providing a 21-question “health check” for your procurement scorecard, this time covering questions 6-15.

A 21-Question Health Check to Score Your Procurement Scorecard (Part 1) [Plus +]

supplier scorecard

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. For example, in a past Hackett Group procurement key issues study, “value contribution visibility” ranked third (after sourcing and category management) in terms of procurement key capabilities that were viewed to be major or critical, with 76% of firms having picked this. It even outperformed “SRM programs,” which got the fourth slot. In other words, the competency for value contribution measurement was higher than an area of actual value creation! (In the 2017 version of this report, "measuring value beyond savings" is a big part of Priority #1 — improving the stakeholder experience.) In this research brief, I’ll discuss how you can assess the quality of your procurement scorecard and how to improve it. To do so, I’ll assume that you have some type of procurement scorecard already, and that maybe you’ve even already adopted some smart principles to it. But, I’m going to go deep on this one and ask you a set of 21 questions about your scorecard. This first installment covers the first five.

Top 10 Ways to Radically Expand Category Management Value Creation [Plus +]

category management

In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.

My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.

Using DMAIC 2.0 to Blow Up the N-step Procurement Process [Plus +]

An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.

Analytics8 SpendView: Solution Review & Analysis [Plus +]

Analytics

There’s a new spend analytics vendor in town: Analytics8. The Sydney-based provider recently introduced its SpendView product, an offering designed to bring modern, easy-to-use spend analysis capability to any organization with more than $10 million in annual spend at a reasonable price tag, but with functionality that is sufficiently deep to satisfy many of the needs of larger procurement organizations with unique requirements. This Spend Matters Plus analysis provides an introduction to the Analytics8 SpendView solution for procurement organizations looking to understand whether they should consider adding the provider to their shortlists for consideration and competitive alternatives.

Spend Compliance – The Framework: 50 Shades of Pay (Part 15) [Plus +]

procurement consulting

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.

How to Create the Perfect Procurement Scorecard [Plus +]

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.

Are Your Procurement KPIs Balanced or Obsolete? [PRO]

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.