BravoSolution: Assessing the Procurement Function – what are the key indicators?

In the second workshop discussion during our recent BravoSolution Real World Sourcing series – “Assessing the Function” - we asked the delegates a question. If you could only look at three indicators to determine the strength of a procurement function, what would they be?

Here’s the list our four tables / teams came up with.

  • Cost savings / avoidance
  • Process control measures
  • Procurement spend coverage and influence - % of spend covered
  • Communication of strategy to business
  • Savings from procurement technology
  • De-duplication of contracts
  • Spend on / off contract
  • Number of purchase orders / use of purchasing cards
  • % of invoices without a PO
  • Internal customer satisfaction
  • % of CIPS qualified staff

The two most popular were something to do with savings, and the spend coverage.  I was surprised that no-one mentioned innovation or how procurement contributed to the top-line of the organisation – although to be fair, whilst they are important issues, they are hard to measure through simple indicators.

Now in my view, some of the suggestions are good but maybe not in my top 3.  The percentage  of invoices without POs for instance – a useful indicator, maybe top 10 but not top three, I would argue. Others I would query.  I argued  during the session that if there isn’t a clear “right answer”, then a measure has limited value. Spend on purchasing cards would be one of those. Whilst there is a place for that tool in most organisations, I don’t perceive a usage level that is clearly optimal, so the measure is of limited value in my view.

I also have a problem with “savings” as a key measure. If we could absolutely trust the data, then it might tell us something useful. But (and this is the topic of the next BravoSolution session, which I’m presenting in October ), most organisations are so bad at measuring “savings”, the numbers are virtually meaningless.

So what would my three be?

  1. Spend coverage – % of third party spend over which procurement has influence / or clear oversight.  (Someone at the session rightly pointed out that procurement may choose NOT to influence certain spend – the key is having the ability to make such a choice).
  2. Then I like something around the seniority of the CPO – or maybe turn that into a more general strategic question, such as how often the Board discusses procurement matters? That’s a good indicator of where procurement really sits in terms of credibility.
  3. Finally, I do think adoption of appropriate procurement technology is a pretty good indicator of a procurement function’s sophistication and maturity. But I’m torn between that and internal stakeholder satisfaction... can I have four measures please?

So, what do you think? Any other great ways to assess how strong and successful a procurement function really is?

And don't forget you can get all the slides from the session here.

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Voices (6)

  1. Owen Inglis Humphrey:

    In a discussion on this nature I’d agree with the first 2 suggestions in either sequence albeit the 2nd should probably focus more on the level of real engagement that Procurement Professionals have in major strategic decision making in the business. In terms of a 3rd I’d move more to consider the proportion of transactions that flow through compliant routings – that therefore includes the level of technology roll out, the appropriate use of payment cards and even agreed use of leasing/rental agreements.

    Saying that, what I still struggle with is the true value of any of these metrics. How much effort goes in to creating them and then what do businesses actually do with them. When considering these points I’d propose that the measures should really be about articulating Procurement’s input into and effect on (1) Reduction in operational cost of the business (2) Reduction in levels of operational risks and (3) Increase in sales/turnover. The latter would also be a good way of showing Procurement’s part in innovation.

  2. bitter and twisted:

    Are “strong” and “successful” the same ?

    1. Life:

      No, and although I agree with Peter’s suggestions for top three (maybe swapping two and one round) , it’s also true ‘strong’ doesn’t mean useful, or effective. I don’t think that this is the point here though, and it’s difficult to be either if you’re ‘weak’.

  3. Ian Heptinstall:

    on a slightly more serious note, I would change your number 3 to adoption of appropriate procurement methods – what the people actually do & how they go about it

  4. Ian Heptinstall:

    How hard other senior folks fight to “prove” the procurement team isnt needed. The harder they push, the better the funciton is doing

  5. bitter and twisted:

    Chair quality relative to rest of the organisation.

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