There are many procurement KPIs purchasing teams will measure to monitor their team’s performance, from number of eAuctions run per category, or % of spend placed under eAuction, or % of spend through POs etc. which are long established, and the importance of them will vary for organisations dependent upon how embedded the practice is.
I like to think of procurement in 3 segments: the transactional (the systems and processes that enable payment in exchange for goods and services), the tactical (where spends are reviewed with largely an efficiency and price emphasis) and the strategic (where spends are reviewed with a cost and value emphasis).
There are many organisations that manage quite happily contributing to business performance by focussing on the transactional and tactical only, and most of the procurement profession is very adept at this, finding increasing ways of using technology to enable it. It’s also quite easy to measure which is why many Procurement Leaders, and Change Managers will put a huge emphasis on to those KPIs. To put out charts that said spend via PO has raised from 82% to 94%, with associated greater visibility and control is a sign of management going in the right direction. Equally in the more tactical field, to show that spend under contract has risen from X% to Y% is equally demonstrating procurement’s good basic management of the supplier base. And of course, tactically, having KPIs that show procurement impact on the bottom line rising from initial base point to the target is good practice and always interesting to top management.
But if you are seeking for procurement’s contribution to be more than management and control, efficiency and some P&L reduction then you will be turning your attention to adding some strategic procurement capability. Then, in addition to strong management and control and bottom line impact, you could then be talking with the top table about how you have altered what is bought to bring about internal as well as external cost reduction that’s sustainable and can be built on further, or how you enticed innovation perhaps via supplier partnerships that altered the top line growth – perhaps via the introduction of a new product, or service? Strategic procurement requires the mind to think very differently to the transaction and tactical – management and control is all about power behaviours – how to restrict people from maverick buying, channelling spend through certain routes, commanding and demanding. All absolutely necessary for transactional and tactical procurement managers, but largely inappropriate for strategic procurement success.
The greatest difference lies in one word – creativity. Transactional and tactical procurement managers generate ideas by adopting a bit of ‘explorer’ behaviour – gathering information, then some ‘judging’ behaviour to decide what to do and then some ‘warrior’ behaviour to crack on and do it…recognising some people will fall along the way. These are absolutely necessary behavioural attributes and the KPIs that support those processes most certainly have their place.
But if you want to embark on strategic procurement properly – you need to understand just how far removed it is from the more basic procurement transactional and tactical activities. And one of the key reasons for this is that a strategic procurement professional needs to do exactly the opposite to what a transactional or tactical procurement manager is doing. Whereas the majority are analysing, judging and narrowing down options to maintain greatest control and power, the strategic professional needs to open up, expand, deliberately explore the unexpected and paint completely new options. In short, they need to adopt an ‘artist’ behaviour – to review the scene, and use the business team around them to paint a version Picasso would have painted, or Van Gogh, or Manet, Monet, Morrisot, Renoir or Turner. It’s only through opening the mind to these different interpretations can the proverbial ‘breakthrough’ be found.
Operating models that have procurement managers doing all 3 levels of procurement or even tactical and strategic together will only work if individuals are picked to do generally one or the other. This is a common mistake and causes frustration amongst procurement leaders who can’t understand why their judgemental warriors cannot suddenly paint like Renoir.
Assuming you’ve got the above covered however, you will need the equivalent KPIs
to monitor your progress for strategic activity. Clearly financial business
benefit and savings measurements need to be more than P&L, and I’d be happy to
give you guidance on that and how you might measure it. But for non-financial
targets the top four KPIs that the 2016-17 report on
Collaborating for Category Management Success
from Future Purchasing highlighted are: