Benchmarking the Procurement Function

©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe
Benchmarking the Procurement Function
Peter Smith
May 21st 2014

Agenda
1. Introduction
2. Why and how we might do this?
3. What should we assess?
4. Acting on the outcomes
5. Wrap up
6. Real World Sourcing Scholarship

Part 1 - Introduction
The Real World Sourcing Series 2014 is a series of sessions covering hot
topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by Tejari, and
developed by Peter Smith (Spend Matters) and Guy Allen (Real World
Sourcing Ltd.)
Peter Smith started his procurement career with Mars Confectionery, then
was CPO for Dun & Bradstreet Europe, the Department of Social Security
and the NatWest Group. He is now a consultant, author, non-executive
director and editor of the Spend Matters website.
Peter was President of CIPS in 2002/3, is an senior adviser to the UK’s
National Audit Office and co-wrote “Buying Professional Services”,
published by the Economist Books in 2010.

Benchmark (noun)
“A standard or point of reference against which
things may be compared”.
Benchmarking (verb)
“To evaluate (something) by comparison with a
standard”.

When might we want to benchmark the function?
• Coming in as a new CPO
• A CPO concerned about performance or recognising need
for change
• After a merger / acquisition
• As a consultant / contractor / adviser
• Asked to do so as an internal executive
• To fit with a wider change programme
• When we want to make a name for ourselves!

• We must bear in mind that our procurement function
and performance needs to be appropriate to the needs,
objectives and strategy of the organisation
• Not everyone needs to be World-Class in everything
they do!
• Different market sectors have different requirements –
consider a large food manufacturer, a global professional
services firm, a tech manufacturer, a government
department....
• Size, market, location, etc – all influence what is
appropriate and what you need to be benchmarking
against

What do we benchmark ourselves against?
We have a number of options - we can use:
• Our own targets, standards or aspirations
• Our competitors activities, processes, performance
• Other firms – peers or best practice exemplars in
different industries
• An external standard (which may be derived from
multiple sources, including other organisations)

Who will carry out the benchmarking?
There are various options – all have pros and cons:
• The CPO him/herself
• Member(s) of staff – procurement and / or others within
the organisation
• External independent consultants – ranging from the
expert “one (wo)man band” to a huge firm
• An academic, professional or institutional body (CIPS,
CAPS, IIAPS etc)

Who will carry out the benchmarking?
There are a range of institutional and / or regular external
options – for example:
• CIPS / Institute of Supply Management / CAPS
• International Institute for Advanced Purchasing and Supply
• Consulting firms with broad based studies – e.g. A.T.
Kearney’s “Assessment of Excellence in Procurement” Study
• Consulting firms with more specific focus e.g. State of Flux /
Future Purchasing work on SRM, Category Management

What are we going to analyse?
• Results and outputs?
• Inputs?
• Processes?
• Strategies? Tools and technology?
• Capability?
• Stakeholder opinion (staff, users, suppliers, top team)?
• Are we doing this for the whole function or just focusing on a
particular aspect of the procurement function / activities?

What process will be used to carry out the benchmarking?
How do we – or the third party – carry out the assessment?
• Consider the results / outcomes produced by the organisation
• Metrics / indicators – basically numbers
• Interviews – Socratic discourse
• Questionnaires
• Analysis (lots of reading and perhaps discussion)
• A combination of all / some of the above

How do we choose the right benchmarking approach?
Each option has pros and cons. We need to consider:
• The feasibility – there is no point announcing we will assess ourselves
against “the best 20 firms in the world” if we have no idea who they are
or how to persuade them to co-operate
• The time it will take to carry out the assessment
• The cost of the work – internal and external
• The credibility of the option chosen (benchmarking against the firm
down the road may not carry the weight internally of a global AT
Kearney study..)
• The likely benefit and usefulness of the results

Consider an external survey based programme such as AT
Kearney or CIPS.
Pros – credibility with colleagues and other organisations; good
data sources (other participants); intellectual / academic
underpinning; thoughtful content, often options to engage with
community
Cons – cost; resource (may require internal commitment to data
gathering etc.); appropriateness issues; potential for “so what”
results; conflicts of interest (consulting firms); standard so
perhaps impersonal approach

Table Discussion: what are the pros and cons of the
following benchmarking options:
• An internal team (CPO, graduate trainee and a user from IT) to analyse key
processes against a set of standards we’ve developed internally based on
informal benchmarks with other firms
• A benchmark study (50 questions) of procurement technology use, compared
against other global firms, run by a major software company
• Bring in Peter Smith / Guy Allen to do an interview and analysis-based 10
day review using a version of the UK government procurement benchmarking
model

IIAPS
“The tool provides for assessments and benchmarks against
world-class standards for these 184 attributes. This is broken
down by: business buy-in and functional role; stakeholder
management; the major organisational activities and tasks
within the strategic sourcing process; organisational structure;
and systems & processes”.
(Self-Assessment followed by external input)

3 Capability Areas 9 Key Indicators
World Class Leadership
 Leadership
 Strategy and Business Alignment
 Stakeholder and Supplier Confidence
World Class Skills Development and
Deployment
 People and Skills
 Intelligent Client
World Class Process and Systems
 Governance and Organisation
 Sourcing and Collaboration
 Process and Tools
 Information and Performance
Management
OGC Procurement Capability Review Model

World class leadership 1 Visibility and impact of
leadership
Development area
2 Business and Policy Alignment Urgent development area
3 Stakeholder and Supplier
Confidence
Development Area
World class people
4 Resourcing Development Area
5 Intelligent Client capability Urgent Development Area
World class systems 6 Governance and organisation Serious concerns
7 Sourcing and collaboration Well placed
8 Use of tools and techniques Well placed
9 Knowledge and Performance
Management
Development Area

http://www.iiaps.org/bench_pscm.html

CAPS Metrics http://www.capsresearch.org/Research/Benchmarking/Benchmarking.aspx
20 metrics including;
• Supply Management Employees as a % of company employees
• Supply Management operating expense as a % of sales revenue
• Supply Management spend per Supply Management employee
• % of total spend through p-cards
• Training costs per Supply Management employee
• Average cycle time from requisition approval to PO placement
• % of active suppliers accounting for 80% of spend

Specialist firms, topic-specific benchmarking e.g. State of Flux

INTERNAL EXTERNAL PEER
Quantitative Collectkey metrics –
track over time
Metricsbased survey
(ISM, ATK etc.)
Privatepeer
benchmarking
Qualitative Stakeholderinput;
interviews,
questionnaires
Consultantrun -
conductinterviews
etc.
Best practice clubs,
discussionsetc.
Benchmarking methods – a summary
And – do we look at whole function or a subset (a third dimension)?

• Here is a model of procurement that I have used in
benchmarking and procurement improvement
programmes over the years.
• It is by no means the only one and I am not claiming it
is the ‘best’ model!
• But it gives a quite complete picture of the different
elements you might want to benchmark.

Category / Sourcing Management
Transactional Management – P2P
Contract & Supplier Management
RESULTS / OUTCOMES
• Value / savings
• Stakeholder satisfaction
• Efficiency
• Risk Management
TECHNOLOGY
& TOOLS
PEOPLE
GOVERNANCE
STRATEGY &
LEADERSHIP

Category / Sourcing Management
Transactional Management - Purchase to
Pay
Contract & Supplier Management
RESULTS / OUTCOMES
• Value / savings
• Stakeholder satisfaction
• Efficiency
• Risk Management
TECHNOLOGY
& TOOLS
PEOPLE
GOVERNANCE
STRATEGY &
LEADERSHIP

What do we benchmark?
• The next series of slides give some ideas for the sort of factors you might
look at under different assessment headings
• They could apply whether the assessment is internal or externally run and
whether or not other organisations are involved
• They are not intended to be comprehensive – merely examples
• Under “processes” we have included only contract management (in the
interests of time) as an example
• You might look similarly at category management, sourcing, supplier
management, and P2P in a similar manner at a process level

Strategy
• Understanding at Board level of procurement role & contribution to
organisation (operational, control and strategic benefits)
• Head of function either at Board level; or one level below with a
Board member taking clear ownership for procurement and
commercial matters
• All spend is addressed by procurement function
• HoF considered part of senior ‘peer group’ with other leaders
• Clear link between overall organisational strategy and Procurement
strategy
• Organisation has a clear process for “make versus buy” decisions
covering new requirements

People
• There is an appropriate number of procurement professionals given the nature of the organisation,
current and future resourcing needs are understood and plans are in place to meet needs.
• Recruitment is open, fair, professional, seeks excellence and diversity, with agreed job descriptions,
role profiles, job evaluation and grading processes in place.
• Succession and organisational planning processes in place, with initiation programme and
retention strategies. Internal career development and progression is planned.
• Training and development programmes in place, including Chartered Institute of Purchasing and
Supply (CIPS) or similar.
• Skills assessment processes used, with training needs also linked to personal objectives (which link
to overall procurement objectives), and training for more senior staff goes beyond MCIPS – e.g.
MBA, tailored programmes, advanced skills.
• Regular structured appraisal process for staff with clear objectives, training needs etc identified -
where necessary, performance improvement is sought from individuals and (at the extreme)
disciplinary actions taken as appropriate.
•

Tools and Technology
• Small number of standard procurement processes, clearly defined, non-bureaucratic
and appropriate to risk involved
• Systems (technology) strategy and operations designed to support overall strategy
and processes. Options for use of eProcurement, eSourcing , Supplier Information
Management, spend analytics, etc. are considered, understood and implemented
appropriately
• Low value ad hoc purchases handled through low cost processes and low value
regular purchases automated (online catalogues, P-Card) for easy but controlled access
by users
• High value one-off purchases controlled through a formal, systemised requisition /
Purchase Order process
• Accounts Payable (AP) uses effective processes, is highly automated, and provides
fast, accurate management information
•

Governance
• Procurement activities take place at the optimum level within
the total organisation
• Clearly defined roles, responsibilities and reporting lines
• Procurement policy covers all the key issues, supports the
strategy, is well communicated and easily available throughout
the organisation (intranet, summary aide-memoirs etc.)
• Staff are empowered and trusted, but rules are made clear.
Random checks are carried out and transgressions punished
• Controls are appropriate to the risk involved

Key processes (e.g. Contract Management)
• Contract administration is professionally handled, including access to contracts
(physical and / or electronic) – with clarity between role of procurement / other
stakeholders
• Emphasis placed on continuity through whole end to end contract process (e.g.
contract manager involved in pre-contract process.)
• Major contracts are managed with measurement and review through the entire
contract period
• Contract management processes in place for all appropriate suppliers, including;
• measurement and reporting;
• feedback / continuous improvement;
• change management; and
• risk management

Outcomes / Performance
• Procurement has defined processes or programme for stakeholder
engagement, including identification of key people, structured meetings
• Stakeholders perceive procurement as important allies, professional and
supportive of their own priorities
• Suppliers perceive the organisation as a preferred customer, and
procurement as a professional, competent function
• Good and regular communication with suppliers, using tools such as
website, supplier events, newsletters etc.
• Delivery of benefits – savings, value, risk, ...etc.
• Regular measurement/ appraisal of procurement performance with review
and feedback upwards through the organisation

The benchmarking is pointless if you don’t DO something
So turning the assessment into an action plan is critical
• Strike while the iron is hot
• Use the interest and enthusiasm generated by the assessment
• Prioritise the key areas of opportunity
• Get buy-in – including upwards, key stakeholders
• Run it as a proper programme / project with the appropriate
disciplines
Improvement Plans – Acting on the Outcomes

Key Take-aways
• There is no single right or best way to benchmark procurement.
• Think about the alternatives – what to benchmark, who or what
you're going to benchmark against, the methodology you might use,
and who will carry out the assessment.
• Make sure the benchmarking is actionable and appropriate.
• Decide whether you are looking at the whole range of factors /
activities / performance or focusing on a sub-set.
• There are some strong indicators of procurement success – decide
which are the most relevant for your organisation and look to assess
against those.

Real World Sourcing Scholarship
• 10,000AED towards any procurement based training
• You will receive an email with your Tejari Education Network
login details
• Complete the online certification programme
• Answer as many questions right as possible
• The top 10 scorers will be invited to the Awards dinner
• The winner will be announced at the dinner!

What three measures would you benchmark, in order to
assess the strength / performance of a procurement
function?
What would give you the most insight into how strong
the function is?
You have just three questions / data points ...
Ten minutes discussion then feedback

THANK YOU!
Please feel free to contact me on
psmith@spendmatters.com

Benchmarking the Procurement Function

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