How to Effectively Measure a Procurement Organization Sample


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How to Effectively Measure a Procurement Organization Sample

  1. 1. How to Effectively Measure a Procurement Organization
  2. 2. Contact Details <ul><li>Contact us for more information </li></ul><ul><ul><li>Julie Brignac, Principal </li></ul></ul><ul><ul><li>+1 305 890 9078 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul>
  3. 3. Course Overview <ul><li>Why is measuring Procurement important? </li></ul><ul><li>You can’t improve what you can’t measure </li></ul><ul><ul><li>But most organizations think they are “too busy” to implement sustainable metrics – and live by them </li></ul></ul><ul><li>You will learn in this course how to </li></ul><ul><ul><li>Recognize which metrics are best to implement, depending on the Procurement organizational structure </li></ul></ul><ul><ul><li>Develop sustainable metrics that leadership will notice and respect </li></ul></ul>
  4. 4. <ul><li>Identify successful, foundational key measures for varying Procurement organizational structures </li></ul><ul><li>Develop effective measurements for any type of Procurement function </li></ul><ul><li>Articulate how to strategically manage the organization to positively affect these measures </li></ul><ul><li>Define the metrics that each Procurement practitioner should have to evaluate their performance </li></ul><ul><li>Explain the most effective reporting venues </li></ul>Course Objectives
  5. 5. Building a Measurement System How do you identify which metrics will work best? Top 3 indicators to a successful measurement system Questions to ask <ul><ul><li>1) Understand who and how purchasing happens in the organization/company </li></ul></ul><ul><ul><ul><li>Is it centralized or decentralized? </li></ul></ul></ul><ul><ul><li>2) Review the company’s strategic business objectives </li></ul></ul><ul><ul><ul><li>Which ones are linked to Procurement? </li></ul></ul></ul><ul><ul><li>3) Determine the priorities for Procurement </li></ul></ul>Cost savings Inventory management eProcurement solutions
  6. 6. Top 3 Indicators Building a Measurement System <ul><li>1) Who is doing the purchasing? </li></ul><ul><ul><li>Build a process map to find out </li></ul></ul><ul><ul><li>Example: Purchasing capital equipment designed by a company’s internal engineering department. </li></ul></ul>
  7. 7. Organizational Examples Centralized Procurement Decentralized Procurement Purchasing activities Purchasing activities Other functions
  8. 8. Key Foundational Metrics Regardless of Organization Key Metrics Sub-Metric Examples Supply Base Statistics Number of suppliers – active and inactive (need to define) Proportion of items under contract Productivity/Cost Savings Price per annum comparison Cost per Purchase Order Number of POs issued Total Cost per PO Segregation of Duties Authority limits and proper processes established for requisitions, purchase orders, invoice payments
  9. 9. <ul><li>Supply Base Statistics </li></ul><ul><ul><li>Number of active and inactive suppliers </li></ul></ul><ul><ul><li>Number of strategic suppliers </li></ul></ul><ul><ul><ul><li>Secured via contract </li></ul></ul></ul><ul><ul><li>Compliance </li></ul></ul><ul><ul><ul><li>Number of purchase orders placed with strategic </li></ul></ul></ul><ul><ul><ul><li>suppliers </li></ul></ul></ul><ul><li>Productivity/Cost Savings </li></ul><ul><ul><li>Year over year (YOY) price paid per unit comparison </li></ul></ul><ul><ul><li>Inventory levels </li></ul></ul><ul><ul><ul><li>Total inventory reduction – YOY $ </li></ul></ul></ul><ul><ul><ul><li>Inventory levels ($) by strategic supplier </li></ul></ul></ul>Centralized Model The Most Effective Metrics
  10. 10. <ul><li>Supply Base Statistics </li></ul><ul><ul><li>Number of active and inactive suppliers </li></ul></ul><ul><ul><li>Number of purchase orders placed with each </li></ul></ul><ul><ul><li>supplier </li></ul></ul><ul><ul><ul><li>To evaluate opportunity for leveraged buys </li></ul></ul></ul><ul><li>Cost per Purchase Order </li></ul><ul><li>Compliance </li></ul><ul><ul><li>Number of employees issuing purchase orders </li></ul></ul><ul><ul><li>Volume ($) of purchases issued without purchase orders </li></ul></ul>Decentralized Model The Most Effective Metrics Productivity difficult to measure in this scenario due to variation of purchasing methods and venues
  11. 11. Key Metric Definitions Productivity <ul><li>Tangible Savings (Cash) </li></ul><ul><li>2. Intangible Savings (Redistributed and Infrastructure Costs) </li></ul><ul><li>3. Cost Avoidance </li></ul><ul><li>4. Value of Lost, Obsolete and Redundant Supplies </li></ul><ul><li>Annualized purchase price savings, fully realized, operating cost savings and value-adds that result in bottom-line contribution </li></ul><ul><li>Reductions in infrastructure requirements and/or operating costs for supply chain (facilities, people, equipment, etc.) that are not seen in the organization’s bottom line </li></ul><ul><li>Price increases, deterioration of services and other hidden costs that were avoided through supply chain </li></ul><ul><li>The value of supplies lost, damaged, sold (lost asset value on disposal) or time expired </li></ul>
  12. 12. Effective Reporting Venues