Purchasing Measures that Drive Improvement


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Purchasing Professionals can use lead measures to drive improvement for both strategic and tactical goals. Purchasing specific examples are given in this discussion based in part on the book The 4 Disciplines of Execution. Also Purchasing professionals are suggested to look into put in place an integrated travel, purchase and expense Commerce as a Service solution for dramatic total cost savings.

Purchasing Measures that Drive Improvement

  1. 1. Purchasing Measures to Drive Improvement Discussion of the Benefits of Incorporating Lead Measures for Purchasing to Drive Improvement Bill Kohnen October 2013 Updated June 2014
  2. 2. Summary  Purchasing has lots of data to measure and while ‘big data” tools are useful, what really drives performance and improvement generally is on the surface and not deep in data.  Cost remains on the top of the measurement list but CSR and more direct link to revenue and innovation are becoming more important to Purchasing  Strategic and Tactical measures are different even if in the same organization Bill Kohnen October 2013 Purchasing performance in 2014 will be improved by adding leading measures to your Scorecard
  3. 3. Thoughts Have Basis From The 4 Disciplines of Execution Bill Kohnen October 2013 1.Focus on Important Goals 2.Act on Lead Measures 3.Create Compelling Scorecards 4.Create a Cadence for Accountability
  4. 4. Setting Goals  Make the Finish Line clear From (X) to (Y) by When Examples: Will obtain 30% total cost savings by replacing manual travel, purchase and expense systems with integrated Software as a Service (SaaS) Indirect Spend Solution by September 2014 Average Supplier performance will increase from 85 to 95 by July 2014 Average processing time for MRO items purchase orders reduced from 3 day to 4 hours by Dec 2014 Bill Kohnen October 2013
  5. 5. Know What to Do to Achieve Goals  Lead measures ◦ You can influence ◦ Predictive of Outcome ◦ Cadence for review is short term (weekly)  Lag measures ◦ Show only what has happened ◦ Cadence for review is longer Bill Kohnen October 2013
  6. 6. Leading Measures to Reduce Total Cost Examples Month Supplier Visits Key Supplier QBR SaaS Indirect Spend Strategy Defined and Sourced Cost Savings Projects Engaged Negotiations planned or in process % of Key Supply Categories with updated Strategy Purchasing Staff Training Jan 3 Feb 2 Mar 5 Bill Kohnen October 2013
  7. 7. Lagging Measures for Total Cost Traditional 0 20 40 60 80 100 120 Jan Feb Mar All Cost Savings Bill Kohnen October 2013 50 60 70 80 90 100 Q1 Q2 Q3 Q4 Supplier Performance 0 20 40 60 80 100 Jan Feb March April T&E and MRO Purchasing Savings From SaaS Indirect Spend Solution
  8. 8. Leading Measures of Purchasing Tactical Performance Month System Availability Approv al Cycle Time SaaS Indirect Spend Implementation Invoice Issues Purchasing Processing Time New Catalog or Inventory items Purchasing Staff Training Completed June Jul Aug Bill Kohnen October 2013
  9. 9. Lagging Measures for Tactical Performance 0 50 100 150 Jan Feb Mar % Delivery to Need Date Bill Kohnen October 2013 50 60 70 80 90 100 Q1 Q2 Q3 Q4 Lot Acceptance Rate 0 2 4 6 Jan Feb March Expedite Cost 0 50 100 150 200 Q1 Q2 Q3 Q4 Staff
  10. 10. Cadence for Accountability  Simply means report regularly and consistently  Conduct interactive reviews of information with stakeholders  Make adjustments and commitments based on reviews and alignment to most important organizational goals Bill Kohnen October 2013
  11. 11. Summary  It is up to you to define goals and measures that apply best to your organizations needs.  Once there is Buy In then the path to the achieving the Important goal is clear  Identifying and maintaining Lead Measures is effective tool to get the resources needed to achieve goals ◦ For example if supplier visits are clearly needed to improve then if budget cuts prevent travel then this shows up quickly and can be discussed immediately relative to ultimate goal Bill Kohnen October 2013
  12. 12. Summary  On going training is included as a core element in almost any effort to achieve big goals  Included throughout is reference to further use of an integrated Software as a Service Indirect Spend Solution to make a big impact. This topic is worth further investigation. Bill Kohnen October 2013