Assessing the Procurement Function

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Assessing the Procurement Function

  1. 1. Assessing the Procurement Function Peter Smith Wednesday September 5th 2012 Spend Matters UK/Europe©ALL RIGHTS RESERVED - Confidential 1
  2. 2. Assessing the Procurement Function Agenda 1. Introduction 2. Why and how we might do this? 3. What should we assess? 4. Acting on the outcomes 5. Real World Sourcing Scholarship©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 2
  3. 3. Assessing the Procurement Function Part 1 – Introduction The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals. The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates). 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. He was President of CIPS in 2002/3.©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 3
  4. 4. Part 2 Why / How? Why / How? Part 2 – When / – When / When might we want to assess 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!©ALL RIGHTS RESERVED - Confidential 4
  5. 5. Part 2 – How? / Why / Part 2 – When / Why / When Why might we want to assess the function? •To identify areas for improvement •Respond to competitive pressure or drive advantage •To prepare the ground or make major change more palatable •To establish way forward / be seen a fair post merger / acquisition •Name the guilty men / women (not the best purpose)!©ALL RIGHTS RESERVED - Confidential 5
  6. 6. The Concept of Appropriateness 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 assessing against©ALL RIGHTS RESERVED - Confidential 6
  7. 7. What or who are we assessing against? What or who are we assessing against? We have a number of options in terms of what we assess ourselves against. We can use: • Our own targets, standards or aspirations • Our competitors activities, processes, performance • Other firms – peers or exemplars in different industries • An external notional standard (which may be derived from multiple sources, including other organisations)©ALL RIGHTS RESERVED - Confidential 7
  8. 8. Who will carry out the Assessment? 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)©ALL RIGHTS RESERVED - Confidential 8
  9. 9. Who will carry out the Assessment? Who will carry out the Assessment? There are a range of institutional and / or regular external options – for example: • Institute of Supply Management / CAPS • International Institute for Advanced Purchasing and Supply • CIPS • 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©ALL RIGHTS RESERVED - Confidential 9
  10. 10. What process will be used What process will be used to carry out the assessment? 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©ALL RIGHTS RESERVED - Confidential 10
  11. 11. Carrying out the Assess Carrying out the Assessment What are we going to analyse? • Results and outputs? • Inputs? • Processes? • Strategies? Tools and technology? • Capability? • Stakeholder opinion (staff, users, suppliers, top team)? • And are we doing all of this at once or just focusing on a particular aspect of the procurement function / activities?©ALL RIGHTS RESERVED - Confidential 11
  12. 12. How do we choose which? How do we choose which to use? 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©ALL RIGHTS RESERVED - Confidential 12
  13. 13. Pros and Cons - example Pros and Cons - example Consider an external survey based programme such as AT Kearney or CAPS. Pros – credibility; good data sources (other participants); intellectual / academic underpinning; thoughtful content, often community options Cons – cost; resource (may require internal commitment to data gathering etc.); appropriateness issues; potential for “so what” results; conflicts of interest; impersonal approach©ALL RIGHTS RESERVED - Confidential 13
  14. 14. Pros and Cons? Pros and Cons? Table Discussion: what are the pros and cons of the following assessment 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 • A benchmark study (50 questions) of procurement technology use, compared against other global firms, run by a software company • Bring in Peter Smith / Guy Allen to do an interview and analysis-based 10 day review using a version of the OGC PCR review model©ALL RIGHTS RESERVED - Confidential 14
  15. 15. Look at some examples – A.T. Kearney©ALL RIGHTS RESERVED - Confidential 15
  16. 16. A.T. Kearney – survey driven approach©ALL RIGHTS RESERVED - Confidential 16
  17. 17. Look at some examples Look at some examples – IIAPS 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)©ALL RIGHTS RESERVED - Confidential 17
  18. 18. What are we assessing? http://www.iiaps.org/bench_pscm.html©ALL RIGHTS RESERVED - Confidential 18
  19. 19. OGC Procurement Capability OGC Procurement Capability Review Model 3 Capability Areas 9 Key Indicators  Leadership World Class Leadership  Strategy and Business Alignment  Stakeholder and Supplier Confidence World Class Skills Development and  People and Skills Deployment  Intelligent Client  Governance and Organisation  Sourcing and Collaboration World Class Process and Systems  Process and Tools  Information and Performance Management©ALL RIGHTS RESERVED - Confidential 19
  20. 20. OGC OGC PCR Output PCR Output World class leadership 1 Visibility and impact of Development area leadership 2 Business and Policy Alignment Urgent development area 3 Stakeholder and Supplier Development Area Confidence 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 Development Area Management©ALL RIGHTS RESERVED - Confidential 20
  21. 21. CAPS Metrics CAPS Metrics http://www.capsresearch.org/Research/Benchmarking/Benchmarking.aspx 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©ALL RIGHTS RESERVED - Confidential 21
  22. 22. Specialist Firms e.g. State of Flux / Future Purchasing Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey©ALL RIGHTS RESERVED - Confidential 22
  23. 23. Assessment methods INTERNAL EXTERNAL PEER Quantitative Collect key metrics – Metrics based survey Private peer track over time (ISM, ATK etc.) benchmarking Qualitative Stakeholder input; Consultant run - Best practice clubs, interviews, conduct interviews discussions etc. questionnaires etc. A Third Dimension - do we look at the entire function or only an element? Note; some approaches combine quantitative and qualitative e.g. OGC PCR process, IIAPS assessment©ALL RIGHTS RESERVED - Confidential 23
  24. 24. A Basis for Assessment? GOVERNANCE Transactional Management – P2P RESULTS / OUTCOMES Category / Sourcing Management • Value / savings STRATEGY & • Stakeholder satisfaction LEADERSHIP • Efficiency Contract & Supplier Management • Risk Management PEOPLE TECHNOLOGY & TOOLS©ALL RIGHTS RESERVED - Confidential 24
  25. 25. A Basis for Assessment? GOVERNANCE Transactional Management - Purchase to Pay RESULTS / OUTCOMES Category / Sourcing Management • Value / savings STRATEGY & • Stakeholder satisfaction LEADERSHIP • Efficiency Contract & Supplier Management • Risk Management PEOPLE TECHNOLOGY & TOOLS©ALL RIGHTS RESERVED - Confidential 25
  26. 26. Part 3 WeWhat Should We Part 3 – What Should – Assess? • 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©ALL RIGHTS RESERVED - Confidential 26
  27. 27. Strategy Strategy • Understanding at Board level of procurement role and 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 business leaders • Clear link between overall organisational strategy and Procurement strategy • Organisation has a clear process for “make versus buy” decisions covering new requirements©ALL RIGHTS RESERVED - Confidential 27
  28. 28. People People There is an appropriate number of procurement professionals given 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.©ALL RIGHTS RESERVED - Confidential 28
  29. 29. Tools Tools and Technology 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©ALL RIGHTS RESERVED - Confidential 29
  30. 30. Governance 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 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©ALL RIGHTS RESERVED - Confidential 30
  31. 31. Key processes (e.g. Contract 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©ALL RIGHTS RESERVED - Confidential 31
  32. 32. Outcomes / Outcomes / Performance 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. (See next Real World Sourcing session!) • Regular measurement/ appraisal of procurement performance with review and feedback upwards through the organisation©ALL RIGHTS RESERVED - Confidential 32
  33. 33. Time-Out: Discussion Time-Out: Discussion What three measures would you use to assess the strength / performance of a procurement function? What would tell you the most, very quickly? You have just three questions / data points.... Ten minutes discussion then feedback©ALL RIGHTS RESERVED - Confidential 33
  34. 34. ImprovementImprovement Outcomes Plans – Acting on the Outcomes The assessment 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©ALL RIGHTS RESERVED - Confidential 34
  35. 35. Improvement Plans Improvement Plans What happens if there are already “improvement plans” in place? You need to determine whether they are realistic • Is there a proper plan – with timescales, deliverables, responsibilities? • Is it properly resourced – not just a few people trying to add it onto their day jobs? • Are the Board (CFO, whoever) aware of it and supportive? • HAS ANYTHING ACTUALLY CHANGED?©ALL RIGHTS RESERVED - Confidential 35
  36. 36. Conclusions and Conclusions key messages and key • There is no single right or best way to assess the function • Think about the alternatives in terms of the factors youre going to assess, who or what youre going to assess against, the methodology you might use, and who will carry out the assessment. • Make sure the assessment 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 success – decide which are the most relevant for your organisation and look to assess against those©ALL RIGHTS RESERVED - Confidential 36
  37. 37. Assessing the Procurement Function Real World Sourcing Scholarship • £2500 towards any procurement based training • Log on to the BravoSolution Education Network with the details you’ll receive tomorrow • Complete the certification programme • Check your ranking! • The winner will be announced at the Sourcing Experts dinner on 19 December©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 37
  38. 38. THANK YOU! Please feel free to contact me on psmith@spendmatters.com©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 38

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