Assessing the Procurement Function

Assessing the Procurement Function
Guy Allen
June 2013

Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential

Real World Sourcing

Agenda
1.
2.
3.
4.
5.

Introduction
Why and how we might do this?
What should we assess and how?
Acting on the outcomes
Real World Sourcing Scholarship


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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 Bravo
Solution, and developed by Peter Smith (Spend Matters) and Guy Allen
(Real World Sourcing).
Guy Allen started his procurement career with Ford Motor Company,
moving through IBM, SmithKline Beecham and GSK before becoming
CPO for Abbey National and VP Global Sourcing at Fujitsu before joining
4C as a Managing Partner. Guy has since left 4C and started his own
consultancy, Real World Sourcing Limited..


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Part 2 – When / Why / How?
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!

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Part 2 – When / Why / How?
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)!


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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

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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)

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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 man band” to a huge firm
• An academic, professional or institutional body (CIPS MENA,
CAPS, IIAPS etc)


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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 MENA
• 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

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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

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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?
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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


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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


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Look at some examples – A.T. Kearney


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A.T. Kearney – survey driven approach


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Example – Agility's Radar
Coherence

Coherent networks of
partner organisations
working toward common
aims and objectives

Operational Complexity

Collaboration
Cooperation
Competence

Organisational Maturity (Implementation)

Organisational Impact

Collaboration with
critical and strategic
partner organisations

Cooperation with
other functions to
align ways of working

Functional
competence
delivering
managed prices
Purchase Price

Optimisation of
delivered costs

Delivered Cost

Minimisation of the
Total Cost of Ownership

Competitive value
ensuring sustainable
levels of performance

Total Cost of Ownership

Competitive Value

Procurement Maturity (Intent)


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Radar Output


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UK Government 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
Deployment

 People and Skills
 Intelligent Client
 Governance and Organisation
 Sourcing and Collaboration

World Class Process and Systems

 Process and Tools
 Information and Performance
Management


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Procurement Capability Review Output
World class leadership

Visibility and impact of
leadership

Development area

2

Business and Policy Alignment

Urgent development area

3

Stakeholder and Supplier
Confidence

Development Area

4

Resourcing

Development Area

5

Intelligent Client capability

Urgent Development Area

6

Governance and organisation

Serious concerns

7

Sourcing and collaboration

Well placed

8

Use of tools and techniques

Well placed

9

World class systems

1

Knowledge and Performance

Development Area

Management


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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

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Specialist Firms e.g. State of Flux / Future Purchasing
Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey


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Assessment methods
INTERNAL

EXTERNAL

PEER

Quantitative Collect key metrics –
track over time

Metrics based survey
(ISM, ATK etc.)

Private peer
benchmarking

Qualitative

Consultant run conduct interviews
etc.

Best practice clubs,
discussions etc.

Stakeholder input;
interviews,
questionnaires

A Third Dimension - do we look at the entire function or only an element?
Note; some approaches combine quantitative and qualitative e.g. PCR process,
IIAPS assessment


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A Basis for Assessment?
GOVERNANCE

Transactional Management – P2P
RESULTS / OUTCOMES
STRATEGY &
LEADERSHIP

Category / Sourcing Management

Contract & Supplier Management

PEOPLE


• Value / savings
• Stakeholder satisfaction
• Efficiency
• Risk Management

TECHNOLOGY &
TOOLS

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A Basis for Assessment?

GOVERNANCE

Transactional Management - Purchase to Pay
RESULTS / OUTCOMES
STRATEGY &
LEADERSHIP

Category / Sourcing Management

Contract & Supplier Management

PEOPLE


• Value / savings
• Stakeholder satisfaction
• Efficiency
• Risk Management

TECHNOLOGY
& TOOLS

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Part 3 – What Should We 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

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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
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People

People

There is an appropriate number of procurement professionals given nature of the
organisation, current and future resourcing needs are understood
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 MENA) 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.


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Tools and Technology
Small number of standard procurement processes, clearly defined, nonbureaucratic and appropriate to risk involved

Systems 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 where
appropriate 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 / Governance
Accounts Payable (AP) uses effective processes, is highly automated, and
provides fast, accurate management information


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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

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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


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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. (See next Real
World Sourcing session!)
• Regular measurement/ appraisal of procurement performance
with review and feedback upwards through the organisation
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Task 2

Which 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


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Point 3 Improvement 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

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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?

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Final Thoughts
• There is no single right or best way to assess the function
• Think about the alternatives in terms of the factors you're
going to assess, who or what you're going to assess against, the
methodology you might use, and who will carry out the
assessment and why you are doing it
• 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

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Real World Sourcing Scholarship
• 10,000AED towards any procurement based training
• Go to StrategicSourcing.ae with the URL you will receive
tomorrow by email
• Complete the certification programme
• The winner will be announced at the end of the series!


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THANK YOU!
Please feel free to contact me on
guyallen@realworldsourcing.com


Real World Sourcing

Assessing the Procurement Function

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