5 New Metrics to Help Procurement Become More Strategic
Engagement. Influence. Trusted advisor status.
Procurement has long sought after these things, but historically struggled to reach the level of strategic business partner and obtain a seat at the leadership table. How can they get there? They can start by setting KPIs that measure progress in that direction, suggests Geoff Parsons, former CPO of Deloitte Canada and principal of GP Consulting.
In a recent webinar with Steve Hall of Procurement Leaders and Donna Wilczek of Coupa, Parsons laid out five non-traditional metrics that most procurement organizations probably don’t measure but that could shed light on how close—or far—they are from elevating their organizations to the status they desire.
While they should still track traditional savings and cost performance metrics (most organizations have considerable room to grow in those areas, according to research presented by Hall) they need expand into other KPIs that consider the client viewpoint, nature of the relationship and overall value they are bringing to their business stakeholders.
Only looking at the traditional metrics is keeping the function stuck in a transactional customer service-type role rather than a client-centric consulting and business advisory one, says Parsons. He came to procurement from consulting, and views the function through that lens.
“In a consulting arrangement you have to demonstrate honesty, integrity and sincerity in order to earn the respect and trust of your client,” he said. “For procurement, that translates into a very definitive series of steps that begins with listening to your clients, understanding their needs and requirements, and acting upon those requests to deliver the services that they expect. This is fundamental to any service organization.”
He proposes procurement organizations develop five qualitative and quantitative metrics that speak to their effectiveness in those areas.
1. Are You Customer Service or Client Service Function? Parsons defines customers as people who mainly buy products or services. Clients, however, are buying advice and solutions that are personalized to their particular needs. Procurement should try to gain insight on how the business views their relationship. Do they see procurement as a transactional customer service function, or as a group to consult for insights? Collecting honest feedback in this area can provide a framework for developing the relationship and advancing your value proposition.
2. How Engaged Are You With Internal Stakeholders and Business Leaders? To what degree are you viewed as a strategic stakeholder and called on as a contributor to business planning? Ongoing involvement and participation in planning activities is a key indicator of engagement. The types and frequency of those business and strategic planning activities are things that you should be measuring.
Ask your stakeholders how prepared they think you are to offer insight. Can you provide a view of what's happening in the marketplace, and with other organizations, that can help them shape their future plans?
3. How Aligned Are You With Overall Business Objectives? Procurement plans and objectives should be compared against the strategic business plan. Check in with your stakeholders to verify that they are aligned, and then close any gaps that are identified. Then, have a plan to check in to maintain your alignment during that cycle. There's no sense in aligning around plans if you don't take the time to check in periodically about what you're doing, and then act accordingly to make changes in stream.
4. Are You a Trusted Advisor? In many organizations, the C-suite is planning for growth. That’s a conversation procurement needs to be part of. Are you being called on to develop the supply base in new markets? Are people knocking on your door, and pulling you into forward-looking conversations about risk, supplier performance and innovation? Or are they just pushing POs your way? Size up the frequency and nature of your interactions and collaborations, and gauge demand for your services.
5. Are You Delivering Value? Delivering savings is expected. Delivering value beyond savings is the key to moving to a new level of business engagement. That could mean using technology to speed up processing times and help the company become more agile. It could mean helping the company scale and handle greater complexity. It could be bringing data analytics to inform decision-making. What’s valuable will vary from company to company.
Keep it Simple
How can procurement organizations go about measuring these new KPIs? As with any performance metric, the first thing you need to do is define what "success" looks like. Then seek feedback from those that you serve to understand how well you're performing against your definition.
Parsons recommends starting with a very simple survey with questions that can be answered "Yes" or "No" or "Sometimes.” Questions an be as straightforward as "Are you receiving value from the service that is being performed by procurement?"
It’s very important that you determine what you will do with the results. If you start to ask questions of the stakeholders that you serve, be prepared to receive and accept their feedback, and to take action to address the gaps.
This is not a one-time exercise. Parsons suggested that procurement continuously survey the groups they serve, and exploring new ways of exchanging ideas and collaborating. Wilczek suggested that the same process, or a version of it, be extended to external suppliers as well, in support of supplier innovation.
“The role of procurement continues to grow and change,” said Parsons. “In order to become a real client-centric organization within an enterprise, and move beyond the day-to-day basics, these are the kind of metrics that can help you and your team get out of that box and start to think differently.
To view the entire webinar, “5 Metrics That a Successful Procurement Function Should Track,” click here.