Editor’s Note: Ardent Partners would like to invite you to our Procurement 2016: Big Trends and Predictions webinar that we are hosting on Thursday, January 28 at 2 PM EST. This is a fantastic way to prepare for the year ahead. Register here!
* * *
“Selecting the right metrics and gaining credibility for them is much more important than the numbers themselves.” – Chief Procurement Officer, Financial Services Company
Businesses measure their revenues and profits for a reason – because they matter. These numbers matter to employees, they matter to owners and shareholders, and they matter to customers and suppliers. The bottom line numbers that get reported are a final “score” for a “game” that was played last quarter or last year. And, businesses, by and large, are playing that game to win. If they were not, they would not keep score. For Chief Procurement Officers (“CPOs”) and their departments, procurement results matter and they increasingly matter to the larger enterprise. Scoring procurement performance can be as complex and nuanced as the value that the function can deliver and linking that performance to overall business objectives and results can be even more difficult.
Nonetheless, CPOs must keep score of their team’s performance and they should use the opportunity to develop a set of metrics that can help procurement prioritize and focus its resources, track and improve its performance, and help communicate the value that it delivers in support of enterprise objectives and what it plans to achieve in the future. “The onus is on the CPO to demonstrate clearly and unequivocally, what procurement’s value proposition is to finance [and the rest of the company],” said a CPO at a major international technology firm. To win and advance and continue to broaden the influence and impact that procurement has on the enterprise, CPOs must play the game and play it well.
Procurement Performance Measurement Recommendations
Several years ago, Ardent Partners developed a CPO Scorecard™ for procurement and finance executives to better measure procurement’s performance. Finance and procurement leaders must begin to consider, discuss, and develop a more sophisticated and comprehensive way to evaluate and present procurement’s performance to the larger enterprise. If procurement’s transformation is to continue, a more balanced approach to measuring its performance is needed. Specifically, Ardent Partners believes that the CFO and CPO should work together to develop a CPO Scorecard™ that incorporates the following:
(1) Hard financial metrics including savings and cash flow impact
(2) Stakeholder metrics including internal customer feedback and supplier performance and risk
(3) Process and technology metrics including procurement efficiency and activity metrics
(4) People and knowledge metrics including staff competencies, training, and retention
The scorecard metrics should be linked directly to a procurement department strategy document (or plan) which, in turn, should link to the primary goals and objectives of the enterprise. The actual metrics and their associated weights may be unique to each group and based upon specific strategy, industry, supply, and enterprise specific considerations. The CPO Scorecard™ should be used to evaluate the performance of the CPO, the procurement department as a whole, and individuals on the procurement staff.
For many, changing the way that the procurement department’s performance is measured will change the way in which the department is managed; but, all, who adopt a Scorecard, will now have a formalized mechanism to validate their strategic plan and evaluate their success in executing it as well as a clear way to communicate procurement’s strategic value and vision to the larger organization.
Looking to learn more about the CPO Scorecard and best practices in procurement performance management? Consider attending our CPO Rising 2016 event in Boston on March 29 & 30, 2016. Registration is now open.