[Editor’s Note: Over the next few weeks on CPO Rising we are publishing some “best of” 2020 articles as we reflect on the year and prepare for the new year ahead.]
As our recently released Procurement Metrics that Matter in 2020 eBook shows, in times of great stress and uncertainty, companies revert to their more basic selves. This means that “savings” and “the impact on cash” are about to become significantly more important for the Chief Procurement Officer as well as the CFO and CEO. Nonetheless, I think that it is useful to understand the approaches that different procurement organizations use to measure their performance.
I have been reviewing my notes on several conversations I’ve had with CPOs and saw that performance measurement was a frequent topic. Here is an aggregation of a few of those conversations:
Chief Procurement Officer, Industrial Manufacturing “We issue a monthly scorecard that tracks raw material pricing year on year with currency and volume neutralized… We identify, negotiate, and propose savings ideas to the business. Once approved, there is a transfer of ownership from procurement to the business which creates dual ownership of the results and helps ensure we realize the full opportunity. “
VP, Direct Materials, Industrial Chemical Company “Our performance is based solely on PPV which is computed against last price paid.”
CPO, CPG Industry “Savings is always part of our balanced scorecard, but its weight changes as we move through business cycles”
CPO, Fortune 100 company “We report roughly 30 different metrics across the operation. From invoice holds and payment terms to productivity and quality… and they all matter.
Head on Non-Trade Procurement, Retail “Our main KPIs – (1) Savings (2) Percentage spend oversight (3) Black Economic Power scorecard (4) % spend under contract.”
Sourcing Director, Construction Industry “We primarily track savings, defined as a price-to-price comparison only (no avoidances). Procurement is also heavily involved in working capital, and we track the cash conversion cycle (A/R + Inventory – A/P) performance.”
CPO, Financial Services Industry “Our overall assessment of our performance is more subjective than objective… 360-feedback at year end is how our success is defined…. no formal metrics in place”
CPO, Global Manufacturer “We are measured on three things: how much benefit we bring to the bottom line as measured by EBITDA contribution, risk profile, and operational costs like inventory management.”
Director Indirect Procurement Fortune 50 Company “Our main metrics are savings, spend under influence, diversity spend, training, and promotions. We have a global policy for savings definition to keep it objective.”
CPO, Global Agricultural Trading Company “I am tracking and report 13 different KPIs on a monthly basis… metrics like total spend in each region, spend in scope, contracts, savings, number of suppliers, etc. to make sure we are on the right path in our journey. For now, hard savings is the only metric being tracked by the larger enterprise.”
VP, Indirect, Services, and Real Estate, Fortune 200 Company “We report many metrics to our CFO on a monthly basis. The only metric he was really interested in is our annualized savings number.”
Director of Supply Chain Operations, Public Sector “We are measured on six key metrics: (1) Supplier scorecarding performance (2) Cost per PO (3) Discounts generated from early payments (4) Savings (5) Buyer productivity and (6) Line item and order fill rates.”
If you’re interested in discussing how your company tracks procurement performance, drop me a line.
Kick off 2021 with Ardent’s “Procurement 2021: Big Trends & Predictions” Webinar
