Benchmarking the Procurement Function

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Spend Matters UK/Europe

Benchmarking the Procurement Function

Peter Smith May 21st 2014




Agenda

1. Introduction

2. Why and how we might do this?

3. What should we assess?

4. Acting on the outcomes

5. Wrap up

6. Real World Sourcing Scholarship




Part 1 - Introduction

The Real World Sourcing Series 2014 is a series of sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by Tejari, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Ltd.)

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.

Peter was President of CIPS in 2002/3, is an senior adviser to the UK’s National Audit Office and co-wrote “Buying Professional Services”, published by the Economist Books in 2010.




Benchmark (noun)

“A standard or point of reference against which things may be compared”.

Benchmarking (verb)

“To evaluate (something) by comparison with a standard”.




When might we want to benchmark 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!




• 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 benchmarking against




What do we benchmark ourselves against?

We have a number of options - we can use:

• Our own targets, standards or aspirations

• Our competitors activities, processes, performance

• Other firms – peers or best practice exemplars in

different industries

• An external standard (which may be derived from

multiple sources, including other organisations)




Who will carry out the benchmarking?

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)




Who will carry out the benchmarking?

There are a range of institutional and / or regular external

options – for example:

• CIPS / Institute of Supply Management / CAPS

• International Institute for Advanced Purchasing and Supply

• 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




What are we going to analyse?

• Results and outputs?

• Inputs?

• Processes?

• Strategies? Tools and technology?

• Capability?

• Stakeholder opinion (staff, users, suppliers, top team)?

• Are we doing this for the whole function or just focusing on a

particular aspect of the procurement function / activities?




What process will be used to carry out the benchmarking?

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




How do we choose the right benchmarking approach?

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




Consider an external survey based programme such as AT

Kearney or CIPS.

Pros – credibility with colleagues and other organisations; good

data sources (other participants); intellectual / academic

underpinning; thoughtful content, often options to engage with

community

Cons – cost; resource (may require internal commitment to data

gathering etc.); appropriateness issues; potential for “so what”

results; conflicts of interest (consulting firms); standard so

perhaps impersonal approach




Table Discussion: what are the pros and cons of the

following benchmarking 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 based on

informal benchmarks with other firms

• A benchmark study (50 questions) of procurement technology use, compared

against other global firms, run by a major software company

• Bring in Peter Smith / Guy Allen to do an interview and analysis-based 10

day review using a version of the UK government procurement benchmarking

model




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)




3 Capability Areas 9 Key Indicators

World Class Leadership

Leadership

Strategy and Business Alignment

Stakeholder and Supplier Confidence

World Class Skills Development and Deployment

People and Skills

Intelligent Client

World Class Process and Systems

Governance and Organisation

Sourcing and Collaboration

Process and Tools

Information and Performance Management

OGC Procurement Capability Review Model




World class leadership 1 Visibility and impact of

leadership

Development area

2 Business and Policy Alignment Urgent development area

3 Stakeholder and Supplier

Confidence

Development Area

World class people

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

Management Development Area




http://www.iiaps.org/bench_pscm.html

http://www.iiaps.org/bench_pscm.html




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

http://www.capsresearch.org/Research/Benchmarking/Benchmarking.aspx




Specialist firms, topic-specific benchmarking e.g. State of Flux




INTERNAL EXTERNAL PEER

Quantitative Collect key metrics –track over time

Metrics based survey (ISM, ATK etc.)

Private peer benchmarking

Qualitative Stakeholder input; interviews, questionnaires

Consultant run -conduct interviews etc.

Best practice clubs, discussions etc.

Benchmarking methods – a summary

And – do we look at whole function or a subset (a third dimension)?




• Here is a model of procurement that I have used in benchmarking and procurement improvement programmes over the years.

• It is by no means the only one and I am not claiming it is the ‘best’ model!

• But it gives a quite complete picture of the different elements you might want to benchmark.




Category / Sourcing Management

Transactional Management – P2P

Contract & Supplier Management

RESULTS / OUTCOMES

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

TECHNOLOGY

& TOOLS

PEOPLE

GOVERNANCE

STRATEGY &

LEADERSHIP




Category / Sourcing Management

Transactional Management - Purchase to

Pay

Contract & Supplier Management

RESULTS / OUTCOMES

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

TECHNOLOGY

& TOOLS PEOPLE

GOVERNANCE

STRATEGY &

LEADERSHIP




What do we benchmark?

• 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




Strategy

• Understanding at Board level of procurement role & 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 leaders

• Clear link between overall organisational strategy and Procurement strategy

• Organisation has a clear process for “make versus buy” decisions covering new requirements




People

• There is an appropriate number of procurement professionals given the 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.

•




Tools 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

•




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

the 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




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




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.

• Regular measurement/ appraisal of procurement performance with review and feedback upwards through the organisation




The benchmarking 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

Improvement Plans – Acting on the Outcomes




Key Take-aways

• There is no single right or best way to benchmark procurement.

• Think about the alternatives – what to benchmark, who or what you're going to benchmark against, the methodology you might use, and who will carry out the assessment.

• Make sure the benchmarking 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 procurement success – decide which are the most relevant for your organisation and look to assess against those.




Real World Sourcing Scholarship

• 10,000AED towards any procurement based training

• You will receive an email with your Tejari Education Network login details

• Complete the online certification programme

• Answer as many questions right as possible

• The top 10 scorers will be invited to the Awards dinner

• The winner will be announced at the dinner!




What three measures would you benchmark, in order to assess the strength / performance of a procurement function?

What would give you the most insight into how strong the function is?

You have just three questions / data points ...

Ten minutes discussion then feedback




THANK YOU!

Please feel free to contact me on

[email protected]

mailto:[email protected]

Benchmarking the Procurement Function

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Transcript of Benchmarking the Procurement Function