assessing the procurement function

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Spend Matters UK/Europe Real World Sourcing

Assessing the Procurement Function

Guy Allen June 2013




Agenda

1. Introduction

2. Why and how we might do this?

3. What should we assess and how?

4. Acting on the outcomes

5. Real World Sourcing Scholarship



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..




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!

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)!

Part 2 – When / Why / How?



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

The Concept of Appropriateness



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)

What or who are we assessing against?



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)

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

Who will 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

What process will be used to carry 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?

Carrying out the Assessment



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

How do we choose which to use?



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

Pros and Cons - example



Look at some examples – A.T. Kearney



A.T. Kearney – survey driven approach



Example – Agility's Radar

Coherent networks of partner organisations working toward common aims and objectives

Competitive value ensuring sustainable levels of performance

Co

her

ence

Competitive Value

Collaboration with critical and strategic partner organisations

Minimisation of the Total Cost of Ownership

Co

llab

ora

tio

n

Total Cost of Ownership

Cooperation with other functions to align ways of working

Optimisation of delivered costs

Co

op

erat

ion

Delivered Cost

Organisational Impact

Op

era

tio

nal

Co

mp

lexi

ty

Procurement Maturity (Intent)

Org

anis

atio

nal

Mat

uri

ty (

Imp

lem

enta

tio

n)

Functional competence delivering managed prices C

om

pet

ence

Purchase Price



Radar Output



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

UK Government 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

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

Procurement Capability Review Output



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

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



Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey

Specialist Firms e.g. State of Flux / Future Purchasing



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.

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

Assessment methods



Category / Sourcing Management

Transactional Management – P2P

Contract & Supplier Management

RESULTS / OUTCOMES

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

TECHNOLOGY & TOOLS

PEOPLE

GOVERNANCE

STRATEGY & LEADERSHIP

A Basis for Assessment?



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

A Basis for Assessment?



• 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

Part 3 – What Should We Assess?



• 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

Strategy



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.

People



Small number of standard procurement processes, clearly defined, non-

bureaucratic 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

Tools and Technology



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

Governance



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

Key processes (e.g. Contract Management)



• 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

Outcomes / Performance



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

Task 2



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

Point 3 Improvement Plans – Acting on the Outcomes



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?

Improvement Plans



• 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

Final Thoughts



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!




THANK YOU!

Please feel free to contact me on

[email protected]

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