BENCHMARKINBENCHMARKINGG

An Essential An Essential Reporting ToolReporting ToolPresented By:Presented By:

Nancy BrooksNancy Brooks

2008 NAEP Annual Meeting2008 NAEP Annual Meeting

Dreaded Question #1Dreaded Question #1or or

Opportunity #1Opportunity #1

How is Purchasing How is Purchasing doing?doing?

(“What is purchasing contributing to the (“What is purchasing contributing to the university?”)university?”)

The AnswerThe Answer::

Last FY, we Last FY, we managedmanaged $240 millions of $240 millions of spendspend, which represents , which represents 71% of the 71% of the institutional spendinstitutional spend. We documented . We documented cost savings and added revenue cost savings and added revenue generation of $8.9 milliongeneration of $8.9 million, which , which translates to a translates to a 711% return on 711% return on investment. investment. We continue to We continue to promote promote social responsibility social responsibility and and add value add value to to the campus community.the campus community.

Dreaded Question #2Dreaded Question #2oror

Opportunity #2Opportunity #2

““So, how does that So, how does that compare with our compare with our

peers?”peers?”

BenchmarkingBenchmarking

o Originated as a surveying term Originated as a surveying term

A distinguishable mark placed on a A distinguishable mark placed on a wall, building, or rock that is used as a wall, building, or rock that is used as a reference point to determine elevation reference point to determine elevation & position in topography surveys& position in topography surveys

Nancy was here

What isWhat is

BenchmarkingBenchmarking??

BenchmarkingBenchmarking

In business, benchmarking is used in a In business, benchmarking is used in a similar way to select reference points to similar way to select reference points to make measurements.make measurements.

It becomes a It becomes a standardstandard to measure performance to. to measure performance to.

Who Benchmarks?Who Benchmarks?

Organizations who want toOrganizations who want to

IMPROVE PERFORMANCEIMPROVE PERFORMANCE

benchmarks of oldebenchmarks of olde

OutputsOutputs

# of purchase orders# of purchase orders

# of quotes issued# of quotes issued

# of purchase orders per buying # of purchase orders per buying FTEFTE

# of days to process a requisition# of days to process a requisition

Cost to process a purchase orderCost to process a purchase order

..

Old benchmarks were measuring the Old benchmarks were measuring the outputs of a process…..outputs of a process…..

But, what are the outcomes of the But, what are the outcomes of the efforts?efforts?

What is the What is the valuevalue of the of the process?process?

Old Benchmark AnalysisOld Benchmark Analysis

Is it better to have the # of purchase Is it better to have the # of purchase orders increase or decrease?orders increase or decrease?

Strategic sourcing would lead us to Strategic sourcing would lead us to believe that the numbers should believe that the numbers should decrease. But what is you campus is decrease. But what is you campus is expanding or significantly increasing expanding or significantly increasing sponsored funding?sponsored funding?

Old Benchmark AnalysisOld Benchmark Analysis

Is it better to issue lots of quotes or Is it better to issue lots of quotes or very few?very few?

Too many solicitations could indicate a Too many solicitations could indicate a lack of strategic sourcing or lack of strategic sourcing or inefficient bid thresholds.inefficient bid thresholds.

Too few quotes could indicate too many Too few quotes could indicate too many sole source procurements.sole source procurements.

Old Benchmark AnalysisOld Benchmark Analysis

Is a higher number of purchase orders Is a higher number of purchase orders processed per buying FTE better processed per buying FTE better than a lower number?than a lower number?

Measuring the number of purchase Measuring the number of purchase order per buying FTE measures the order per buying FTE measures the productivity of a process productivity of a process notnot the the value added by the process.value added by the process.

Benchmarks of oldeBenchmarks of olde

The outputs we used to measure The outputs we used to measure are actually counter to the are actually counter to the business efficiency and business efficiency and effectiveness we seek to achieve.effectiveness we seek to achieve.

New BenchmarksNew Benchmarks

What do we benchmark?What do we benchmark?

What we measure should be What we measure should be strategically strategically

aligned with organizational goals.aligned with organizational goals.

Performance MetricsPerformance Metrics

Translate to the value that Translate to the value that procurement has within the procurement has within the organizationorganization

Be understandable by, and Be understandable by, and meaningful to, senior administrationmeaningful to, senior administration

Be verifiableBe verifiable

Key Performance Key Performance IndicatorsIndicators

Percentage of total spend under Percentage of total spend under managementmanagement

Procurement ROI (savings/operating costs)Procurement ROI (savings/operating costs) Contract complianceContract compliance Subjective feedback (structured, survey-Subjective feedback (structured, survey-

based)based)

Source: Aberdeen Group, November 2007Source: Aberdeen Group, November 2007

Key Performance Key Performance Indicators/Benchmarks in Indicators/Benchmarks in

Higher EducationHigher Education

% of total spend under management% of total spend under management Cost to process $1 of spendCost to process $1 of spend Cost savingsCost savings Average spend per procurement Average spend per procurement

professionalprofessional Procurement’s return on investment Procurement’s return on investment

(ROI)(ROI) # Hours of professional development # Hours of professional development

per procurement professionalper procurement professional

Where do we start?Where do we start?

Collecting the pertinent dataCollecting the pertinent data

1. Institutional Profile:1. Institutional Profile:

a) Number of Students (headcount vs a) Number of Students (headcount vs FTE)FTE)

b) University operating budget less b) University operating budget less salaries onlysalaries only

2. Procurement Organizational Structure2. Procurement Organizational Structure

a) Titles of procurement staffa) Titles of procurement staff

b) Who does procurement report to?b) Who does procurement report to?

Collecting dataCollecting data

3. Procurement’s functions & 3. Procurement’s functions & responsibilitiesresponsibilities

a) functions performed by a) functions performed by procurementprocurement

b) responsibilities of procurement b) responsibilities of procurement professionalsprofessionals

4. Operating budget of Purchasing 4. Operating budget of Purchasing departmentdepartment

Collecting DataCollecting Data

5. Delegated Authority5. Delegated Authority

a) P-carda) P-card

# of active cards# of active cards

# of transactions# of transactions

Net Expenditures Net Expenditures

Transaction limitTransaction limit

b) Other forms of delegated b) Other forms of delegated authorityauthority

Collecting DataCollecting Data

6. Central Procurement Activity6. Central Procurement Activity a) Purchase Ordersa) Purchase Orders

# of purchase orders# of purchase orders Dollars spent on purchase Dollars spent on purchase

ordersorders b) Expenditures not captured on b) Expenditures not captured on purchase purchase ordersorders

# of contracts# of contracts Dollar value of contractsDollar value of contracts

Collecting DataCollecting Data

Hours of professional development Hours of professional development (hours of coursework in obtaining degree, hours (hours of coursework in obtaining degree, hours

of workshops at regional and annual NAEP of workshops at regional and annual NAEP meetings, other formalized training meetings, other formalized training opportunities)opportunities)

Benchmark OutcomesBenchmark Outcomes

Total spend managed by Total spend managed by procurement procurement (Delegated & central activity if (Delegated & central activity if managed by procurement)managed by procurement)

% of total university spend managed % of total university spend managed by procurement (by procurement (Total spend Total spend managed/Univ. budget less salaries)managed/Univ. budget less salaries)

Average spend responsibility per Average spend responsibility per procurement professional procurement professional (Total spend (Total spend less p-card/number of buying staff)less p-card/number of buying staff)

Benchmark OutcomesBenchmark Outcomes

Efficiency: Cost to process $1 of spend Efficiency: Cost to process $1 of spend (Operating budget/total spend managed)(Operating budget/total spend managed)

Cost Savings or Increase in Revenue Cost Savings or Increase in Revenue GeneratedGenerated

Return on Investment (ROI)Return on Investment (ROI) (Savings + increase in revenue/purchasing operating (Savings + increase in revenue/purchasing operating

budget)budget)

Investment in Professional DevelopmentInvestment in Professional Development(Total hours of professional development completed)(Total hours of professional development completed)

Best-In-ClassBest-In-Class

Cost Savings on total spendCost Savings on total spend > 5%> 5%

Return on Investment Return on Investment > > 700%700%

% of spend under management% of spend under management > 70%> 70%

Source: “The CPO’s Strategic Agenda-Managing Performance, Reporting to Source: “The CPO’s Strategic Agenda-Managing Performance, Reporting to the CF”the CF”

Aberdeen Group, 2007Aberdeen Group, 2007

The Value of The Value of BenchmarkingBenchmarking

The institution must be introduced to The institution must be introduced to the “radical” concept that procurement the “radical” concept that procurement can do more than manage the order and can do more than manage the order and delivery of goods and services; that it delivery of goods and services; that it can deliver strategic value to its internal can deliver strategic value to its internal customers and to the institution at large.customers and to the institution at large. Benchmarking the appropriate key Benchmarking the appropriate key

indicators of performance will help indicators of performance will help procurement articulate its value.procurement articulate its value.

Thank You!Thank You!

Questions?Questions?