benchmarking an essential reporting tool
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BENCHMARKING An Essential Reporting Tool. Presented By: Nancy Brooks 2008 NAEP Annual Meeting. Dreaded Question #1 or Opportunity #1. How is Purchasing doing? (“What is purchasing contributing to the university?”). The Answer :. - PowerPoint PPT PresentationTRANSCRIPT
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?