Download - Assessing the Procurement Function
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Assessing the Procurement Function
Guy Allen June 2013
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Spend Matters UK/Europe Real World Sourcing
Assessing the Procurement Function
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
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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..
Assessing the Procurement Function
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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?
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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?
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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
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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?
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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?
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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?
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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?
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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
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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?
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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
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Look at some examples – A.T. Kearney
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A.T. Kearney – survey driven approach
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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
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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
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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
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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
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Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey
Specialist Firms e.g. State of Flux / Future Purchasing
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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
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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?
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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?
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• 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?
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• 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
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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
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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
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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
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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)
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• 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
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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
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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
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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
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• 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
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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!
Assessing the Procurement Function
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THANK YOU!
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