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Procurement Performance Measurement in 2018

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Organizations today rely on Procurement to drive value beyond unit price savings. For Chief Procurement Officers (CPO), it is challenging to measure the performance of managers who drive these sources of value. Fair and accurate performance measurement is critical for attracting, retaining and promoting top procurement talent. In a typical procurement environment, some categories require larger efforts on cost and risk avoidance, with minor savings achievements, while other categories yield significant savings by nature of the products purchased. For some categories, securing the latest technology to enable top-line growth may far outweigh the importance of purchase price. How can the CPO assess individual category manager performance, each driving unique value, on an even playing field?

Measuring Procurement Effectiveness

In mature procurement organizations, category managers develop value-based category strategies to target underlying metrics, beyond purchase price variance (PPV), based on their unique category and/or portfolio.

Individual performance effectiveness of category managers is then based on their ability to:

  1. Effectively engage with cross-functional business stakeholders
  2. Demonstrate category expertise
  3. Develop and deliver against value-based category strategies

Building a value-based category strategy

Identify Value Drivers

Use of a Category Health Methodology, in which category managers can analyze spend and determine what types of underlying variables (or value drivers), can predict strong business results.

Translate Value Drivers into Specific Business Objectives

Category managers identify value drivers and translate those drivers into specific business objectives.

Based on these value drivers, the category manager outlines the following objectives:

  1. Dual source plastic housings in order to improve supply assurance
  2. Shift product Y to preferred supplier X
  3. Negotiate contracts with supply base in order to map cost to commodity index

Determine a Set of Quantifiable Scorecard Metrics

The final step in the process is to map the objectives to metrics that can be used to assess, and compare, the category manager’s performance against the goals laid out in their category strategy.

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Global Supply Chains Are About to Get Better, Thanks to Blockchain

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When an E.coli outbreak at Chipotle Mexican Grill outlets left 55 customers ill, in 2015, the news stories, shutdowns, and investigations shattered the restaurant chain’s reputation. Sales plummeted, and Chipotle’s share price dropped 42%, to a three-year low, where it has languished ever since.

At the heart of the Denver-based company’s crisis was the ever-present problem faced by companies that depend on multiple suppliers to deliver parts and ingredients: a lack of transparency and accountability across complex supply chains. Unable to monitor its suppliers in real time, Chipotle could neither prevent the contamination nor contain it in a targeted way after it was discovered.

Now, a slew of startups and corporations are exploring a radical solution to this problem: using a blockchain to transfer title and record permissions and activity logs so as to track the flow of goods and services between businesses and across borders.

With blockchain technology, the core system that underpins bitcoin, computers of separately owned entities follow a cryptographic protocol to constantly validate updates to a commonly shared ledger. A fundamental advantage of this distributed system, where no single company has control, is that it resolves problems of disclosure and accountability between individuals and institutions whose interests aren’t necessarily aligned. Mutually important data can be updated in real time, removing the need for laborious, error-prone reconciliation with each other’s internal records. It gives each member of the network far greater and timelier visibility of the total activity.

Read more at Global Supply Chains Are About to Get Better, Thanks to Blockchain

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