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:
- Effectively engage with cross-functional business stakeholders
- Demonstrate category expertise
- 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:
- Dual source plastic housings in order to improve supply assurance
- Shift product Y to preferred supplier X
- 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.
Read more at Procurement Performance Measurement in 2018
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