To get the best from a business unit, you always need to be measuring its performance. Whether it's sales, marketing or product development, using KPIs to track how a business unit is performing gives you the information needed to make improvements where necessary. The same is true for your procurement team.
We spoke with Heath Jess and Ryan Jackson, co-directors of RESOURCE2SOURCE, to find out exactly how this can be accomplished.
There's no cookie cutter approach to measuring performance.
How procurement performance is measured is always going to vary from organisation to organisation. As Heath explained, ''it has to align with the most critical elements the business needs its procurement team to deliver. So there's no cookie cutter approach to measuring performance, because you could roll out the same measurements to all organisations but there will be only a few that matter for each. What's important is going to depend on what the organisation does and what they're procuring."
So while there's no one KPI for procurement teams that will suit every organisation, there are a number of commonly used metrics, such as:
Whatever the metrics you choose, it's important they align with the strategic objectives of the business, and are updated if and when those objectives change. Just having one rolling KPI that never changes can be difficult for employees to focus on, and subsequently much easier to ignore. Instead, Ryan explained, "there's an opportunity to hone a procurement team's focus and give them a three month KPI that aligns to a sprint or campaign, or a business objective. It can be targeted to achieve outcomes over a short period of time."
That said, it's still important to have longer term KPIs as well. Heath noted that ''they can help the procurement team understand their own performance, so when the business asks them how long a tender will take, they know from their metrics it'll take them, say, three months and they can stand by that.'' Finding the balance between shorter-term targeted metrics and longer-term general performance tracking is therefore key.
All this performance measurement isn't worth conducting if it not reviewed and reported. Procurement is a service provider to an organisation, so it's important to ensure the procurement function is providing a service which meets or exceeds business requirements. Establishing measures and targets ensures performance can be tracked and reviewed in a clear and transparent manner.
Ryan explained the importance of taking a service-provider view of procurement within a business.
''Procurement functions are generally an overhead to the organisation, or a business support cost to a business unit. As such, its important from an overall profitability perspective that organisation's understand the performance of their procurement teams, to ensure that the level of service being supplied to the business is efficient and of high quality."
A high quality procurement service is one that provides a good return on investment. A study from the Chartered Institute of Procurement and Supply (CIPS) found top Australian procurement teams delivered a 7x return on investment to their firms. RESOURCE2SOURCE has been able to double this, bringing their clients a 14x return on investment.
To learn more about how RESOURCE2SOURCE and how they can work with you to get more from your procurement team, get in touch today.