Assessing the procurement function

©ALL RIGHTS RESERVED - Confidential 1

Assessing the Procurement Function

Peter Smith Wednesday September 5th 2012

Spend Matters UK/Europe



Agenda

1. Introduction

2. Why and how we might do this?

3. What should we assess?

4. Acting on the outcomes

5. Real World Sourcing Scholarship



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 BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates).

Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non-executive director and editor of the Spend Matters website. He was President of CIPS in 2002/3.

Spend Matters UK/Europe Spend Matters UK/Europe Spend Matters UK/Europe



Part 2 – When / Why / How?

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 /

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)!



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


What or who are we assessing against?

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?


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 (wo)man band” to a huge firm

• An academic, professional or institutional body (CIPS, CAPS,

IIAPS etc)

Who will carry out the Assessment?



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

• 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



What process will be used

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?


Carrying out the Assess

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


How do we choose which?

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?


Pros and Cons - example

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


Pros and Cons?

Table Discussion: what are the pros and cons of the following

assessment options:

• An internal team (CPO, graduate trainee and a user from IT)

to analyse key processes against a set of standards we’ve

developed internally

• A benchmark study (50 questions) of procurement

technology use, compared against other global firms, run by a

software company

• Bring in Peter Smith / Guy Allen to do an interview and

analysis-based 10 day review using a version of the OGC PCR

review model

Pros and Cons?


Look at some examples – A.T. Kearney


A.T. Kearney – survey driven approach


Look at some examples

IIAPS

“The tool provides for assessments and benchmarks against

world-class standards for these 184 attributes. This is broken

down by: business buy-in and functional role; stakeholder

management; the major organisational activities and tasks

within the strategic sourcing process; organisational structure;

and systems & processes”.

(Self-Assessment followed by external input)

Look at some examples – IIAPS


http://www.iiaps.org/bench_pscm.html

What are we assessing?

http://www.iiaps.org/bench_pscm.html


OGC Procurement Capability

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

OGC Procurement Capability Review Model


OGC PCR Output

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

OGC PCR Output


CAPS Metrics http://www.capsresearch.org/Research/Benchmarking/Benchmarking.aspx

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


Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey

Specialist Firms e.g. State of Flux / Future Purchasing


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. OGC PCR process, IIAPS assessment

Assessment methods


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?


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?


Part 3 – What Should We

• 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?


Strategy

• 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


People

There is an appropriate number of procurement professionals given nature of the

organisation, current and future resourcing needs are understood and plans are in place

to meet needs.

Recruitment is open, fair, professional, seeks excellence and diversity, with agreed job

descriptions, role profiles, job evaluation and grading processes in place.

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) 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


Tools and Technology

Small number of standard procurement processes, clearly defined, non-

bureaucratic and appropriate to risk involved

Systems (technology) 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 low

value regular purchases 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

Accounts Payable (AP) uses effective processes, is highly automated, and

provides fast, accurate management information

Tools and Technology


Governance

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


Key processes (e.g. Contract

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)


Outcomes / Performance

• 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


Time-Out: Discussion

What 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

Time-Out: Discussion


Improvement Outcomes

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

Improvement Plans – Acting on the Outcomes


Improvement Plans

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


Conclusions and key

• 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.

• 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

Conclusions and key messages


Real World Sourcing Scholarship

• £2500 towards any procurement based training

• Log on to the BravoSolution Education Network with the details you’ll receive tomorrow

• Complete the certification programme

• Check your ranking!

• The winner will be announced at the Sourcing Experts dinner on 19 December




THANK YOU!

Please feel free to contact me on

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