Lamar W Chesney - Establishing Metrics Drive Value

Establishing Metrics That Drive Real Value

W. Lamar ChesneyExecutive Vice President &Chief Procurement Officer

March 25, 2010

Value Metrics: Fact and Fiction

�Good Metrics incorporate both where you are and where you need t o be (current and future state)

�Good Metrics , agreed to at the onset, define “success” for all parties

�Good Metrics enhance the key objectives of a sound supply chain management (cost, quality, service and continuity)

�Good Metrics are clearly linked to business objectives that supp ort one’s business strategy

�Good Metrics are measures that have matured from cost savings fo cused fundamentals to value creation essentials (expanded margins, cost avoidance, TCO, relationshi p

agility, reliability/certainty, innovation, risk sh aring/mitigation, all leading to a true competitive advantage)

�Good Metrics exemplify the heart of defining value

Good Metrics and Their Proper Management Drive the Right Actions


�Good Metrics are difficult and time consuming to establish

�Good Metrics require extensive collaboration and deep collective thought, necessitating assessment against relevant benchmark s and incorporation of good market intelligence

�Good Metrics need to be few and focused

�Good Metrics are aspirational and attainable

�Good Metrics form the basis for systematic and productive analys is, problem solving and overall governance/management

Establishing Good Metrics at the Outset is Very Difficult, But Worthy of the Investment


�Good Metrics define one’s competitive posture (“ Should I lead or lag the market?”; “What in this arrangement provides comparative as opposed to an absolute advantage?”)

�Good Metrics provide perspective on future as well as present at tainment of goods and services provisioning (commodity expectations mature over time as does de livery expectations)

�Good Metrics reveal self-performance as well as supplier perform ance (“ Are they and we performing to meet our needs as expected? ”)

�Good Metrics provide clarity in differentiation of capabilities in supplier provisioning and supply base partnering (clarifies considerations beyond price alone)

�Good Metrics provide a common language for organizations and com pany leadership to use in discussing ongoing effectivene ss, efficiency and efficacy

Good Metrics are Built into the Total Life Cycle of One’s Commodity Strategy


�Good Metrics establish “manageable” accountability parameters rel ative to the obligation to report, explain and be answerable for results (being sensitive to the law of diminishing returns)

�Good Metrics are defined more by their quality than by their qua ntity (concept of digestibility; falsehood that “big” endeavors requir e “big” lists of metrics)

�Good Metrics are more focused on outcome than on process executi on (leading to fewer, more targeted measures)

�Good Metrics represent a foundational scorecard for reading thro ugh aggregation of metrics rather than through a solita ry measure of results

�Good Metrics incorporate a “blended” perspective provided by supply chain management and the line of business

More Metrics Mean a More Accountable and Effective Supplier


�Good Metrics create measures of success at the outset, not neces sarily midstream (incorporating “context” during performance may feel right but it digresses from what should be to what is felt can be )

�Good Metrics define performance expectations through a collabora tive effort and avoid any sense of imposition

�Good Metrics are more of an indicator of direction (trends, patterns) than they are indicators of precision

�Good Metrics encapsulated in scorecards avoid being viewed as pu nitive measures (rather they lead to indicators of opportunity, enc ouragement and achievement)

�Good Metrics concentrate as much on relationship management as they do on performance management

Creating Metrics is a Good, Quick Fix for Addressing Poor Performance

Turning the Metrics Lens to Self-Performance

Traditional Magnifying Lens Traditional Magnifying Lens Typical Measures of SuccessTypical Measures of Success

Expanded Panoramic Lens Expanded Panoramic Lens Lasting Measures of SuccessLasting Measures of Success

Cost SavingsCost Savings

Value Value From Margin Expansion, Focus on From Margin Expansion, Focus on Core, Prevention of Value ErosionCore, Prevention of Value Erosion




Time to Close DealTime to Close Deal

Best Selection of Best Selection of Supplier & TermsSupplier & Terms




Ease of Doing Business Ease of Doing Business & Relationship Strength& Relationship Strength

Degree of Business Degree of Business Integration & WinIntegration & Win --Win Win

Creation AbilityCreation Ability




Successful Deal Successful Deal ClosureClosure

Value Enhancement & Value Enhancement & SustainabilitySustainability




Viability of SupplierViability of Supplier

Strong Stable of ProvidersStrong Stable of Providers




Initial Risk MitigationInitial Risk Mitigation

Ability to Manage Ongoing Risks Ability to Manage Ongoing Risks & Governance Effectiveness& Governance Effectiveness

The Value of Metrics

Value In Value Out

Long-Term Value

Indicators

Results Over Process

FocusedQuality Time Invested

Aspirational & Attainable Based

Solid Basis for Analysis,

Problem Solving &

Management

Concentrated Few &

Focused Quality Measures

Clear Indicator of

Competitive Posture

Easily U

ndersto

od Common

Language

Indicator of Self & Supplier Performance

Aggregate Trend Indicator

Developed from Benchmarks & Market Intelligence Encouraging, Opportunistic-Filled &

Non-Punitive Scorecards

Performance Categories Performance Metrics

COMMERCIAL

Competitiveness

Cost

Service/Supply Assurance

Commercial Agreements

Payment Process

Supplier Diversity Spend

Sustainability

OPERATIONAL

Delivery Compliance

Quality Product/Service

QA Capability

Changes Meet Success Criteria

Continous Improvement

Connectivity Tools Used

INNOVATION

Idea Pipeline

Commercialization

Intellectual Property

Seamless Teams

RELATIONSHIP

Strategic Alignment

Collaboration

Trust Level

Communication

Commitment

Issue Resolution

P&G Supplier Metrics