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Agenda
Importance of measuring Procurement
Key measures
Examples of different measuring techniques:
Procurement Savings Scorecard
Industry Benchmarking
Integration Savings Scorecard
Next steps
Financial
Production costs
COGS savings
Payment Terms
Leveraged agreements
Supplier consolidation
Low cost country
sourcing
Competitive bidding
Customer Satisfaction
Procurement team utilisation
Cross Functional Groups
Communication
Organisational
Capacity
STRATEGY
Business Processes
Spend under contract
eProcurement usage
Reverse auction use
Purchasing card usage
PO-invoice match rate
Team Satisfaction
Turnover
Development
Procurement Training
Which leads to
Strategically
Leading companies will need to quantify value to its business
customers and the financial market
1 2 3
PLAN
1 2 3
PLAN
1 2 3
PLAN
DESIGN
1 2 3
PLAN
DESIGN
1 2 3
PLAN
DESIGN
IMPLEMENT
1 2 3
PLAN
DESIGN
IMPLEMENT
1 2 3
Communication
Training
Ensuring Compliance
Reporting
Review
Low
1
High
There is little or no
procurement savings
reporting and what is
reported is discounted by
the rest of the
organisation.
5
Procurement savings reports
are widely available and
believed by the rest of the
company. Bottom line
benefits can be clearly traced
to procurement savings.
Define Current
State (As-Is)
Define Ideal
State (To-Be)
Undertake Gap
Analysis
Develop Plan to
address gaps
Cost Benefit
Analysis of
options
Approve
recommendations
Implement
Plan
Senior management
Commitment to cost
reduction
Current cost reduction
initiatives
Support level for leveraged
procurement
Senior management
Finance
Commitment to cost
reduction
View of procurement
organisation
Senior management
Finance
Procurement
Commitment to cost
reduction
Current climate?
View of procurement
organisation
Cautious of corporate
scorekeepers
Double-dipping, who takes glory?
Senior management
Finance
Procurement
Commitment to cost
reduction
Current climate?
View of procurement
organisation
Cautious of corporate
scorekeepers
Double-dipping, who takes glory?
Senior management
Finance
Procurement
Commitment to cost
reduction
Current climate?
View of procurement
organisation
Cautious of corporate
scorekeepers
Double-dipping, who takes glory?
Senior management
Finance
Procurement
Commitment to cost
reduction
Current climate?
View of procurement
organisation
Cautious of corporate
scorekeepers
Double-dipping, who takes glory?
Categories
How can savings be categorised to maximise value and have
meaning within, and outside of, the organisation?
The spend
Assets, goods, services
Strategic, Leveraged, Local
Corporate, Divisional
Structural
Cyclical
Punctual
Cost Avoidance
Savings Type
Structural
Cyclical
Sustainable, medium-long
term price change
Punctual
Cost Avoidance
A one-off savings
achieved through an
identified market
opportunity
Each Divisions Procurement Manager & CFO agree on the procurement savings
achieved, based on the categories and rules developed for the system and report
the agreed upon numbers to their respective corporate functions
2. Procurement Benchmarking
Industry Context
Industry Context
ENABLERS
GOVERNANCE
ENABLERS
STRATEGY
SYSTEMS
PEOPLE & COMMUNICATIONS
CORPORATE SPONSORSHIP & CULTURE
Industry Context
EXECUTION
ENABLERS
PAY
ORDER
NEGOTIATE
EXECUTION
GOVERNANCE
ENABLERS
STRATEGY
SYSTEMS
PEOPLE & COMMUNICATIONS
CORPORATE SPONSORSHIP & CULTURE
Industry Context
IMPACT
IMPACT
RESULTS
EXECUTION
ENABLERS
PAY
ORDER
NEGOTIATE
EXECUTION
GOVERNANCE
ENABLERS
STRATEGY
SYSTEMS
PEOPLE & COMMUNICATIONS
CORPORATE SPONSORSHIP & CULTURE
RESULTS
PAY
ORDER
NEGOTIATE
GOVERNANCE
STRATEGY
SYSTEMS
PEOPLE & COMMUNICATIONS
CORPORATE SPONSORSHIP & CULTURE
Reporting
Key Indicators
Value Add /
Effectiveness
Payment Tools
Payment Terms
Ordering Tools
RESULTS
PAY
ORDER
NEGOTIATE
GOVERNANCE
STRATEGY
SYSTEMS
PEOPLE & COMMUNICATIONS
CORPORATE SPONSORSHIP & CULTURE
Strategy
Understanding
Strategy Relevance
Spend Segmentation
Category Strategy
System Suitability
Reporting & Decision
Support
eProcurement
Structure
Knowledege & Skills
Career Development
Communication
Training
Cost Culture
Influence & Scope
Senior Management
Commitment
Organisational
Compliance
Metrics & Alignment
Improve
V. Low
V. Low
V. High
Org
Low
High
Procurement is a
part time job for an
operator or clerical
employee.
Primary role is to
keep the factory
running. All major
decisions made by
user of the
category/
commodity.
Procurement is
assigned a large
number of
categories, but
major areas are
still under control
of operations or
end-users.
Procurement
manages the
majority of
corporate spend
Procurement has a
high level of
respect and
influence over the
organisations
purchasing
decisions.
Example of Scorecard
Procurement Integration Scorecard
Summary of Individual Initiatives
Opportunity Key
Year 1
Year 2
Year 3
Black = Banked
Black: $1.2
Black: $1.4
Black: $1.6
Green: $2.4
Green: $2.8
Green: $3.2
Amber: $3.3
Amber: $3.7
Amber: $4.6
Red: $5.2
Red: $6.1
Red: $7.4
Total
Opportunity
Total
Opportunity
Total
Opportunity
$5.6
$6.5
$7.7
Measurement is Key
Measurement is essential to delivering a best
practice Procurement function
There are multiple measurement techniques
available
Most importantly choose one and get started, then
refine over time to suit your organisation and needs
There is help available in setting up and
establishing these measurement systems