How To Measure Your Procurement Team's Performance
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 Key Performance Indicators (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.
Performance metrics must be tailored to the organisation
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:
- Negotiated savings.
- Time taken to conduct a procurement process.
- Customer satisfaction.
- ROI of procurement savings vs procurement team cost.
Balancing short and long term measurement
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.
Increasing the returns to procurement
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. Procurement Co has been able to double this, bringing their clients a 14x return on investment.
To learn more about Procurement Co and how they can work with you to get more from your procurement team, get in touch today.