Assessing the Procurement Function

Assessing the Procurement Function
Peter Smith
Wednesday September 5th 2012

Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 1


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

©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 2

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.


Part 2 Why / How? Why / How?
Part 2 – When /
– When /

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 – How? / Why /
Part 2 – When / Why /
When

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)!


The Concept of Appropriateness

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


What or who are we assessing against?
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)


Who will carry out the Assessment?

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)



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
What process will be used to carry out
the assessment?

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


Carrying out the Assess
Carrying out the Assessment

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?

How do we choose which?
How do we choose which to use?

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


Pros and Cons - example
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?
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

Look at some examples – A.T. Kearney


A.T. Kearney – survey driven approach


Look at some examples
Look at some examples – IIAPS

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)


What are we assessing?
http://www.iiaps.org/bench_pscm.html


OGC Procurement Capability
OGC Procurement Capability Review Model
3 Capability Areas 9 Key Indicators

 Leadership
World Class Leadership  Strategy and Business Alignment
 Stakeholder and Supplier Confidence

World Class Skills Development and  People and Skills
Deployment  Intelligent Client
 Governance and Organisation
 Sourcing and Collaboration
World Class Process and Systems  Process and Tools
 Information and Performance
Management


OGC
OGC PCR Output PCR Output
World class leadership 1 Visibility and impact of Development area
leadership
2 Business and Policy Alignment Urgent development area

3 Stakeholder and Supplier Development Area
Confidence
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 Development Area
Management


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


Specialist Firms e.g. State of Flux / Future Purchasing
Topic-specific benchmarking / questionnaires e.g. State of Flux SRM Survey


Assessment methods

INTERNAL EXTERNAL PEER

Quantitative Collect key metrics – Metrics based survey Private peer
track over time (ISM, ATK etc.) benchmarking

Qualitative Stakeholder input; Consultant run - Best practice clubs,
interviews, conduct interviews discussions etc.
questionnaires 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


A Basis for Assessment?

GOVERNANCE

Transactional Management – P2P

RESULTS / OUTCOMES
Category / Sourcing Management • Value / savings
STRATEGY &
• Stakeholder satisfaction
LEADERSHIP
• Efficiency
Contract & Supplier Management • Risk Management

PEOPLE TECHNOLOGY &
TOOLS


A Basis for Assessment?

GOVERNANCE

Transactional Management - Purchase to Pay

RESULTS / OUTCOMES
Category / Sourcing Management • Value / savings
STRATEGY &
• Stakeholder satisfaction
LEADERSHIP
• Efficiency
Contract & Supplier Management • Risk Management

PEOPLE TECHNOLOGY
& TOOLS


Part 3 WeWhat Should We
Part 3 – What Should
– Assess?

• 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


Strategy 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

People
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.

Tools
Tools and Technology 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

Governance 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


Key processes (e.g. Contract
Key processes (e.g. Contract Management)

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

Outcomes / Outcomes / Performance
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

Time-Out: Discussion
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


ImprovementImprovement Outcomes
Plans – Acting on the 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
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?


Conclusions and Conclusions
key messages 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


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
psmith@spendmatters.com


Assessing the Procurement Function

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