Procurement organizations often note one pursuit above all else: getting a seat at the table. I think we have coined this phrase more than any other in the procurement space in the last decade. If you’re not familiar with this concept, it is the desire for procurement to been viewed as a valued asset in strategy building and decision making by its customers: the broader organization. Put simply, procurement wants to be heard early and clearly by their internal peers.
It is important to point out, however, that getting a seat at the table, a task that is challenging in and of itself, should not be considered a win alone. Getting the seat is one thing, getting the right seat is another, and keeping the seat is yet another. No one wants to arrive at a dining table only to find themselves relocated to the kids’ table - and then be dismissed half way through the meal. The idea of getting to the table has been covered enough, but how do we sustain procurement’s position once we’ve obtained it?
Let’s take a step back and recall the tactics we used to get there. We demonstrated that procurement is a valuable resource to the organization, able to drive results through strategic sourcing and purchasing best practices. We promised a positive ROI on our services through savings and operational efficiencies. We said if you invest in the right technology, the automation of processes will create numerous efficiencies for our function and yours. We said procurement can help you manage your suppliers better and help you make informed decisions about purchases. In turn, the business said, “Wow - that sounds great! Do it!” With that business case, you are now ‘at the table’. When the business follows up to find out how procurement is making out with all of its promises, it is important to have an answer ready.
This is where metrics come in. The best way to demonstrate value and results to non-procurement peers is by using solid data analytics.
To demonstrate a positive ROI, you will need the two factors of the equation: the cost of the procurement function (salaries plus overhead of all procurement staff) and a time-based measurement of cost savings. An annual calculation is a good place to start. This means that you will need to track cost savings on a regular basis. You will need to have a clear definition that is in alignment with finance for what is considered cost savings versus cost avoidance. By tracking cost savings to calculate ROI, you already have your strategic sourcing results proof too!
Operational efficiency gains can be a little trickier to calculate. This could include various metrics, such as payment term improvements. This is easy enough to track with the help of finance. Other metrics include the cost to process an invoice using a manual process versus automated, or the time allocated to strategic activities versus tactical ones. Depending on the audience, all of these metrics can demonstrate how strategic sourcing and technology support the effort to keep procurement focused on results oriented work versus unnecessary paper pushing.
Supplier management is another process that is heavily enhanced through the use of metrics, including key performance indicators and service level agreements. Procurement should play an active role in developing strategic supplier relationships by providing analytics to support quarterly business review (QBR) discussions and compliance tracking. Procurement can help risk management by collecting, storing, and tracking risk related triggers like industry trends or supply chain disruptions. Procurement should be soliciting vital market intelligence to offer their internal customers insight into how and when to buy goods and services with specific suppliers. They can track market trends and act as advisors to the business so that the business can focus on their role….running the business.
Metrics tracking not only supports the value proposition of procurement, it can also help develop stronger partnerships. For instance, finance and procurement work hand-in-hand to support the business. Their services are intertwined and as such they should have a model for collaborating closely throughout the procurement lifecycle to ensure seamless support and avoid risk exposure. Some of the metrics noted can also act as the foundation for better relationships with internal stakeholders, proving that procurement can be an asset (not a roadblock) to achieving their goals.
Ultimately, there are many ways procurement can maintain the ‘right’ position at the table, one that commands respect and demonstrates a clear value proposition. Metrics tracking and reporting is just one way to prove procurement’s worthiness as a part of the strategy building and decision making process.