Procurement Goals and Objectives
Are you just joining us? We’re working our way through a series of posts on performance reviews and objective setting for the start of the New Year. Click here to read my recent posts on performance reviews from the manager’s and employee’s perspectives.
If your company works on a calendar year financial close schedule, your Annual Operating Plan (AOP) for 2014 is probably well-developed by now. While these AOP objectives will form a large part of your staff’s goals and objectives, a more comprehensive approach is required for achieving great things in 2014.
Developing and effectively communicating goals and objectives to your staff may be the most crucial thing you can do as a manager.
S.M.A.R.T is still Smart
Making goals and objectives specific, measureable, attainable, realistic, and timely is still a great guideline. Attainability is perhaps the trickiest portion of this approach for Procurement Managers to master.
Human nature doesn’t change. Your staff will be reluctant to over-commit for the fear of under-delivering. Most employees will try to negotiate modest goals so they can then exceed expectations; sandbagging is a natural inclination. It’s the manager’s job to strike the right balance to achieve maximum production from your staff.
Goals and Objectives are a Contract
If you are simply laying down a list of expectations, then you’ve missed an opportunity. It’s akin to a highly-professional volunteer military vs. a force of conscripts. Who is the better-motivated group?
Have a draft of their goals and objectives developed – with your expectations quantified - before they are finalized with the employee. While standardized goals and objectives across your staff are desirable, they should also be flexible.
Solicit the employee’s input: “Are these goals effective in measuring your production?” “Can they be tweaked to make them more relevant”? “Are they any goals that are missing”? In short, finalizing the contract should be a collaborate process.
Cost Savings is Number One
As Procurement professionals, no one will ever convince me that cost savings is not goals number 1, 2, and 3.
Cost savings comes from a number of areas and yet there’s often no common way to measure them, yet another tenet of the SMART model.
Clear cut structural or EBITDA cost savings are easy. Procurement can produce a last price paid or avg. price paid vs. the new price and Finance has no difficulty counting them. Other savings calculations are more nebulous. Think of the Commodity Manager charged with delivering savings from an index-based commodity like metals, resins, or packaging. If there is an unfavorable move in the market, these folks may be working miracles just to mitigate a price increase.
It’s likewise for our Indirect Procurement brethren. For example, negotiating price reductions from Capital projects are not considered EBITDA savings; these efforts are often pejoratively referred to as “cost avoidance” or “soft savings”. Any savings realized may be spread out over the same period of time as the depreciation schedule for the capital expenditure, leaving relatively little in any one year.
Agree on cost savings measureables for the purpose of performance reviews with the employee - even if Finance won’t count it.
Other Procurement Duties
There are a number of Procurement responsibilities far beyond cost savings that must be performed and performed well. Think of all the incumbent supplier-facing issues regarding cost, quality, or delivery. Internal stakeholders look to Procurement to resolve these issues. A year-end, rounded feedback form to the Employee’s key Stakeholders is often useful in evaluating performance in this area.
You may assign employees process improvement objectives such as “Implement a spend management tool” or “Gather business continuity plans from key suppliers”. Consider the scope and scale of these projects when assigning them as formal objectives.
Non-cost savings objectives need to be particularly well-crafted and understood. Again, make these objectives SMART.
- It might seem elementary, but make it a requirement that your staff return all phone calls and emails in the same day received – responsiveness is the first link to excellent customer service
- Schedule quarterly meetings to review objectives with employees; ask the employee to gather these metrics prior to each meeting
- Monitor the number of projects led by each employee; the number of projects that cross the finish line before the end of the year is a critical metric
Hi Bryan, very nice post. I would be curious on your view on setting bonuses for procurement professionals. We wrote a blog on it here: http://blog.marketdojo.com/2011/06/can-you-use-bonuses-in-procurement-to.html?q=sales . Setting a bonus relating to sales is easy but for procurement professionals you would need to take account of other factors. What do you think?