The Path To Best-in-Class Procurement

What Does It Take To Be Best-in-Class?

PurchTips Edition #404

If you want to achieve best-in-class procurement performance, you have to take four steps on the path there. They are:

1. Rightsize your metrics. Performance improvement can be almost meaningless if you’re improving at the wrong things. So, at least yearly, assess whether the metrics your procurement department is using are the best ones. For example, if your charge is to achieve maximum cost savings but two of your major metrics are “number of suppliers used” and “percentage of invoices with discrepancies,” there’s a problem. Always align your metrics with your charge.

2. Outpace yourself. One way of knowing how well you’re doing is by comparing this year’s performance versus last year’s performance. If you’re not doing measurably better, at face value, it appears that your procurement department is failing to meet its own standard. Like a fine wine, a procurement department should get better over time, not worse.

3. Outpace business growth. While comparing a procurement department’s performance over time is essential because it shows, with a maximum number of constants, the rate of improvement of the department. What it doesn’t communicate is whether that rate of improvement is fast enough for the organization. For example, if the procurement department’s total savings is 10% higher than last year, that sounds good. But, if the organization had sales and spend growth of 90%, all of a sudden a 10% improvement sounds pretty weak.

4. Outpace the industry. Even if you achieve year-over-year gains and exceed business growth, you still are only performing well by your own standards. Are those standards too low? The only way to know is to compare your performance measurements with those of other procurement departments. You may find that you’re indeed performing well. Or you may find that there’s a long way to go to be best-in-class. But that’s not a bad thing. Those that know how best-in-class procurement departments perform have a better chance of attaining similar success than the clueless.

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Copyright 2018. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By Charles Dominick, SPSM, SPSM2, SPSM3