The Balanced Scorecard For Procurement

Could You Use A Procurement Balanced Scorecard?

PurchTips Edition #352 Click here for the printer-friendly version

Picture of Charles Dominick, SPSM, SPSM2, SPSM3, author of this article on the procurement balanced scorecard.By Charles Dominick, SPSM, SPSM2, SPSM3

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The Balanced Scorecard is one of the most widely-used “management systems.” A main principle of the Balanced Scorecard is that long-term success is achieved by focusing on the right combination of goals, not just one type of goal.

To illustrate this, consider a company that focused solely on current-year profitability. The company might think that downsizing its customer support department would save money and, thus, be a smart way to boost profits. And it might boost profits in the short term. But it wouldn’t be long before poor customer support would drive customers to competitors. And that would hurt the company’s long-term profitability and sustainability. Thus, the need for balance.

The Balanced Scorecard guides companies to focus on four “Perspectives”: Financial, Customer, Internal Business Process, and Learning and Growth. If your organization uses the Balanced Scorecard, you’re likely to use it in procurement. Balanced Scorecards are meant to be “cascaded.” This means translating “the corporate-wide scorecard down to first business units, support units or departments and then teams or individuals” (Balanced Scorecard Institute).

But, even without a corporate “management system,” you can adapt the Balanced Scorecard to procurement. You do so by developing good goals, measurements for those goals, targets for those measurements, tasks that support those targets, and personnel assignments for those tasks for Financial, Customer, Internal Business Process, and Learning & Growth Perspectives. For example, for the “Financial Perspective,” your goal may be cost savings; your measurement may be amount of spend reduction on previously-purchased goods/services; your department target may be $900,000; your tasks may be negotiation and sourcing; and your personnel may be your department’s 9 procurement specialists.

If you’re SPSM-Certified or enrolled in the SPSM Certification Program, you can get a sample procurement Balanced Scorecard from the NLPA website. Login at http://www.NextLevelPurchasing.com/login.php and go to the Library tab.

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