Your procurement is missing Performance Management.
What procurement need to understand about performance management
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The idea of Performance Management within Procurement is a scarcity, with most organisations not really grasping the importance of effectively managing the performance of their Procurement arm. Here we will be focusing on three main areas – the fundamentals of scorecards; the challenges of identifying value for your organisation and some practical approaches to measure and track value and performance.
We will also deep dive into key performance metrics to look out for and how to clearly identify good performance.
What is Performance Management?
Performance Management ensures that goals or objectives are met effectively and efficiently in a structured and coherent manner, to be able to maintain that performance. It can focus on the overall performance of an organisation, a department, a team, processes or just the employees.
What does Performance Management mean to Procurement professionals?
In a nutshell Procurement Performance Management refers to the holistic approach of being able to manage and increase the overall value of your Procurement organisation. The process of doing so, is met with being able to identify savings potential via various strategic sourcing techniques.
Procurement organisations continue to evolve their value proposition in order to deliver maximal value to the business whether that be a direct impact to the P & L or providing a better service to an area of their organisation.
The Procurement Balance Scorecard
If you were to ask the different members of your Senior Leadership Team how well or how effective the Procurement Organisation is, you’re likely to hear differing answers from each member. Not only in terms of the metrics that they are using, but also how they choose to define each one. And there will more than likely be an unhealthy focus on cost savings alone with less attention being given to the other KPIs that make for an effective Procurement Organisation.
A well-known approach to managing Procurement performance is to adopt the Balance Scorecard approach. The Balance Scorecard, developed by Robert S. Kaplan and Dave P. Norton is a performance measurement framework used to identify financial and non-financial performance measures, therefore providing a more ‘balanced’ view of organisational performance.
For Procurement specifically, a balance scorecard helps managers and teams keep track of the execution of activities and the consequences arising from those actions.
Whilst there are some industry best-practices, organisations usually have their own set of relevant metrics that will formulate their scorecard – relating to their own business goals.
From my own personal experience working in Procurement, one of the common mistakes I encountered was having too many metrics in place therefore leading to too many trackable items often ending up in over-analysis, or in some cases inaccurate analysis because the data just didn’t exist at the granular level at which we wanted to report on it.
Another common error is setting up metrics with no actionable value, which in turn could not provide any identifiable information to present back or highlight as to how the business unit is performing, and more importantly how this links back to the overall business success.
When defining the objectives of your organisation and the metrics you want to measure, one important step that is often missed is then being able to demonstrate how the objectives link to each other, as more often than none an objective should not be siloed from the rest of the organisational objectives.
In summary, focusing on the balance scorecard for your organisation is imperative however the detail behind it will help with your ability to track your procurement performance, think about the number of your metrics and also think about the value that they place in your organisation.
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About the Author
Andrew is responsible for our customer success team, tasked with helping our customers make the most of the opportunities presented by our product features and key business responsibilities of customer retention, adoption and expansion.