Part III – The Holy Trinity of Procurement Performance Metrics – Proof of the Pudding
Here I am, with the last and final morsel of interpretation of the ‘by now very famous’ Zycus’ TEN must-analyze metrics by our author, Richard Waugh, VP, Corporate Development at Zycus. We classified these ten metrics into three key pieces, and discussed the first two in detail in my last blogs. In this blog we shall touch upon the third piece of the triad. This last and final one is somewhat akin to ‘self-actualization’ if I may have the permission to exaggerate. The reason I say this is because having spoken at length to some of the leading procurement professionals in the space, I have realized the critical importance of winning recognition, gaining credibility and having a successful track record. These last of the three sets of metrics do just that for you. They make you a hero, that is. (fine print – you have to keep them looking good)!
So let’s get a look at what these metrics are. (And let’s ask ourselves if we have them on our fingertips!)
- Cost of procurement as a percentage of spend
- Procurement ROI
- Realized or implemented savings
- Net promoter score
As you see, the first one can seem really harsh on the part of the company to event want to track. But such is life and there are silver linings to every dark cloud. Saying so, this metric will prove, once and for all, the golden truth that a procurement department pays for itself many times over. So yes, you should indeed know this metric for your department. It comes in handy, especially when you are planning for a major technology overhaul or transformation in your department.
The second piece then, is the input versus output metric. It will help you demonstrate how many times more, ‘what you save’ is, compared to ‘what you use up’. Philosophically speaking it is like asking how much electricity does the electricity generator need to run. The legitimacy of this metric cannot be questioned. It is the materialistic reason behind the very existence and empowerment of the procurement department, to whatever magnitude that may be, from company to company.
P.S. – Now you see why I used the term ‘Proof of the Pudding’ in the title!
The next one is more of an absolute metric. Its existence however could be highly subjective. You wouldn’t be able to track this until everybody agreed with you on the meaning of what you were tracking. Hence this metric necessitates that you have a commonly agreed ‘definition of savings’ that does justice to all the cost-saving efforts of your procurement executives.
The last and final one is the ‘perception management’ metric. Whoever said that all procurement needs to do is cost-cutting? Presenting to you – the eternal final decision making authority of the junta, your internal stakeholders! The satisfaction of other business functions with procurement can be the wild card that determines the sustainability and trustworthiness of your department in the future, near and far.
Concluding, I would like to confess observing all around me, that this dynamic environment demands a lot from the procurement leaders. May you shine in all the avatars that you take and may you come out a winner against all odds. While you do your bit, Zycus will do its own to help you reach there!