PROACTIS Blog

Procurement Efficiency – Top 3 KPIs for Process Improvement

Charlotte Sutton
Charlotte Sutton,
PROACTIS
Although it may seem straightforward from a distance, Strategic Procurement is a complex process. It requires a wide range of information, the involvement of many different people, and continuous supplier communication to do well. A lot needs to happen to enable people throughout your organisation to consistently find and use the ‘right’ supplier for their purchases. And as with any complex process, there are lots of opportunities for improving efficiencies.   
Why It’s Important – Business Impact
  • The cost of the procurement process goes directly to the bottom line:  Besides missing out on substantial savings from better supplier agreements, a sub-optimum Strategic Procurement process wastes human resources throughout the organisation, from the Procurement team to Accounts Payable to operating departments.  Time spent maintaining redundant data, running sourcing events the hard way, answering supplier inquiries, and chasing all types of information can add up to a lot of FTEs.  The cost of this wasted resource directly reduces profitability.
  • The more time your Procurement team can spend on the right activities, the more you can save:  The primary job of your Procurement team is to help your operating departments get what they need at the lowest cost.  They do this by identifying good suppliers, negotiating favourable agreements, monitoring supplier performance, and maintaining strong supplier relationships. 
  • But if the right information is not readily available to them, the reality may be that they spend far more of their time “preparing” to do these things than actually doing them. A lot of time may also be spent just answering employee and supplier questions because the contract and other information they do have is not easily accessible by others.  And skilled procurement professionals are often required to spend much of their time as “buyers” executing routine purchase transactions just because they are the only ones with supplier and contract information. All these activities just take time away from your Procurement team’s main job.  
  • If it’s too hard to comply with policies, people simply won’t:  If it takes too long to put a major purchase out for competitive bids, people will find a way around it.  If it’s too hard to find the preferred supplier or contract at purchase order time, people will do what’s easiest – probably just buy from the first source they come across. If your organisation is relying on just written policies and/or paper-based procedures, there’s a good chance this is happening much more than you would like to think.  The best policies and procedures in the world are of little use in driving savings if they are not consistently followed.          
What to Look For – Key Indicators
  • Multiple pockets of supplier information:  If information about suppliers and contracts is being maintained in multiple regions, offices, or departments, there is redundant effort being expended across the organisation.  At the same time, this is undoubtedly creating discrepancies that often cause problems.  And of course it makes any level of central visibility and control virtually impossible – significantly reducing your ability to improve things. 
  • Procurement team productivity:  How much of your Procurement team’s time is spent just trying to keep basic supplier information up to date?  How much time does it take to perform a sourcing event?  (i.e. create requirements, identify potential suppliers, develop and distribute an RFx document, evaluate responses, select the best supplier, and set up the contract.)  How much time is spent looking for contracts and trying to remember when to review them?  With all they need to do, how much time is really available for recruiting and qualifying new suppliers, developing good agreements, monitoring performance, and building solid relationships?  Discuss with your Procurement Manager how much of his/her team’s time is actually spent working directly with the supplier base.  That will give you an idea of the potential that’s there if their productivity can be improved.     
  • Accounts Payable productivity:  How much of your AP team’s time is spent adding and updating vendor master records?  Are they, by default, the keepers of supplier profiles and other information your Procurement team should be managing?  How much time is spent answering supplier enquiries about invoice and payment status?  How many FTEs could be re-allocated if they didn’t need to do these things every day?
How to Improve
  • Establish a central supplier directory:  As discussed earlier, this will improve the quality and accessibility of supplier information.  But just as importantly, it will reduce the level of effort expended across the organisation. It will also provide better information for use in your financial systems, as well as analysis and reporting systems.  Imagine a vendor master with only active suppliers, no duplicates, and up to date information for all records.  How would that improve the quality of your AP reports, spend analysis, etc.?       
  • Standardise sourcing processes:  This will improve the effectiveness of your sourcing efforts, resulting in better agreements and lower supplier risk.  It will also improve the transparency of your supplier selection processes.  But it will also greatly improve the productivity of your Procurement team, enabling them to apply a professional sourcing process to more situations, resulting in more savings.  In addition, it will reduce the time required of user departments and technical/legal experts, freeing them to do more as well.  
  • Leverage information technology as an agent of change:  Information technology is a major asset for improving efficiency.  Many of the things you and your Procurement Manager will want to do only become practical with the support of information systems.  Just as importantly, a well-designed procurement system provides a pre-defined template for implementing the changes you want to make.  
Find out how a good procurement system can help you with these capabilities – download our white paper, How Finance and Procurement Can Join Forces to Drive Significant Savings.
 
 
 
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