One of the major trends last year, within procurement, was Key Performance Indicators (KPIs) and how the outcomes can be measured. If you are a business that offers services within procurement, the 4 main value-added areas your business has to be measured against include:
Value-added KPIs
#1 Avoidance
There are a larger number of procurement professionals within businesses that prefer not to use the tradition “cost-savings” metric. While this can to some extent be rationalised, the fact is that financial cost savings is one thing that defines your profitability. The aspect to keep in view is that procurement has to be clearly defined in areas other than cost savings alone. And so cost avoidance is one metric that shouldn’t be reported at all as it just doesn’t count.
#2 Productivity
There are a number of many ways your employees can deliver productivity & efficiency gains that lead to bottom-line value for your business. Data handling, speed to market, avoiding duplication and rework, reducing inventory and improving testing methods can all add to your company’s profitability.
However, it’s important that the dollar value of this be quantified (which isn’t impossible!), while still looking at relationships from your supplier’s perspective as well. Bring your finance team into the loop and get suggestions from them on how productivity can be calculated in dollar value and then follow that.
#3 Supplier and customer relationships
During your sourcing process, where you evaluate, audit and then hire your suppliers, they will often appraise whether the selection processes you are following is competent and fair. During the on-boarding & execution part of this relationship, the supplier will assess how the communications progressed, how easy it was to implement and create changes to existing routines, and how the on-boarding was handled.
Often business owners feel that their suppliers shouldn’t be assessing them on these aspects as they are going to be remunerated for their services after all. However, when you do this, and get your supplier’s agreement on the things you are planning and are maintain good communications with them; it helps make managing the relationship more cost-effective. In turn, this also improves the visibility from spend analysis, strategic relationship management and sourcing exercises. This will help you drive better relationships and achieve a win-win.
#4 Risk Management
This is a very powerful measurement that captures the attention of serious business owners that are looking for effective means to up the profitability of their company. The ultimate success with risk management is when nothing goes wrong. Unfortunately, many companies focus more on carefully managing contingencies and securing supply relationships and become tempted to reduce resources and funding in the area of risk management. Instead of reinventing the wheel and creating an entirely new framework of measurements around risk alone, all you have to do is reframe risk with the safety aspect in view.
How to stay on track with profitability
Work closely with your safety department and get their advice on how they’d construct the metrics for risk management in procurement. Follow this same process with your internal IT department for all your Telecoms and IT infrastructure etc. Measuring KPIs, constant assessment of any existing systems you use and making changes as the business landscape within your company changes is the one way to stay on the track of profitability.
For effective and sustainable cost reduction strategies & efficiencies that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.
Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777
