Metrics, Key Performance Indicators (KPIs), Performance Management – whatever your organisation calls them, it’s almost certain that your procurement team are both measuring and being measured on performance. But are organisations measuring the right areas?
Every week in the procurement and supply chain news, we read reports and headlines focusing on savings and supply chain practices, often highlighting the work organisations are doing to measure these performance areas.
Knowing which elements to measure is tricky, as no two sources will agree on what the ‘best’ metrics are to use. A quick Google search for ‘Procurement KPIs’ comes up with over 400,000 results, with a variety of links to organisations, articles and journals with different views on what constitutes ‘best practice’.
What is clear is from what we read, see and encounter in organisations is that there is a huge volume of resources (time, people, money) being devoted to managing these metrics, but frequently the data produced is poor or the metrics themselves are flawed from the outset.
Defining a Purpose
Anyone in procurement will be able to tell you that the purpose of KPIs is to measure internal and supplier performance across a number of areas. Most of these elements stem from the classic concepts of cost, quality and service. Each indicator focuses on a specific aspect of a contract, has defined what success and failure look like, and should service an organisational need or requirement.
The ‘SMART’ acronym (Specific, Measureable, Achievable, Realistic and Timely) is frequently used in conjunction with the creation of KPIs. Following these steps, the theory is that the KPIs will be both useful and successful and, what’s more, encourage behaviours that drive value.
Far too often, however, KPIs in organisations fall short of this. Sometimes it’s because they are poorly defined, other times that they are unrealistic, and frequently that they are measuring the wrong thing entirely. From a procurement point of view, this generally means the focus is on savings and little else.
Externally, suppliers can be given huge lists of KPIs that they are expected to report on as part of their contract. This in turn makes meeting and reporting on KPIs onerous, putting the supplier off focusing on them, and potentially driving behaviours that are carried out to ‘tick off’ the KPIs in order to get paid.
But examples of good practice are out there. When Ben & Jerry sold their ice-cream brand to Unilever, they were eager for their brand to continue to be associated with the environmental and social activities for which they had gained a great reputation for. This involved the creation of “Social Metrics” – aimed at measuring the social and environmental performance of the brand under Unilever’s auspices.
A difficult task, but one that the organisations stuck with, ultimately creating the concept of “multicapitalism”, a performance accounting system measuring economic, social, and environmental impacts in an integrated way. So far it has been a success, and is setting the bar high for the use of metrics.
This is a good example of performance metrics being used to measure an area that often has intangible outputs.
Taking the Lead
So how can procurement take the lead on creating metrics and measuring performance? If procurement departments are keen to be measured on more than savings, then the organisations need to get their own house in order and create better KPIs for their suppliers.
A recent discussion on Procurious asked about other KPIs to use beyond tracking savings for high value projects. One key point made was to workshop metrics with internal customers to increase engagement. This holds true for suppliers too, and should help to ensure that the right areas of the contract are being measured.
We are not saying that savings trackers should be dropped, but procurement needs to focus on other value areas with suppliers. Once the profession leads by example and stops putting such a high importance on savings externally, the chances are good that this will also happen internally.
Is your organisation setting a good example on KPIs? Tell us what you think and get involved with our discussions.
We’ve scoured the headlines this week and picked out the main ones for you to digest with your morning coffee.
Nations Sign Historic Climate Agreement
- The COP 21 event in Paris drew to a close last week, with nearly 200 countries signing a new agreement to reduce global emissions
- The agreement sets a new goal for all countries to collectively reach net zero emissions in the second half of the century
- The deal includes provision for rich countries agreed to raise $100bn (£66bn) a year by 2020 to help poor countries transform their economies and reduce emissions
- The deal has been hailed as a significant step in the right direction by global leaders and environmental campaigners
Read more at The Guardian
Jaguar Land Rover Sees Resurgence
- Jaguar Land Rover reported its best ever November sales, with volumes up by 27 per cent on the same period last year
- The UK has taken over from China as JLR’s main market, with sales up 70 per cent, but also partly due to the slowdown in China’s economy
- The high sales in Europe and North America have helped to offset the slower Chinese market, which had been responsible for a weak start to the 2015/16 financial year
- The organisation is expanding production facilities into Slovakia, with the new plant expected to open in 2018 in order to help meet increasing demand
Read more at Forbes
Twitter fined in Turkey
- Turkey’s communications technologies authority, the BTK, has fined Twitter 150,000 lira ($51,000.) for not removing content it says is “terrorist propaganda”
- Although there were no further details on the content in question, it is not the first time Twitter has fallen foul of the Turkish Government
- In the past, the site has been temporarily banned after failing to remove content following requests, although this is the first time a fine has been levied
Read more at Reuters
Tokyo Police to Launch “Drone Squad”
- Police in Tokyo are to launch a specialist squad tasked with locating and, if necessary, capturing drones in the city
- The squad has been set up following a number of incidents involving drones in the city, including a drone landing on the roof of the Prime Minister’s office carrying radioactive material in April
- The police will use drones themselves to track down possible threats and nuisances, and will patrol high-profile buildings in Tokyo
- The police drones will be equipped with nets in order to bring down other drones if required
Read more at the BBC