Post on 05-Oct-2018
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Procurement KPI’s For Maximum Cost Savings
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Procurement KPI’s For Maximum Cost Savings
Charles Dominick, SPSM, SPSM2President & Founder, Next Level Purchasing Association
Think Outside The Box
Think Outside The Box
KPI’s Defined
Key Performance Indicators (KPI’s): Statistics that measure how well a business is performing in the areas that are the most critical to its overall success
How do you react to the “more cost savings” edict?
“The Sales Funnel”
Sales KPI’s
• # of Leads• Conversion Rate
• Average # Transactions/Customer
• Average Transaction Value
• Pre-tax Profit Margin
Sales KPI’s
• # of Leads: 2,000,000• Conversion Rate: 20%
• Average # Transactions/Customer: 2.5
• Average Transaction Value: $1,000
• Pre-tax Profit Margin: 15%
Sales KPI’s
• # of Leads: 2,000,000• Conversion Rate: 20%# Customers: 400,000• Average # Transactions/Customer: 2.5# Transactions: 1,000,000• Average Transaction Value: $1,000Sales: $1,000,000,000• Pre-tax Profit Margin: 15%Pre-tax Profit: $150,000,000
Procurement KPI’s• Total Spend• % Spend Under Management
• % of Spend Under Management Addressed
• % Savings For Addressed Spend
• % Compliance
Procurement KPI’s• Total Spend: $1,000,000,000• % Spend Under Management: 60%
• % of Spend Under Management Addressed: 50%
• % Savings For Addressed Spend: 2%
• % Compliance: 75%
Procurement KPI’s• Total Spend: $1,000,000,000• % Spend Under Management: 60%Spend Under Management: $600,000,000• % of Spend Under Management
Addressed: 50%Addressed Spend: $300,000,000• % Savings For Addressed Spend: 2%Negotiated Savings: $6,000,000• % Compliance: 75%Realized Savings: $4,500,000
How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000Conversion Rate 20%# Customers 400,000Average # Transactions/Customer
2.5
# Transactions 1,000,000Average Transaction Value $1,000Sales $1,000,000,000Pre-tax Profit Margin 15%Pre-tax Profit $150,000,000
How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000
How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000 484,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000 1,331,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000 $1,464,100,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000 $241,576,500
How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000 484,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000 1,331,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000 $1,464,100,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000 $241,576,500
That’s a 61% increase in Pre-tax Profit!
How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000% Spend Under Management 60%Spend Under Management $600,000,000% Spend Under Management Addressed
50%
Addressed Spend $300,000,000% Savings For AddressedSpend
2%
Negotiated Savings $6,000,000% Compliance 75%Realized Savings $4,500,000
How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000% Compliance 75% 82.5%Realized Savings $4,500,000
How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000 $660,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000 $363,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000 $7,986,000% Compliance 75% 82.5%Realized Savings $4,500,000 $6,588,450
How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000 $660,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000 $363,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000 $7,986,000% Compliance 75% 82.5%Realized Savings $4,500,000 $6,588,450
That’s a 46% increase in Realized Savings!
If Just “Compliance” Was ImprovedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 60%Spend Under Management $600,000,000 $600,000,000% Spend Under Management Addressed
50% 50%
Addressed Spend $300,000,000 $300,000,000% Savings For AddressedSpend
2% 2%
Negotiated Savings $6,000,000 $6,000,000% Compliance 75% 100%Realized Savings $4,500,000 $6,000,000
If Just “% Spend Under Management” Was ImprovedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 87.846%Spend Under Management $600,000,000 $878,460,000% Spend Under Management Addressed
50% 50%
Addressed Spend $300,000,000 $439,230,000% Savings For AddressedSpend
2% 2%
Negotiated Savings $6,000,000 $8,784,600% Compliance 75% 75%Realized Savings $4,500,000 $6,588,450
How To Improve % Spend Under Management• Requires “vertical” influence• Demonstrate results to earn
management’s confidence• Show how other companies address non-
traditional spend via procurement
How To Improve % Spend Under Management Addressed• Requires increased productivity• Process improvement• Better-trained staff• Productivity improvement tools• More people• Utilize external resources (GPO’s,
consultants, etc.)
How To Improve % Savings For Addressed Spend• Better-trained staff (especially for
negotiation)• Cost savings tools (eSourcing)• More advanced practices (value analysis,
supplier collaboration for cost take-out, etc.)
• Cooperative buying
How To Improve % Compliance• Requires “horizontal” influence• Appeal to budget holders:
– Get more out of their budget– Have their people focus on core competencies– Compare compliance between departments
• Bottom line: procurement department has to be the best department at procurement!
Summary• Maximizing cost savings isn’t the result of
one thing, it’s the result of many things• Measure those key performance
indicators:– % Spend Under Management– % Spend Under Management Addressed– % Savings For Addressed Spend– % Compliance
• Focus on improving KPI’s and you will improve your bottom line results!
Bring this presentation on-site to your organization!• “Procurement KPI’s For Maximum Cost
Savings” and other on-site seminars are available from Next Level Purchasing!
• Call +1-412-294-1991 for a quote!
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Procurement KPI’s For Maximum Cost Savings
Charles Dominick, SPSM, SPSM2President & Founder, Next Level Purchasing Association