A paper presentation to the Kenya Institute of Procurement and Supply (KISM) annual workshop

held at Nile Resort Hotel Jinja-Uganda on 30th March to 1st April 2015

By

Professor Benon C. Basheka, PhD, FCIPSDean, School of Business and Management

Uganda Technology and Management UniversityContacts: +256782459354,bbasheka@yahoo.co.uk

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As organizations cope with a myriad of changes, procurement is becoming a more strategic function.

Procurement excellence is now increasingly becoming an important factor in delivering efficient operations .

But If we do not measure the value we add; how can we expect others to recognize the procurement function?

Procurement measurement systems measure the effectiveness (and the efficiency) of the procurement function and demonstrate its value adding nature to the bottomline

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“It is much harder for top management to judge that their purchasing people are doing a good job. As a profession we have not been very good at measuring our performance, therefore we can hardly gripe when salespeople come to call in their latest BMW while we are driving around in ancient Nissans”

(Roylance, 2006)

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• Many public procurement professionals are happy with the status quo and do not want the requirements to meet similar performance targets that salespeople are required to meet (Roylance, 2006)

• Public Procurement Professionals must be willing to identify and adopt meaningful measurement targets in order to show we add value to the organization

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DemographicShifts

Global Economic Integration

RisingActivism

Natural Resource

Constraints

Science & Technology

Forces

• Expected to be a strategic partner• Increased Supply Chain Complexity

– Product proliferation – Demographic/ market shifts– Shorter product lifecycles

• Intensified need for supply chain integrity– Accountability for all components of

supply chain• Increased emphasis on risk management

– Supply surety– Transportation network frailty– IP protection

Implications for Procurement Organizations

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In a study entitled’ Public procurement system challenges in developing countries: the case of Zimbabwe’ identifies the following key challenges in procurement, which on scrutiny apply to other countries:1. Delays in implementing projects2. Corruption3. Inadequate market equity4. Political interference5. Indigenization policy6. Incompetence

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Discussed the challenges facing procurement professionals which related to the following:-1. Market environment2. Legal environment3. Political environment4. Cumbersome procurement regulations, rules and

guidelines5. Culture and Technology6. Inadequate Planning7. Excessive documentation

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In a study examining the Challenges of Procurement Professionals in a Public Institution: The Case of WA Polytechnic, in the Upper West Region of Ghana pointed out the following challenges for procurement professionals:-1. Long and cumbersome procurement procedures2. Low threshold3. Inadequate funds4. No representation of procurement managers on sit on

tender committees5. Inadequate funds to support projects6. Political interference from government

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1. Lack of acceptance

2. Lack of strategy

3. Lack of methods

4. Lack of trust

5. Lack of know-how

6. Lack of competence

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How do we build the procurement and supply chain brand worth recognizing?

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What hard, tangible value is the business getting from procurement?

What should it be getting now, in 36 months, and beyond? What changes in behaviors or governance could improve

performance? What mix of capabilities and resources is needed for procurement

to be a world-class player? Who are our best procurement athletes? How are they measured,

and how are they doing? Do they understand what counts? Do they know how they are

doing? What is our plan for growing value through procurement? How will we support professional pathways for our supply

management professionals13

Provide the procurement professional with the information and data to tell their story of adding value to the organization

Performance Metrics is the term given to the measurement of

performance

It is an analytical application of measurements that allows

comparison of performance standards.

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They must reach goals

Their results are directly identified on an organizations profit and loss statement

They are assigned monthly and annual goals

The goals are easily measured

How many public procurement professionals are assigned a monthly and annual savings goal?

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Financially1. Upfront cost savings by purchasing things at the best price2. Back end savings by enforcing warranties3. Cash flow by extending payment terms

Quality and timing1. Sourcing things in a manner that ensures that quality inputs are provided on time2. A robust supply chain that delivers in the face of unknown risks

3. Financial compensation for the impact of a vendor not delivering within parameters

Innovation1. Sourcing innovative products2. Innovative commercial models that align suppliers and/or allow the company to take advantage of things that wouldn't normally be available.3. Competitive advantage by locking up exclusivity.

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From a business perspective, the most obvious benefits of an effective procurement process are financial. Productively managing procurement will allow an organization

realize immediate upfront cost savings by procuring items, services and contracts at the best price available.

A company will be able to properly take advantage of any warranties or discounts that are often forgotten, leading to routinely neglected, yet critical, back-end savings.

A fully functional purchasing process will allow for better visibility into company spending and budgets.

Visibility into spending patterns and budgets will also allow organizations the option to leverage additional cash flow by extending payment terms and forecast for the future.

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Many view the procurement cycle as a one-dimensional process within an organization. Procurement, when it is adopted widely within an organization,

often leads to greater efficiency and provides for a better match with desired goods or services.

A streamlined purchasing process will lead to more efficient sourcing – quality goods and services delivered on time.

An up-to-date procurement process will also ensure that an organization’s supply chain will be able to capably navigate through any unforeseen roadblocks (financial problems, natural disasters, labour shortage/surplus, economic volatility).

When optimized, an efficient procurement process will also help in distinguishing between successful vendors from underachieving vendors.

Being able to distinguish between quality vendors leads to compensation from the low quality vendors from failing to deliver within agreed upon parameters.

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Businesses are constantly being tested by their competitors – either on price, quality of good or service, or convenience. Any competitive edge might be the difference between a new

customer and a lost sale. A progressive procurement process will allow an organization to

seek out innovative products or services. An organization with an entrusted purchasing process will enable

the sourcing of those innovative goods and services in the hopes of securing a competitive advantages.

In some cases, solidifying (empowering) this function might even yield exclusive deals with suppliers.

An effective procurement process will improve an organization’s bottom line and increase efficiency.

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According to Ardent Partners, measuring procurement performance can be as complex and nuanced as the value that the function can

deliver.

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1. Easy To Understand 2. Quantitative 3. Measures What is Important 4. Causes Correct Behavior 5. Metrics Should be Easy To Collect

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There are three main categories of supply chain performance metrics:-1. Time 2. Cost 3. Quality

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1. Input metrics

2. Output metrics

3. Process metrics

4. Outcome metrics

5. Efficiency metrics

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EXAMPLES OF METRICS

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Strategy Implementation - % of milestone activities completed in the organizations Strategic Plan

Skills Development – Average time per Buyer spent on structured training in procurement-related skills

Aggregation - % of corporate spend aggregated through annual term contracts

Aggregation – % of corporate spend aggregated through cooperative purchasing efforts with other public sector organizations

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Sustainable Procurement - % of annual term contracts awarded following best practice on sustainable procurement

Local Government Market - % of corporate spend placed with small and medium enterprises

Local Government - % of corporate spend placed with non-profit and social enterprise organizations

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Local Government - % of corporate spend placed with ethnic minority businesses

Internal Customer Satisfaction - % of all responses either very or fairly satisfied

Supplier Satisfaction - % of all responses either very or fairly satisfied

Predictability – Average time from publication of official solicitation notice to contract signature

Energy Price comparison of gas, electricity, oil and water

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Commodity goods price comparison – a “shopping basket” of 10 commodity goods

Average minimum cost of issuing an order –total cost from requisition to payment

Average Invoice value – Corporate spend divided by total number of invoices

Accuracy of deliveries - % of orders that were correct when received

Average spend per supplier – Corporate spend divided by the total number of suppliers

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1. Percentage of corporate spend through electronic orders

2. Percentage of invoices received electronically

3. Percentage of corporate spend through electronic sourcing

4. Percentage of orders raised electronically

5. Percentage of invoices paid electronically

6. Percentage of corporate spend through P-cards

7. Minority Business satisfaction with the Procurement Function

8. Small and medium sized business satisfaction with the Procurement Function

9. Non Profit sector satisfaction with the Procurement Function

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1. Reduce the cost of products and services

2. Identify new sources of procurement related revenue

3. Leverage organization buying power

4. Meet or exceed customer expectations

5. Increase spend with local suppliers

6. Increase spend with diversity owned suppliers

7. Update internal processes and redesign to improve efficiency, increase compliance and improve customer satisfaction

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The metrics to use will vary according to organizational goals and objectives

At minimum, it is recommended procurement should track the following metrics:

1. Cost Savings/Cost avoidance

2. Supplier and Industry Development

3. Supplier performance

4. Efficiency of internal procurement systems and processes

5. Procurement Professional development and employee retention31

1. Realized or implemented savings as a percentage of identified savings

2. Level of savings due to new contracts/supplier arrangements or purchasing initiatives

3. Value of additional negotiated benefits4. Cost reduction due to using alternative goods or services5. Value of improved warranties6. Reduced stock holdings and improved payment terms7. Savings due to improved waste management8. Reduction in demand of a good or service9. Percentage of spend under management10. Refunds or credits

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1. Potential local suppliers identified and developed

2. Number of new sources of particular goods and

services

3. Number of firms involved in local supplier development

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1. Include a range of cost targets

2. Gauge whether contract requirements, service and quality requirements are being met through the use of a consistently applied evaluation procedure

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1. Volume of procurement spend transacted electronically2. Volume of procurements transacted through aggregated or

standing offer arrangements3. Reduction in transaction and inventory management and

distribution costs4. Internal customer satisfaction5. Response term between requisition submission and purchase

order placement6. Procurement cycle time management7. Simplicity, convenience, and effectiveness pf procurement

decision making and authority lines, processes and systems8. Procurement operating costs as a percentage of managed spend35

1. Number of full time employees with a certification2. Number of employees in management that hold a

professional certification3. Amount of spending per full time employee on

professional development and training4. Average number of hours per full time employee spent

on professional training and development5. Total number of employees retained year –on-year6. Total number of new employees as a percentage of

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The world of procurement is changing and so are the organisations where it takes place

Skills now required of procurement and supply professionals now go beyond the technical procurement skills but require robust management and administrative superiority

Procurement has to be truly seen as a value adding function as opposed to a cost center

Its strategic orientation has to be reflected through concrete actions and professionals must be the champions.

What worked yesterday to address a procurement challenge may not work today because of rapid changes occasioned by ICT and use of internet

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Collectively and individually, the bar for procurement and supply function has to be raised whether in public, private and NGO sectors

It does not matter whether some are at a strategic level, while others are at a tactical or an operational level

It does not matter whether some of procurement professionals are in central, parastatal or local governments

Whether some are highly connected or in organizations which are ‘wet’ while others are in dry ones, it is a collective responsibility

Both men and women, both educated and non educated, both married and unmarried, collectively we can surely position procurement and supply function at a different level

Let us all appreciate immensely that procurement performance management refers to the holistic process of managing and increasing the added value of the procurement organization.

In doing so, the process is observed from the finding of savings potentials (transparency in procurement) via modern methods of spend management and their realization through procurement initiatives to the final measurement of success and for sustainable management over the course of several years.

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THANK YOU

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