Study: Procurement Performance Management today

"How do I manage to discover new efficiencies and savings potential on a regular basis and how can I use intelligent performance management systems to increase the real commercial contribution of procurement as substantially and as sustainably as possible?"

Dr Jörg Dittrich, managing director, Orpheus GmbH



"Facing heterogeneous data sources and the need for an effective handle on global, regional, and local procurement activities mean increased complexity."

Christian Ruck, Head of Professional Services, Orpheus GmbH

Dr. Jörg Dittrich - Managing Director, Orpheus GmbH

As developers of software solutions for strategic procurement, we count companies from many industries and of all forms and sizes among our clients. Over the recent years, one question has increasingly been on their minds:

"How do I manage to discover new efficiencies and savings potential on a regular basis and how can I use intelligent performance management systems to increase the real commercial contribution of procurement as substantially and as sustainably as possible?"

The first step needs company-wide transparency about all procurement-related spendings to scrutinize and validate every single cost item. This also includes systems to support procurement assessments with tried and tested indicators. Software offers great solutions for both challenges.

With this in place, the second step needs automated analyses of potential savings to uncover as yet hidden options. A third step would allow effective activity and progress monitoring with software tailored to match the processes in procurement.

These three steps taken together produce a completely integrated and sophisticated software system for procurement performance management that offers optimum support for assessments, potential analyses, spend management, and the general management of the procurement organization.

We can learn a lot from the fine details discussed in this study. One particular area of interest is the slight discrepancy in the expectations and assessments of the finance (CFO) and procurement (CPO) functions.

We thank all of our participants for the many interesting discussions and their invaluable support. We hope that our study offers its readers many interesting new insights.

Christian Ruck - Head of Professional Services, Orpheus GmbH

We are experiencing major upheavals in procurement. Increasing competition and the impetus of centralization of procurement management and the consolidation of ERP and procurement systems are creating a new set of challenges for CPOs.

"Facing heterogeneous data sources and the need for an effective handle on global, regional, and local procurement activities mean increased complexity."

Understanding the value contributions of procurement is figuring on more and more CFOs’ agendas, with ever more importance placed on the financial dimension.

External spend and changes in the working capital have already established themselves among the standard KPI repertoire of CFOs and CPOs and are used as early warning signals for deviations from plans. Precise and standardized monitoring is essential for coherent controlling and meaningful optimizations. At the same time, these indicators help calculate variable salary components in procurement, which have become standard practice at more than half of all companies.

In the next few years, we can expect procurement performance management to play an increasingly important role for measuring the value contribution of procurement and for increasing the performance of procurement.

Procurement professional now have to put down the groundwork for this. Classified spend data, a baseline coordinated with finance management, a clearly defined set of efficiency and working capital indicators, and standardized performance management processes will determine their success.

I wish all of our readers lots of stimulating ideas for developing how they measure the contributions of their procurement functions.

Authors’ Conclusions

This study has shown: Both CFOs and CPOs consider greater transparency about their procurement data to be one of the most pressing issues for improving the perfor-mance and the value contribution of procurement, on a level similar to the achieve-ment of more savings. The results also reveal that progress in both cases lags far behind the importance that the study’s participants attribute to these two ambitions.

This insight is of particular relevance as transparency in particular is an essential precondition for achieving many of the other targets in procurement. This includes a more precise measuring of performance, the minimization of risks, and the improve-ment of processes.

There is further room for improvement on the organizational side: This includes ambiguous or even lacking responsibilities for procurement performance manage-ment and the poor cooperation and coordination between procurement and finance.

Comparing the perspectives of finance and procurement, the differences are blatant: CFOs believe that their companies are in a far better position for eight of the eleven surveyed performance improvement targets than CPOs would suggest. This points to a potential asymmetry in the information, i.e. another foothold for more work going beyond the scope of this study.

The friction between subjective perceptions and actual practice is another key finding of this study. This is particularly clear in the measuring of procurement performance: Many respondents believe that savings can be assessed accurately. However, only a minute group of companies have the necessary transparency for a factually accurate measurement.

This is just one example that shows why professional procurement performance management with effective support systems are urgently relevant for procurement and finance alike and how much potential for improving the performance and commercial contributions of procurement still remains dormant.



PPM-Study 2014 download for free

Get the study Procurement-Performance-Management from Ernst & Young and Orpheus. PDF document - 40 pages - file size 1,34 MB.

Have a look on the right column for an excerpt of the study, to give you an idea about the content and scope.



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