The article below is written by Sreekanth Thirthala Venkata on July 2, 2012

Insight into how Procurement performance can enhance the perception of Procurement across an organization and elements to be considered

In today’s business climate, companies are facing an ever increasing challenge of ensuring that the Procurement organization is aligned to the overall corporate objectives, meets evolving market requirements and demonstrates clarity in how to work effectively with the business in order to implement robust business processes which drive continuous change. Highlighting where leading practice is progressing towards and demonstrating the core principles for success in this domain are critical.

Procurement organizations continue to feel a number pressures  relative to the performance of Procurement:

  1. The ability to improve Procurement’s contribution in enhancing the overall value for the organization is not always evident
  2. Reducing the overall risk of supply continues to be difficult
  3. Ensuring the focus shifts from a cost savings mode to a growth focused mode
  4. The difficulty of maintaining innovative approaches to cost reduction
  5. Raising the awareness and profile of the Procurement organization
  6. Demonstrating the value-add Procurement can bring to the business
  7. Becoming aware of key initiatives early enough to get involved in the process

These challenges reinforce the need for a Procurement vision, which aligns with corporate objectives and goals.

Also, continuous measurement and effective monitoring of the Procurement organization against these objectives is necessary to ensure the overall sustainability and viability of a Procurement organization.

There are some areas where key progress has been made:

  1. Proactively designing the requirements of the Procurement organization through strong collaboration with business stakeholders
  2. Continuing to align the Procurement strategy with the overall corporate strategy
  3. Focusing on ‘back to basics’ total cost of ownership
  4.  Continuing to exploit supplier capabilities to enhance product/process/service innovation
  5. Implementing a social, sustainable and responsible Procurement strategy to promote brand value and reduce costs
  6. Measuring Procurement performance in financial terms to show bottom line savings and top line growth

So what does good Procurement performance need to consider?

To really deploy an effective Procurement performance management system we would recommend the following:

  • Enhancing the capabilities of the Procurement group: The capabilities of individuals in the Procurement group determine whether they are capable and competent enough to meet the organizational objectives. This includes measuring the capability of Procurement staff against their ability to meet business requirements, ensuring Procurement staff are directly involved as part of the bigger organizational objectives in order to keep them motivated, and establishing a continuous training program to re-skill the Procurement staff against the overall competency models.
  • Defining the capacity: This criteria seeks to measure whether the Procurement organization has enough capacity and knowledge to deal with fluctuation in market and changing customer requirements. Given the challenges presented to all industries, the capacity of a Procurement group should be flexible enough to adapt to changing business requirements.
  • Developing the Procurement organization scope: Another key element of a proper Procurement performance management system is to better develop the scope of the Procurement organization relative to the organizational objectives – What is in scope for the Procurement organization? How does the Procurement organization’s objectives align with the overall corporate objectives? What is the spend being influenced by the Procurement organization as a percentage of total spend?


In summary:

Good performance management enables the Procurement organization to collaborate with the business stakeholders in designing robust business processes, driving continuous improvement and enhancing overall value created by the Procurement group.

This article was written by Sreekanth Thirthala