Whilst searching through the Ariba Spend Management Learning Center , I stumbled upon a very interesting Aberdeen report entitled CPO Rising: The CPO’s Agenda for 2008.
“The CPO on the rise is based upon demonstrated competence: Best-in-Class companies have placed 70% or more of their spend under management. CPOs and procurement departments can adopt and expand technologies and sustainable practices, such as improving internal collaboration and systems sharing; improving supplier relationships; adopting a center-led procurement strategy; and considering Low-Cost Country Sourcing (LCCS). This report addresses many more issues facing the contemporary CPO.”
What interested me the most about this report was the section on Procurement Key Performance Indicators. The report highlights that the ‘Best-in-Class’ enterprises put a greater significance on implemented / realised cost reduction savings and supplier performance (price, delivery, quality, service, etc.), whilst the Procurement ROI (savings / operating costs) and spend under management rank higher with ‘Average’ and ‘Laggards’.
The report goes on to say
“Procurement ROI, defined as annual savings generated by the procurement department divided by the total annual investment in procurement operations, is an interesting measure and one that deserves a discussion given its recent promotion by “consultants” in the marketplace. The measure misses the larger goal of business operations since CPOs, like the enterprises that employ them, should be focused on generating the largest total net return from their department. While Aberdeen views the metric as a decent relative indicator of procurement department performance (when used in context with other KPIs on the list below), it should not be a primary goal for the CPO to maximize this number. Beyond savings and efficiency metrics, 79% of procurement”
Top 10 Procurement Key Performance Indicators (KPIs)
| KPI |
% Selected |
| Identified cost reduction savings |
72% |
| % of total spend under management |
64% |
| Cost avoidance |
58% |
| Implemented / realized cost reduction savings |
55% |
| Procurement ROI (savings / operating costs) |
52% |
| % of suppliers = 80% of spend |
51% |
| Supplier performance (price, delivery, quality, service, etc.) |
49% |
| Procurement spend as % of revenue dollars |
46% |
| Requisition, PO or invoice transaction volume |
34% |
| Procurement spend per procurement employee |
33% |
Source: Aberdeen Group, February 2008
Procurement KPI’s is a topic is always passionately debated at the Procurement Leaders Roundtables, Aberdeen’s view seems to make sense but I love to hear, what your thoughts are on this topic. Would there be scope to agree and industry standard?
Picture Copyright: Marcela Barsse
