When Inside Supply Management®’s blog introduced The Monthly Metric in March 2017, we compared the advanced-analytics evolution in procurement to that in baseball. Over the years, detailed metrics have played big roles in propelling franchises to championships, and for many major-league teams, a burgeoning research and development department has become as vital to success as coaching and scouting.
And with teams now in Florida and Arizona for spring training, it’s an ideal time to go back to the basics and examine the state of supply management analytics with Chris Sawchuk, principal and global procurement advisory practice leader for The Hackett Group, a Miami-based business consultancy. While baseball has gone full speed ahead with advanced metrics, they are still a work in progress in procurement, as organizations try to harness constantly-evolving technology and struggle to determine which analytics best fit business objectives.
Sawchuk and his team consult with companies on shaping their metrics and scorecards, and he regularly fields questions on which analytics to measure. “And I’m not talking about tiny organizations,” he says. “I’m talking about the biggest organizations out there.”
In a March 2018 entry on procurement savings, The Monthly Metric stated that this metric “has the biggest impact on a procurement leader’s performance review.” Sawchuk says that’s not necessarily true.
“I have never seen a CPO removed from their position for not meeting their savings targets, but I have seen CPOs removed for not aligning themselves effectively with the business,” he says. “That’s the kiss of death. At the end of the day, you’re there to enable the business to be successful, and what that might take may vary by business. If the business prioritizes velocity and quality over cost, then procurement must do that as well.”
Also, some traditional cost-savings metrics can miss crucial effectiveness context, Sawchuk says. For example, percentage of contracted spend that is competitively bid might not account for the effectiveness of the bid process — who does the bidding and how well it’s done.
Cost savings is on every scorecard, but beyond that, Sawchuk says, there is often misalignment between a company’s stated objectives and the analytics it measures. An array of metrics is available to measure cost savings, but organizations are increasingly curious about the ROI in supplier risk management, supplier relationship management, fostering innovation and other pursuits. Recent natural disasters have put new emphasis on supply chain metrics that measure risk and response to disruption — elements that have had somewhat limited representation on the procurement KPI suite.
The Three Es
Sawchuk says finding new metrics is not the issue. Existing measurements are enough, although some are being redefined through advancements in technology. This is especially true regarding benchmarks. “There’s not many measures that are new,” he says. “We simply find that not all organizations are using them. (The metrics) aren’t being invented. In many ways, they’re being reinvented.” For example, Sawchuk says, productivity metrics are being altered by the growing presence of robotics and automation.
The evolution of supply management analytics, Sawchuk says, has been centered on three dynamics:
●Efficiency: These metrics gauge the investments procurement makes in its operations and how well they perform them. Examples include overall cost of procurement, staffing levels, productivity and cycle times.
●Effectiveness: The value an organization receives from its investments; relevant metrics include procurement ROI, spend cost savings and supplier performance.
●Experience: How customers and stakeholders view procurement’s performance; Net Promoter Score and customer satisfaction surveys are examples.
“When organizations ask what metrics they should look at, my first answer is that I don’t know yet,” Sawchuk says. “I can tell them the most commonly used measures, but I have no idea until I talk to them and see what the business is trying to accomplish. Gaining alignment between suppliers, procurement and the business is foundational to getting the KPI development process started.”
So What’s Next?
What is The Monthly Metric’s role in the evolution of supply management metrics? Institute for Supply Management® (ISM®) has long championed the value of advanced metrics in the profession, and the staff of Inside Supply Management® started the blog feature, in part, because of our own interest. During the first two years, The Monthly Metric focused on some of the basic metrics as we learned from Sawchuk and the other procurement minds we tapped.
As procurement organizations are looking beyond the basics, so is The Monthly Metric. We’ll aim to swim a little deeper in the analytics waters, and we continue to invite input from our readers. What metrics should we explore? Which ones should we re-examine in the wake of evolving technologies? Have recent events cause your organization to revamp its dashboard? Leave a comment on this page or email me at email@example.com.
“I think a lot of organizations have picked a metric based on the fact that it’s common and everyone else is measuring it,” Sawchuk says. “Those measures are still important, because they allow you to benchmark and make comparisons. But I think there is some maturing going on (in the profession), and organizations are looking beyond the basics. How can risk mitigation and innovation be measured? What is the organizational impact of corporate social responsibility efforts? How do we know that we are more agile as an organization?
“Bringing more visibility (and measurement) to these types of areas can have an impact in many different ways.”