Measuring the success of your procurement transformation

This final episode of Corcentric’s podcast series, Mastering Procurement Transformation, discusses how to measure the success of your transformation, both qualitatively and quantitatively.

Completing a complex Procurement Transformation and putting it into effect is not the end of this initiative. Now comes the point where you can prove the hard work was all worth it. When attempting a Finance-led transformation of the procurement function, one of the first steps taken was to break down any silos that may have existed between Finance and Procurement.

By working cross-functionally, not only do you end up with systems and process alignment; you also will have agreed-upon procurement metrics that can be accurately evaluated. Without this alignment, results can’t be accurately measured and relied upon. Instead, you will have to turn to staff within the finance and procurement teams to find any discrepancies and try to correct them, which is exactly the issue you are trying to avoid through digitization and automation. That is why oversight of performance measurement and performance management will thus be ongoing, especially as the organization matures and evolves

Quantitative metrics – hard data and reporting

Episode 2 of the Mastering Procurement Transformation podcast details the importance of setting up benchmarks, as well as identifying key performance indicators (KPIs) and metrics, during the planning stages as part of the road map, so that you can track performance against them once the transformation is complete. Those beginning stages should also be the point where you set up reporting policies as well.

When the transformation is complete, you should be able to look back at the standards you set up during the planning stage and know:

• What metrics you will be tracking (DPO and DSO are among those essential for Finance)
• Where the data will come from (ERP or Procurement’s P2P solution)
• Who will manage ongoing reporting
• What you will do with the information tracking

There are a couple of caveats here. First, sometimes too much information can be overwhelming and essentially meaningless if you don’t know how to interpret it. That’s why the job of creating reports is so important and needs to be held by someone with expertise in data analytics; someone who understands the business needs of the organization and can produce reports that are easily understood by end users.

Second, even though whatever you measure should tie back to the end-state vision of what role Procurement will play as a result of the transformation, end-state visions can evolve over time as the functions mature. When that happens, performance metrics will shift as well. If this does occur, make sure you communicate these shifts to all involved.

Qualitative metrics – what people think

Procurement is one of those business functions that have value that can be difficult to measure with hard data and go well above metrics. For instance, how do you measure a good relationship with a supplier that results in you becoming a preferred customer? So, if procurement data doesn’t always tell the whole story, how are you measuring success when it comes to your procurement performance?

Turn to your people, who make up one of the main Pillars of Procurement. Their feedback will prove invaluable, and when you make it clear that their input has been heard and that the changes they asked for are being made, that goes very far in building and maintaining trust.

Three ways to get qualitative data are:

• Stakeholder Assessment – at the beginning, stakeholders were asked what they hoped to achieve, where gaps in processes and systems currently exist, and how this transformation will help. You need to go back, look at that input, and ask the stakeholders if their concerns have been answered. Demonstrate how this has been accomplished and see if new issues have emerged. Remember, as companies evolve, so will Procurement. Checking and adjusting throughout the process as milestone achievements.
• Steering Committee – This should be comprised of key people from different functions who are closest to understanding the needs of the company and the end-state vision. By setting up regular meetings, you can get feedback from the business units at one time rather than having to address each unit separately.
• Surveys – Everyone is busy today so surveys, especially quick surveys, are a good way to measure progress. Ask specific questions that will help assess performance and make changes: How are we doing? What could we do better? What do you think of the adjustments we’ve made?

Whatever you do, there’s always a risk of losing enthusiasm from the teams. Just because you’re done…doesn’t mean you’re done. You need to keep people excited about the program after completion, so actions don’t revert to the way they were before. You need to establish targeted business outcomes that are tied to the business’s long-term vision and develop core tenets that will lead to continuous improvement over time, and it will keep everyone invested in the success of the program.

What has made mastering Procurement transformation so difficult?

For procurement leaders, it must seem that they have been trying to prove the value (whether existing or potential) of the function for decades. Yet, at too many companies, at a time when decision making should be looking at optimizing their procurement function, senior leaders still see Procurement as playing a tactical, not a strategic role (with a focus on things like sourcing and and cost savings). They don’t understand how improved contract management, spend management, and supplier relationship management can benefit the company overall. Finance leaders can fall into this same category, with many looking at cost reduction as a main goal of any digital transformation.

If an organization is lucky, management will change, and newer leaders will comprehend the role that Procurement can play along with an understanding of the power of automation and digital transformation. But that will mean a restart for the function. Procurement organizations need to constantly refresh themselves no matter how many changes they make. Why they have to do that comes down to two issues:

• Lack of standards, especially at the college level – Lawyers, doctors, accountants, and other professions require a specific base of knowledge and test and certifications that measure that knowledge. The same is not true of Procurement. Different colleges teach different ways of approaching the function. Different procurement organizations within companies manage things differently. Without specific industry-wide standards, Procurement success can be difficult to accurately measure.
• Maturity curve – When decentralized companies move to centralization and then central-led, that leads to a refresh or restart of the processes and systems in both Finance and Procurement. This will also happen when, as I mention above, a new senior leader comes in who recognizes the value of Procurement and understands the competitive advantage it can provide. Where the organization is in this process will dictate if or how much Procurement will change.

It still boils down to communication

Each podcast and each blog on the topic discuss the need for clear, ongoing communication and collaboration. I started this blog talking about how Finance and Procurement have to be in alignment; how they need to be connected even after the transformation has been achieved. The fact is that each function can learn from the other…just by listening to one another. This will help avoid restarts and keep the mission on track.

Once the transformation is complete and in effect, set up bi-weekly or monthly meetings to assess the ongoing performance of the program and how it is matching the end-state vision. Hopefully, the Finance/Procurement collaboration will end up with the functions reporting results all the way up to the Board level.

It looks like 2022 will be a challenging year for business, with inflationary markets, supply chain issues, and growing competitiveness in a global economy. Having a world-class Procurement business unit collaborate with Finance is one way to mitigate these challenges.

Listen to our Corcentric Conversations, Mastering Procurement Transformation, Episode 5.