out a business case for Procurement may seem like a daunting, albeit necessary, task in order to expand your team, capabilities, or tools. Whether your
organization places strong emphasis on the value of Procurement, or is yet to
fully embrace a holistic Procurement program, the right metrics can be an
important asset in developing a business case and telling the story of
Procurement. Let’s take a look at some of the important metrics to track when
building out a business case for your team or organization.
any Procurement organization, as it can be directly tied to the amount of
influence your team can extend, the amount of hard dollar savings you can
capture, and an indication of reporting and tracking abilities. A firm grasp on
your Spend and budgeted Spend can help better plan and forecast for upcoming
years and savings projections. Moreover, if you have the ability to track and
monitor the control your organization has, you can actively contribute to the
bottom line of the organization and work toward enhancing your position within
the organization. In short, Spend under Management is a good place to start
when looking at your current program.
activity takes to complete its full life-cycle. An example would be time from
Purchase Requisition to Purchase Order, or the time to negotiate a contract.
While cycle time won’t directly contribute to your bottom line, it is an
important measure of how efficient your team or program is in its current
iteration. Additionally, the sooner you execute on a project (e.g. sign a
contract, approve a proof of concept, etc.), the sooner you implement savings.
Build your business case by presenting your team’s efficiencies, or highlight
areas for improvement. As an added bonus, sort or segment your cycle time by
supplier, category, spend amount for more granular level metrics – this can
come in handy when working on a Supplier Relationship Management program or
is a major value prop for Procurement, but an often overlooked component is
cost avoidance. Savings are the negotiated savings and discounts that appear on
the bottom line (important to note, you may want to establish as baseline to
measure against your savings), while avoidance are the soft-dollar savings
achieved that don’t necessarily appear on any bottom line, at least not without
some type of data sorting and manipulation. Measuring your cost avoidance may
be tough, so I recommend to highlight the areas for potential added costs and
risk when building your business case and call out the types of problems that
may arise (delays, product specifications, added costs or services). When your
team is mature and can calculate a measurable number for cost avoidance (again,
you may want to establish a baseline or a case study with significant delays or
problems), this will only contribute to your narrative. Some organizations
place significant emphasis on cost avoidance and count these numbers with their
savings – this only adds to our realized savings, so count that as a win!
These measurables are only the beginning and you
and your team should establish what is most important to you as an
organization. If speedy deliveries are crucial for your business and/or supply
chain, then certainly track on-time and delayed deliveries. Once you’ve
established a firm grasp on these metrics, considering expanding your current
data set – look for ways to gather more granular metrics (cost-per-PO/invoice,
opportunity costs, etc.). Congrats if you are currently capturing any of these
metrics, this shows you have strong reporting capabilities; now it’s time to
put those metrics to good use and build a business case to expand your
influence within your organization!