WELCOME TO
Measuring Purchasing
Performance
THIS IS A MOST USEFUL MODULE
AS IT HIGHLIGHTS THE
BENEFITS OF PROCUREMENT
TO THE REST OF THE
ORGANISATION
2011_Course Code 0052D-1/1
Effective Negotiation
Measuring Purchasing Performance
WHAT IS
Purchasing
Performance?
Effective Negotiation
Measuring Purchasing Performance
Effectively
achieving general or
specific objectives
assigned to the
function and those
employed within it
Effective Negotiation
Measuring Purchasing Performance
Objectives of the
function are based on
activities that will
support the goals of
the organisation
Effective Negotiation
Measuring Purchasing Performance
Purchasing can ensure
improvements at all
stages in supply chain
including:
Effective Negotiation
Measuring Purchasing Performance
For example
Inbound: Time, Quality,
Cost, Continuity,
Supplies, processes,
inventory, SRM
Effective Negotiation
Measuring Purchasing Performance
For example
Outbound: CRM,
processes, services,
logistics
Effective Negotiation
Measuring Purchasing Performance
“What gets Measured gets
done”
TOM PETERS
Measurable
improvements for
Purchasing can be
listed as:
Effective Negotiation
Measuring Purchasing Performance
For example
Cost reduction of:
transactions, inventory,
supply base management,
expediting
Effective Negotiation
Measuring Purchasing Performance
For example
Improvement:
processes, outputs,
projects, communication
Effective Negotiation
Measuring Purchasing Performance
Both quantitative and
qualitative assessment
Effective Negotiation
Measuring Purchasing Performance
Quantitative Measures:
Keeping within given
department budget
Number of purchase orders
Contract savings (whole life
Remove carriage charges
Reduce supplier base
Effective Negotiation
Measuring Purchasing Performance
Quantitative Measures
Reduction in lead times
Price savings
Reduction in administration
costs
Reduction in stock holding
Effective Negotiation
Measuring Purchasing Performance
Quantitative Measures
Orders placed
Reduction of carriage
charges
Cut out duplication of effort
Reduce supplier base
Effective Negotiation
Measuring Purchasing Performance
Qualitative Measures:
Supplier relationship
management (SRM)
Customer relationship
management (CRM)
Internal Client relationship
management (ICRM)
Effective Negotiation
Measuring Purchasing Performance
Qualitative Measures
The process of supplier development,
and long-term collaborative
relationships
The introduction of JIT systems
The observance of quality standards
Implementation of e-procurement
systems
Financial performance from a total
sales perspective
Effective Negotiation
Measuring Purchasing Performance
Qualitative Measures:
Environmental & Ethical
Corporate Social
Responsibility (CSR)
Effective Negotiation
Measuring Purchasing Performance
What is a simple,
quick & cheap
improvement your
Purchasing department
could make, now?
Effective Negotiation
Measuring Purchasing Performance
Functions/Departments
need to know they are
performing well to
survive and thrive in
the longer term and
not get outsourced
Effective Negotiation
Measuring Purchasing Performance
‘If you can’t measure it
you can’t manage it’
CIPS Study Guide
Effective Negotiation
Measuring Purchasing Performance
There will be an overall
goal for the
organisation to reach
over the next few
years
Effective Negotiation
Measuring Purchasing Performance
For example?
Increase market share
To go international or
global
To be market leader
Be top brand
Effective Negotiation
Supply chain excellence and MARKET
LEADERSHIP are strongly correlated
Effective Negotiation
Measuring Purchasing Performance
Top 10 brands by value
1. Apple, 2. Google, 3.IBM,
4.McDonalds,
5.Microsoft,
6.Coca Cola 7. at&t, 8.
Marlboro,
9. China Mobile, 10.GE
Effective Negotiation
Measuring Purchasing Performance
The overall
organisation goal is
then broken into
chunks of smaller
goals/objectives for
functions and
individuals to reach
Effective Negotiation
Measuring Purchasing Performance
Performance will be
evaluated in line with
the business VISION,
MISSION, OBJECTIVES
& PLANS
Effective Negotiation
Measuring Purchasing Performance
Hierarchy of objectives
VISION
MISSION STATEMENT
GOALS & OBJECTIVES
STRATEGY
TACTICS
Effective Negotiation
OPERATIONS
Measuring Purchasing Performance
Overviewing
Performance jargon
Performance Management
Value add & Non-Value add
SMART(ER)
Stakeholders
Effective Negotiation
Measuring Purchasing Performance
Differentiate between
Value add
and
Non-Value Add
Effective Negotiation
Measuring Purchasing Performance
Qualitative
“QUOTE:
Strive not to be a
success, but rather to be
of value”
Albert Einstein
Effective Negotiation
Measuring Purchasing Performance
Value add
Effective Negotiation
Measuring Purchasing Performance
Adding Value to the
Business
Improving the way you
do something
Stop doing something
that has no value
Effective Negotiation
Measuring Purchasing Performance
Reduced
Delighting CRM
Supply
the
Reduced Base
Customer
Supplier
Good
Cost
80/20
Base
communitcation
Savings
rule
Governance:
channels
Policy and
Supplier
SRM Appraisal
Procedures
Maverick
Vendor
Intelligent
OwnTerms &
Spend
Rating
Related
Customer
Conditions
Control
Research
Role
Competitive
CSR
Joint
Pricing
Green
Ventures/
Low carbon
Control
Logistics
Partnering
footprint
Effective Negotiation
Buy/Lease/
Outsource
Decisions
Value add
Measuring Purchasing Performance
Adding Value to the Business
Issues investors/shareholders
care about: In Neely, et al
*Strategy, *Earnings per share
growth, *FCF, *Management
Experience, *R&D spend,
*Short/Long term debt, *Products,
*Bad news, *Market leadership,
*Challenges & risks
Effective Negotiation
Measuring Purchasing Performance
Non-Value Add
Effective Negotiation
Measuring Purchasing Performance
Don’t measure for
measurement’s sake
Computers can create
masses of data but is
it all necessary?
Effective Negotiation
Measuring Purchasing Performance
Does this next quote
ring any bells?
Do you know of any
measurement in your
organisation like
this?
Effective Negotiation
Measuring Purchasing Performance
The Measurement Mantra
“We now had an
accounting department full
of people who only
stopped cranking out
numbers to pick up their
paychecks.
Effective Negotiation
Measuring Purchasing Performance
The Measurement Mantra
“We had so damn many
numbers, inside so many
damn folders, that no one
was looking at them. But
no one would admit it.
Effective Negotiation
Measuring Purchasing Performance
The Measurement Mantra
“Everyone just bluffed their
way through meetings,
pretending to be familiar
with every detail”.
Ricardo Semler, CEO of Semco, in his book
Effective Negotiation
‘Maverick’
Measuring Purchasing Performance
Damage
& Theft
Chasing
Obsolescence
Scrap
Unnecessary
Movement
Non-Value add
Costs to
store:
80/20 Queries/
Not fit for
purpose
Too many
Suppliers/same
products
Duplication
of effort
Maverick
Spend
Unnecessary
processes
Waiting,
Absenteeism/ Duplication Zero/Poor queuing
of data
High Staff
Terms &
storage
turnover
Effective Negotiation
Conditions
Complaints/
returns/re-work
Measuring Purchasing Performance
SMART
“QUOTE:
It’s not that I am so smart,
it’s just that I stay with
problems longer”
Albert Einstein
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
SMART(ER)
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
SMART(ER)
Objectives are
projects
(having start and end date)
Effective Negotiation
Measuring Purchasing Performance
SMART(ER)
Effective Negotiation
Specific
Measurable
Achievable
Relevant
Timebound
Evaluation
Responsible
Measuring Purchasing Performance
Overviewing
Performance jargon
SPECIFIC
clear & defined
outputs/ results
required
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
MEASURABLE
Solid, visible
evidence
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
ACHIEVABLE/
AGREED
Within capability
and timescales
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
REALISTIC/
RELEVANT
In organisation/
business scope
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
TIMEBOUND
Must have start and
end date
Effective Negotiation
TIME
“QUOTE:
The only reason for time
is so that everything
doesn’t happen at once”
Albert Einstein
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
EVALUATION
Cost v Benefit, is it
Value-add?
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
RESPONSIBLE
Impact on others,
environment,
ethics
Effective Negotiation
Measuring Purchasing Performance
Task: Create
SMART(ER)
Objectives for
Purchasing,
Supplier and Buyer
Effective Negotiation
Measuring Purchasing Performance
Overviewing
Performance jargon
Stakeholders
Effective Negotiation
Measuring Purchasing Performance
STAKEHOLDERS
All those that are
affected by the
business or can
influence the
business or both
Effective Negotiation
Measuring Purchasing Performance
STAKEHOLDERS
Shareholders, Customers/
End users, Suppliers, Media
Employees, Unions, Agencies
Local/Central government,
Regulators, Pressure groups,
Landlords, Local Community,
Tax authorities, Banks, etc.
Effective Negotiation
Measuring Purchasing Performance
Stakeholder groups
fall into 5 categories;
Strategic, Managerial,
Operational,
Direct Influence and
Indirect influence.
Effective Negotiation
Stakeholder Needs = Organisation Needs
Stakeholder Satisfaction
(Stakeholder Wants & Needs SWANs)
• Fast, right, cheap & easy
• Purpose, care, skills & pay
• Trust, unity, profit & growth
• Legal, fair, safe & true
• Return, reward, figures & faith
Effective Negotiation
Stakeholders
Stakeholder Contribution
(Organisation Wants & Needs OWANs)
Customers &
Intermediaries
• Trust, unity, profit & growth
Employees
Hands, hearts, minds & voices
Suppliers
Regulators &
Communities
Investors
• Fast, right, cheap & easy
• Rules, reason, clarity & advice
• Capital, credit, risk & support
Delivering Stakeholder Value
Stakeholder
Demand
Satisfaction
Delivery
Stakeholder
Satisfaction
Strategic
Direction
Effective Negotiation
Solutions
Development
Processes
EXAM TECHNIQUES

Effective Negotiation
EXAM TECHNIQUES
 Why plan?
 Fail to plan and you plan
to fail
Effective Negotiation