Building 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.
Spend Under Management
Spend under Management is an important number to track for 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.
Cycle time is the measure of how long a certain task or 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 category planning.
Cost Savings and Avoidance
Most Procurement professionals will agree that cost savings 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!
This blog originally appeared on the Strategic Sourceror
Author: John Sepcie
Job Title: Advisory Analyst