A Best Practice Guide for Procurement Performance Management

A Best Practice Guide for In Partnership with: Procurement Performance Management

Procurement solution thought leaders weigh in:

With PHILIP IDESON, Founder and host of Art Of Procurement

JASON TREIDA, SVP of Customers and Partners of SpendHQ

PIERRE LAPRÉE, Chief Product Officer of SpendHQ

FIRESIDE CHAT SUMMARY

Q&A About Managing Technology and PPM The following question and answers were collected during a live webinar with Art of Procurement titled: “From Isolated Zero to Enterprise Hero: Best practices for managing holistic procurement performance.”

Enjoy these common questions and conversational responses from our team below.

Why do we tend to gravitate towards what is shiny and new in procurements?

Do you think cost savings measurement is too short or too small of a perspective on what procurement is capable of doing? Because we’ve kind of built our profession on that idea, but I’m not sure if it’s kind of self-limiting at the same time.

Jason Treida: There are a lot of exciting new technologies in the marketplace and new innovative ideas. We feel procurement typically falls behind the curve in investment for technology, and now they’re starting to catch up a little.

Even still, technology is rapidly changing. The shiny new features and updates are allowing procurement to become more strategic and transparent. These technology companies are making major splashes with massive amounts of investment. In addition, technology providers are taking over conferences, and creating a big buzz. So, everyone is excited to see the latest innovations and ideas for procurement.

A lot of these updates can become overwhelming, with many options in the procurement technology landscape. I encourage everyone to have a plan to evaluate what they really need to help them make the right decision.

Pierre Laprée: As procurement professionals, we must deliver on cost savings, but we will stop existing if we only live by that metaphor of, “One dollar saved is one dollar to the bottom line.” Procurement teams also have different negotiation styles, so dynamic bidding, and allowing stakeholders to have more input, and not focusing just on price as a value-add.

There are sourcing solutions out there that are really helping to be predictive and prescriptive, and not just reactive, such as using AI to help you find opportunities in your sourcing and projects.

Pierre Laprée: In the past, we used to say, “One dollar saved is one dollar that hits the bottom line.” So, you naturally have this direct take on a companies’ profitability and how technology investments are a part of this strategy. As procurement professionals ourselves, we know this is part of the challenge and temptation with technology investments today.

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Every organization should ask themselves: • What are we trying to achieve?

• What problems do we have?

• How are we trying to solve these challenges?

• How do we manage our sourcing pipeline and track savings against key priorities?

• What language should I speak with my internal stakeholders, so we build a common language around goals and requirements beyond cost savings?

PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

In all cases, you can ask yourself about: • The level of resources within your function • The level of effort you have to deploy to get those things • The KPIs that matter the most to your stakeholders, team, and suppliers that influence the business the most

How have you seen those evolve in a procurement organization as the maturity of a procurement group evolves?

Pierre Laprée: The level of your maturity within your procurement organization will typically influence how you measure and report on procurement’s performance. When you look at value status of the procurement organization, you start at with a very transactional aspect and KPIs are about how long it takes to flip a purchase request into a PO and reducing cycle time. In those early stages, performance tracking is typically about the process improvement vs. the total value of procurement. As you grow, you become more structured, strategic, and integrated within the organization. Then, you see procurement’s impact and value expand into the entire value chain, ecosystem, and supplier base. As a result, those metrics change and grow to measure value-added metrics, such as supplier collaboration.

How can we balance the cost savings initiatives with the challenge of helping upper management understand priorities that don’t have a hard savings attachment to value?

Pierre Laprée: That’s a question that’s very close to our hearts at SpendHQ. I often say in a procurement function that doesn’t deliver some economic value is ineffective. We usually look at cost-savings or cost-avoidance with a negative connotation. But there are many ways to achieve savings targets without ruining important supplier relationships that jeopardize the business and quality of the product/service with end customers. You can have constructive conversations that can take the cost or take the price down without hurting your supplier. When I started as procurement practitioner years ago, the whole procurement organization was based on saving multi-million dollars on CALCO, because the market was moving. And that’s how we get the business to talk to us. You need to think about how you can get your business talking about you. Establish this baseline of trust and credibility, and money is an excellent way of doing that. You should do that in a way that the discussion on economic value of procurement is not a diabolical question. Balance your work by scrubbing the bits, showing your worth, and showing your value in terms of economic performance.

« It's a journey. Don't lure yourself in thinking that you can start doing supplier collaboration if you are a newly established procurement organization. There are steps you need to take, and that's the maturity curve of procurement. »

Is there a danger of having too many metrics?

Pierre Laprée: I believethereis no magic in technology, and the data must come somewhere.

Either you collect this automatically, and then you depend on the system to function and report properly. Or, you need to input it manually, which is incredibly time-consuming and increases risk of user error.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

In the countless CPO studies done in our industry each year, cost reduction remains a top priority.

Executives expect cost reduction from the procurement function because that’s where you can see an actual differencein the bottom line.Extending beyond cost reduction is when you can become a Rockstar procurement professional who helps the enterprise with the top line too. Of course, all of this comes down to understanding your audience – your stakeholders – and focus on having conversations in their terms. For example, when working with Finance – they are about PNL and helping them reduce the number of spreadsheets they work in daily. You will go far in your career by deeply knowing your audience.

There really isn’t a direct connection with investing in this technology, investing in these people is going to mean these outputs. There’s more work to be done certainly from that perspective. What are your thoughts on this perspective?

Pierre Laprée: I would say that’s why sometimes we need to the basics. And the basic question everyone should ask is: «What’s my value proposition to the company?» You need a roadmap and then you must demonstrate your impact and results from that roadmap. Your improvement will come when you figure out ways to make the process smoother and more efficient for everyone involved. Show people that field of opportunities with the procurement function driving critical efforts. Ask questions such as: • Where can I help you make the biggest impact?

• Where projects or priorities should I move to the front of my sourcing pipeline?

• What should I put in the savings tracker for you?

• What should we do with our money?

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

Stay focused and on track so you don’t get lured by shiny objects. Always focus on the critical, core business issues because that is where people, process, and technology make the biggest difference for the entire organization. Technology is just a means to an end. You need technology, but you need to think first.

With professional services, what are your thoughts on having too strict of metrics?

Pierre Laprée: In my experience, when you talk about supplier performance management, it shouldn’t start when the contract is signed.

Supplier Performance Management should start right from the sourcing, and tendering part. Listening to your suppliers is key because they might save you a lot of money. The best way to pick the right suppliers is to listen and relent a little bit of control. Sometimes, it’s hard for us procurement professionals to trust suppliers because they want our money and business. However, building that trust and putting in the effort upfront will pay-off for everyone in the long-run.

How do we make sure performance metrics don’t hold us back so we can still effectively manage the performance of our professional services suppliers?

Pierre Laprée: Consolidating contracts and stopping the spreadsheet madness is important. So, it’s important to apply the same fundamentals and lessons learned to managing suppliers in a thoughtful way – and this involves not sending them a hundred-line spreadsheet with values criteria. We fail when we try to reduce everything down too far. You need a guide to define what’s important to you and your business internally. Then, use that information and guide to have conversations with a limited number of key metrics. I encourage procurement to find ways to have more faceto-face conversations as well. You gain more clarity and insight with a verbal conversation that is captured with strong notes and follow-up action items. Then, you can put everything into perspective with actual scores and metrics to assess procurement and supplier performance together.

Can procurement as a function mature if our metrics don’t mature? Are those two things aligned with each other, or are we looking too deeply into what procurement metrics are?

Pierre Laprée: No; I believe our function will not naturally grow if metrics don’t. Somehow, it’s the chicken and the egg situation. In some instances, we must change our metrics to show the work has changed. Other times, we need to be challenged by our company when demands and situations change internally. For example, one of our clients had an issue with stakeholder engagement. So, they started tracking projects that had “zero” procurement involvement. Then, the CFO found a metric where 20% of projects had no procurement involvement, which was about $10 million dollars of spending. He noted even saving 5% would be a huge benefit.

With a large number of suppliers, remember this practice is about scalability. Start small to figure out what works and doesn’t work – and then little-by-little, you will arrive to a situation where the right metrics become obvious and feedback is collected in a meaningful way vs. email logs only.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

So, that metric of tracking engagement and involvement helped the client showcase the risk and loss of productivity without having procurement involved. Once the business changed, they removed the involvement metric and focused on more mature metrics.

You should always focus on creating an upward spiral and elevate the role and function of procurement based on your maturity.

Now as we get access to more data, how can we better measure and report procurement value?

Jason Treida: There a handful of ways to get started. For example, you can look at the different stages of the sourcing cycle process, how long it takes to run an activity, and compare performance across different business units.

You can start to see where low savings are returned with a high investment in time based on certain stakeholders, and project cycle time. This insight helps our clients dig deeper into projects, activities, and data trends to identify roadblocks or uncover opportunities.

Then, using the data, they can work with the stakeholder to uncover ways to reduce barriers and become more efficient. Project planning metrics also help make the case for more resources, when applicable.

Pierre Laprée: Think about this like peeling an onion. Once you start peeling, you see new layers and insights. The same is true for looking at your procurement practice and seeing new opportunities that unfold simply from a graph that inspires to think differently about a certain spend category. Then, they can step back to see if the data is flowing properly, the expectations are being meant, and how to make changes that help the business grow.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

enchmarking against your peers and industry data is something that catches the attention of stakeholders. This is where you come prepared with hard facts and insights that people have a hard time challenging, which eliminates scenarios where people are making decisions based on their gut-feeling or intuition. Technology helps procurement have organizations with the rest of the organization using factbased data, insights, and trends that change everything.

They are educated people, and they can make decisions. Transformation happens when people let go of control and trust performance-based procurement professionals who use their brain well and work marvels, even if this goes outside of a standard process or controlled framework. This is challenging for people who value compliance first and security, but when it comes to simplifying steps to go from six delegations to only two, that’s a huge time savings to increase productivity.

Procurement is a function wherever people function. A lot of people fear the process and change, but within a business of relationship.

In addition, procurement should be focused on helping their stakeholders quickly get answers they need in terms of project status, the next stage, and any roadblocks. This agile approach is more proactive helps procurement get feedback early on to become more transparent and collaborative vs. being reactive and working in a spreadsheet that no one else can see.

« We need to also learn how we can influence the behavior of people, and sometimes data is a good ally for that. »

Also, understand the balance between governance and rituals. Governance is imposed by the organization because wanting to do things in a certain way, and that’s the validation. The rituals are somehow the informal governance.

What are some of those procurement rituals that you see consistently that you are helping folks to break through, so that they can perhaps elevate the role of procurement, have a different outcome with their stakeholders?

This will help you understand: • How do we ensure that we agreed on the baseline and ambition?

• Before we get to the end result, what needs to happen in the middle of the project, so we speak to the right people to follow course and hit our targets and goals?

Pierre Laprée: The first example that comes to mind is the control freaks. For example, we have one big client who used to have six different designations from the identification of the project, through the completion and the reporting of the same. Six times. And out of the six, three things delegated the same thing in three different ways. There was no value.

Performance people are smart people.

Always care about the people part. You must talk to people and do your best to avoid misaligned interests or concerns. Build out rituals that foster and build trust. This will help you elevate the role of procurement and bring new value to the company.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

Also, have a clear end goal in mind.

Ask yourself: • What are we trying to achieve?

• What is the value of this project/effort?

• What stakeholders need to be involved?

• How can I be available to my stakeholders throughout the entire project?

• How can I share project updates without overwhelming my team with too much information?

• What changes can I make to become more transparent and communicative with the business?

What’s one habit that we can implement in our daily procurement lives to be more productive?

Pierre Laprée: You must “walk the talk” in your work and interactions. Start outlining your roadmap and build out your plan with stakeholders and Finance at the core. Keep the team members, stakeholders, and executives updated and explain the results you are measuring. This agile approach to procurement takes time, but the key is to make procurement visible, transparent, and indisputable.

I guess that’d be, one of the expressions I learned from an American colleague is walking the talk. I think that this is critical in procurement. You need to start outlining your road map, and you should build this with the stakeholders and with finance. You should keep them updated, and you should explain the results you’re measuring. Share the data with your stakeholders using terminology and examples that resonate with them.

What kind of recommendations do you give to folks who, as they’re thinking about where to start in their investment in procurement technology?

Jason Treida: The best advice is to truly understand the end goal. Consider what the business really needs, how they will use this project or plan to better serve the business, and how does this technology will foster a positive adoption vs. create another complicated tool for people to master? Avoidusing massive RFPs with hundreds of questions. Lean on a roadmap that directly connects to the vision of the company.

Always look for solutions that fill gaps, align to common goals, and have realistic timelines in mind. There is a lot of value you can gain by simply talking to your peers too.

« The single biggest thing you need to make happen is getting more structure and more transparency to whatever you’re doing. »

There are many ways of doing that, but it starts from you and possibly your manager.

This should not come from the head of finance or the head of procurement. Youare proficient all you need to work in very strict manner and make that visible.

Pierre Laprée: The world of technology has changed. Now, it’s easier to, “Try before you buy.” Trust the supplier and ask them to show you how the technology works instead of assuming 400 lines on a spreadsheet will get you the answers you need. This helps you see,

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

in real-time, how the technology will work with your current systems and discover how you can tailor this project directly to your needs and goals. It’s much better to dedicate one or two weeks of workshops to some vendors to have an interactive learning experience vs. letting Excel files decide based on “YES” or “NO” checkboxes of requirements. There is no cookie cutter approach. When looking for a procurement solution, ask yourself questions, such as: • Do we need all the functionality or not?

• How long is the deployment timeline?

• What is the biggest requirement of all that influences the biggest area of the business?

or transactional activities – you risk being replaced by robots.

Start-up companies today are pitching how digital procurement activities are being done to automate the bidding process and make decisions automatically based on complexities. If that’s the only procurement activity you know how to do, you need to think of ways to learn new skills or technologies to put you ahead of the curve. If you are open to learning and adopting with technology, you can still remain helpful and relevant.

Now is the time for procurement to act and protect their jobs to make their life easier using technology and new processes and methodologies instead of letting machines take over. Everyone is still trying to figure this out, but I believe you need the human involvement to make sure you have good data. If you don’t have good data, AI will not accomplish anything. People still matter a lot, and that should be a motivating factor for everyone thinking about procurement in the new decade.

Sometimes, time is the biggest requirement of all. But, don’t rush a big investment – do the right thing for your team and the organization at large.

Given the expanded use of machine learning in business analysis and in monitoring processes, do you expect that greater automation will bring greater data? Will this change the way we manage procurement performance, or will this largely be something we track separately from our activity to look impact, progress, making a difference, etc.?

Pierre Laprée: Greater automation and AI are an excellent wake-up call.

If you are a procurement organization focused on low-value added tasks, mundane activities,

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

What is Procurement Performance Management (PPM)?

As procurement professionals ourselves, we kept seeing a common trend among nearly all procurement teams. Perhaps you work for an established, global company that is a household name. Or maybe you work for a smaller company with aggressive growth strategies and tactics.

Regardless of the company size and vision, nearly all procurement professionals have struggled with effectively structuring the day-to-day strategic sourcing management of the procurement operations. There are never enough hours in the day for us to complete our critical work, let alone discover new opportunities for the business. Sometimes, our data is wrong because forecasts aren’t properly updated. Other times, we are relying on other people to input the latest contract or supplier data to ensure we are spending on-contract, within terms, and hitting the savings targets we promised our leadership team during our annual planning meeting last year. Does this sound like a familiar story to you?

Regardless the level of maturity and the mix of Procurement technology that our interlocutors have, we find that the various aspects of strategic sourcing (and the so-called Source-to-Contract process) works in a sub-optimal way,in silos.Procurement Performance Management is a set of activities that strategic sourcing teams can put in place to get the best out of these tools.

It integrates elements of team management, of pipeline management, and of communication.

Procurement Performance Management is wide-ranging in terms of expected outputs: cost optimization, of course, but also suppliers-, risk-, stakeholder-management, innovation. It generally starts with cost reduction. Far from being something bad, this is often an enabler,a first step in the maturity curve to obtain the means and credibility to grow to more value-adding areas.

PPM will help you up procurement’s game with upper management across the entire organization. Now, you can create a strategic value (cost savings + innovation) that puts Procurement at the heart of a company’s profitability.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

The Benefits of Adopting a PPM Mindset and Solution Despite all the Procurement technology available, CPOs still struggle to provide a real-time, accurate picture of Procurement performance to Finance or the business. Large enterprises deal with procurement operations that are spread out throughout their organizations. They handle spend volumes of hundreds of millions to billions every year in direct and indirect procurement.

This can add up to 60% of their revenue.

Technology is everywhere in procurement. We are slightly obsessed with automating, digitizing, integrating every process and task, and yet we are leaving big gaps that technology doesn’t begin to address. PPM is a unique approach that is rooted in helping you achieve better:

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Everyone on your team knows their role, tasks, and impact on the bottom line.

Facilitate fact-based discussions with Finance and your stakeholders that are based on shared metrics and common goals.

Set goals, reshuffle priorities, and track both individual and collective performance of your procurement team.

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PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

With a flexible, yet accessible PPM solution, you can better manage performance to see the valuable impact procurement is contributing throughout the entire organization. You can free yourself from tactical and tedious nightmares, such as: Tracking down the latest version of your spreadsheet.

Searching through 10 different solutions for project updates for your sourcing pipeline Digging through the latest cost savings data for your next meeting with Finance and key stakeholder Attempting to consolidate updates from different business units that report in different formats for global reporting purposes Hoping someone did not overwrite a formula or input bad data that will spoil the overall reporting

Instead, you will discover that PPM helps by:

Making an even greater impact

Improving the management

on the business with strategic sourcing.

of runaway spend.

Measuring the progress

Communicating your progress and results

each project in real-time.

Empowering your team members to take ownership with stronger collaborative.

Boosting team productivity by removing bottlenecks and reallocating workloads in an agile manner.

Consolidating all your procurement team’s source-tocontract data in a single place. No more lost paper trails because of bad filing or staff turnover.

to all stakeholders with indisputable reports.

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Demonstrate procurement’s true value to the business

PROCUREMENT PERFORMANCE MANAGEMENT DEFINED: A BEST PRACTICE GUIDE FOR A NEW DECADE

A Six Step Process to Get Started with PPM The idea of adopting a new mindset or approach is overwhelming for some people. This shift will require change management tactics and strategies for your team. The good news is PPM is simple, effective, and inclusive.

Read these six steps for getting started with a successful PPM approach:

1. Identify

4. Collaborate

Identify all possible opportunities to reduce spend, cut risk, and boost vendor quality. Be alerted to contract expiry dates, business teams’ demands and external market events, such as potential risks with your existing suppliers — to name a few!

Complete transparency in the Sourcing Pipeline facilitates agile management and collaboration, and speeds realization of savings and completion of projects.

2. Prioritize

5. Measure

Prioritize sourcing projects in your Sourcing Pipeline based on criteria such as value and risk. Your team knows exactly what to do and what they need to work on next. Effortlessly reshuffle priorities when necessary.

Identify all possible opportunities to reduce spend, cut risk, and boost vendor quality. Be alerted to contract expiry dates, business teams’ demands and external market events, such as potential risks with your existing suppliers — to name a few!

3. Forecast

6. Communicate

Produce a reliable forecast of contracted savings for each sourcing project. Continuously re-forecast as sourcing projects progress along the Sourcing Pipeline. In addition to qualitative benefits, enjoy a trusted pipeline figure that provides the total expected contracted savings your team is committing to delivering within specific future milestones (quarter, fiscal close).

Share clear progress reports with all stakeholders. Demonstrate to other departments the impact you are having on their business in terms of reduced risk, better vendor quality and lower spend. Stop being seen as the spend police but as a strategic business function.

Anticipate bottlenecks. Re-prioritize effortlessly. Greater agility also means you are better able to answer business stakeholders’ requests.

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A New Decade, a New Chance to Accelerate Procurement’s Performance

About SpendHQ SpendHQ is the leading best-in-class provider of enterprise Spend Intelligence and Procurement Performance Management solutions, following its 2022 merger with Per Angusta.

These products fill a critical strategic management gap in the solution landscape, by producing actionable spend insights that drive new initiatives, goals, and clear measurement of Procurement’s overall value to the business.

Backed by nearly 20 years of procurement expertise and delivered to 450+ global customers and growing, SpendHQ’s solutions give businesses the rapid, accurate spend intelligence and performance optimization needed to drive better financial and non-financial outcomes, advance procurement maturity, and demonstrate impact with data.

Request a personalized demo to learn how SpendHQ can help you accelerate on Procurement Performance Management

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