Procurement power point

1. A paper presentation to the Kenya Institute of
Procurement and Supply (KISM) annual workshop
held at Nile Resort Hotel Jinja-Uganda on 30th
March
to 1st
April 2015
By
Professor Benon C. Basheka, PhD, FCIPS
Dean, School of Business and Management
Uganda Technology and Management University
Contacts: +256782459354,bbasheka@yahoo.co.uk 1

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3.  As organizations cope with a myriad of changes, procurement
is becoming a more strategic function.
 Procurement excellence is now increasingly becoming an
important factor in delivering efficient operations .
 But If we do not measure the value we add; how can we expect
others to recognize the procurement function?
Procurement measurement systems measure the
effectiveness (and the efficiency) of the procurement
function and demonstrate its value adding nature to the
bottomline
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4. “It is much harder for top management to judge that their
purchasing people are doing a good job. As a profession we
have not been very good at measuring our performance,
therefore we can hardly gripe when salespeople come to
call in their latest BMW while we are driving around in
ancient Nissans”
(Roylance, 2006)
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5. • Many public procurement professionals are happy with the
status quo and do not want the requirements to meet similar
performance targets that salespeople are required to meet
(Roylance, 2006)
• Public Procurement Professionals must be willing to identify
and adopt meaningful measurement targets in order to show
we add value to the organization
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Demographic
Shifts
Global
Economic
Integration
Rising
Activism
Natural
Resource
Constraints
Science &
Technology
Forces
• Expected to be a strategic partner
• Increased Supply Chain Complexity
– Product proliferation
– Demographic/ market shifts
– Shorter product lifecycles
• Intensified need for supply chain integrity
– Accountability for all components of
supply chain
• Increased emphasis on risk management
– Supply surety
– Transportation network frailty
– IP protection
Implications for
Procurement Organizations

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8. In a study entitled’ Public procurement system challenges in
developing countries: the case of Zimbabwe’ identifies the
following key challenges in procurement, which on scrutiny
apply to other countries:
1. Delays in implementing projects
2. Corruption
3. Inadequate market equity
4. Political interference
5. Indigenization policy
6. Incompetence
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9. Discussed the challenges facing procurement professionals
which related to the following:-
1. Market environment
2. Legal environment
3. Political environment
4. Cumbersome procurement regulations, rules and
guidelines
5. Culture and Technology
6. Inadequate Planning
7. Excessive documentation
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10.  In a study examining the Challenges of Procurement Professionals in a
Public Institution: The Case of WA Polytechnic, in the Upper West
Region of Ghana pointed out the following challenges for
procurement professionals:-
1. Long and cumbersome procurement procedures
2. Low threshold
3. Inadequate funds
4. No representation of procurement managers on sit on
tender committees
5. Inadequate funds to support projects
6. Political interference from government
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11. 1. Lack of acceptance
2. Lack of strategy
3. Lack of methods
4. Lack of trust
5. Lack of know-how
6. Lack of competence
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12. How do we build the procurement and supply
chain brand worth recognizing?
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13.  What hard, tangible value is the business getting from
procurement?
 What should it be getting now, in 36 months, and beyond?
 What changes in behaviors or governance could improve
performance?
 What mix of capabilities and resources is needed for procurement
to be a world-class player?
 Who are our best procurement athletes? How are they measured,
and how are they doing?
 Do they understand what counts? Do they know how they are
doing?
 What is our plan for growing value through procurement?
 How will we support professional pathways for our supply 13

14. Provide the procurement professional with the information
and data to tell their story of adding value to the
organization
 Performance Metrics is the term given to the measurement of
performance
 It is an analytical application of measurements that allows
comparison of performance standards.
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15. They must reach goals
Their results are directly identified on an organizations
profit and loss statement
They are assigned monthly and annual goals
The goals are easily measured
How many public procurement professionals are assigned a
monthly and annual savings goal?
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16. Financially
1. Upfront cost savings by purchasing things at the best price
2. Back end savings by enforcing warranties
3. Cash flow by extending payment terms
Quality and timing
1. Sourcing things in a manner that ensures that quality inputs are
provided on time
2. A robust supply chain that delivers in the face of unknown risks
3. Financial compensation for the impact of a vendor not delivering
within parameters
Innovation
1. Sourcing innovative products
2. Innovative commercial models that align suppliers and/or allow the
company to take advantage of things that wouldn't normally be
available.
3. Competitive advantage by locking up exclusivity.
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17.  From a business perspective, the most obvious benefits of an
effective procurement process are financial.
 Productively managing procurement will allow an organization
realize immediate upfront cost savings by procuring items, services
and contracts at the best price available.
 A company will be able to properly take advantage of any
warranties or discounts that are often forgotten, leading to
routinely neglected, yet critical, back-end savings.
 A fully functional purchasing process will allow for better visibility
into company spending and budgets.
 Visibility into spending patterns and budgets will also allow
organizations the option to leverage additional cash flow by
extending payment terms and forecast for the future.
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18.  Many view the procurement cycle as a one-dimensional process
within an organization.
 Procurement, when it is adopted widely within an organization,
often leads to greater efficiency and provides for a better match
with desired goods or services.
 A streamlined purchasing process will lead to more efficient
sourcing – quality goods and services delivered on time.
 An up-to-date procurement process will also ensure that an
organization’s supply chain will be able to capably navigate through
any unforeseen roadblocks (financial problems, natural disasters,
labour shortage/surplus, economic volatility).
 When optimized, an efficient procurement process will also help in
distinguishing between successful vendors from underachieving
vendors.
 Being able to distinguish between quality vendors leads to
compensation from the low quality vendors from failing to deliver18

19.  Businesses are constantly being tested by their competitors – either
on price, quality of good or service, or convenience.
 Any competitive edge might be the difference between a new
customer and a lost sale.
 A progressive procurement process will allow an organization to
seek out innovative products or services.
 An organization with an entrusted purchasing process will enable
the sourcing of those innovative goods and services in the hopes of
securing a competitive advantages.
 In some cases, solidifying (empowering) this function might even
yield exclusive deals with suppliers.
 An effective procurement process will improve an organization’s
bottom line and increase efficiency.
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20. According to Ardent Partners, measuring procurement performance
can be as complex and nuanced as the value that the function can
deliver.
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21. 1. Easy To Understand
2. Quantitative
3. Measures What is Important
4. Causes Correct Behavior
5. Metrics Should be Easy To Collect
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22. There are three main categories of supply chain
performance metrics:-
1. Time
2. Cost
3. Quality
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23. 1. Input metrics
2. Output metrics
3. Process metrics
4. Outcome metrics
5. Efficiency metrics
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24. EXAMPLES OF METRICS
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25. Strategy Implementation - % of milestone activities
completed in the organizations Strategic Plan
Skills Development – Average time per Buyer spent on
structured training in procurement-related skills
Aggregation - % of corporate spend aggregated through
annual term contracts
Aggregation – % of corporate spend aggregated through
cooperative purchasing efforts with other public sector
organizations
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26. Sustainable Procurement - % of annual term contracts
awarded following best practice on sustainable
procurement
Local Government Market - % of corporate spend placed
with small and medium enterprises
Local Government - % of corporate spend placed with non-
profit and social enterprise organizations
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27. Local Government - % of corporate spend placed with
ethnic minority businesses
Internal Customer Satisfaction - % of all responses either
very or fairly satisfied
Supplier Satisfaction - % of all responses either very or
fairly satisfied
Predictability – Average time from publication of official
solicitation notice to contract signature
Energy Price comparison of gas, electricity, oil and water
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28. Commodity goods price comparison – a “shopping
basket” of 10 commodity goods
Average minimum cost of issuing an order –total cost
from requisition to payment
Average Invoice value – Corporate spend divided by total
number of invoices
Accuracy of deliveries - % of orders that were correct
when received
Average spend per supplier – Corporate spend divided
by the total number of suppliers
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29. 1. Percentage of corporate spend through electronic orders
2. Percentage of invoices received electronically
3. Percentage of corporate spend through electronic sourcing
4. Percentage of orders raised electronically
5. Percentage of invoices paid electronically
6. Percentage of corporate spend through P-cards
7. Minority Business satisfaction with the Procurement
Function
8. Small and medium sized business satisfaction with the
Procurement Function
9. Non Profit sector satisfaction with the Procurement
Function
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30. 1. Reduce the cost of products and services
2. Identify new sources of procurement related revenue
3. Leverage organization buying power
4. Meet or exceed customer expectations
5. Increase spend with local suppliers
6. Increase spend with diversity owned suppliers
7. Update internal processes and redesign to improve
efficiency, increase compliance and improve customer
satisfaction
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31.  The metrics to use will vary according to organizational goals and
objectives
 At minimum, it is recommended procurement should track the
following metrics:
1. Cost Savings/Cost avoidance
2. Supplier and Industry Development
3. Supplier performance
4. Efficiency of internal procurement systems and processes
5. Procurement Professional development and employee retention31

32. 1. Realized or implemented savings as a percentage of identified
savings
2. Level of savings due to new contracts/supplier arrangements or
purchasing initiatives
3. Value of additional negotiated benefits
4. Cost reduction due to using alternative goods or services
5. Value of improved warranties
6. Reduced stock holdings and improved payment terms
7. Savings due to improved waste management
8. Reduction in demand of a good or service
9. Percentage of spend under management
10. Refunds or credits
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33. 1. Potential local suppliers identified and developed
2. Number of new sources of particular goods and
services
3. Number of firms involved in local supplier development
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34. 1. Include a range of cost targets
2. Gauge whether contract requirements, service and
quality requirements are being met through the use of a
consistently applied evaluation procedure
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35. 1. Volume of procurement spend transacted electronically
2. Volume of procurements transacted through aggregated or
standing offer arrangements
3. Reduction in transaction and inventory management and
distribution costs
4. Internal customer satisfaction
5. Response term between requisition submission and purchase
order placement
6. Procurement cycle time management
7. Simplicity, convenience, and effectiveness pf procurement
decision making and authority lines, processes and systems
8. Procurement operating costs as a percentage of managed spend
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36. 1. Number of full time employees with a certification
2. Number of employees in management that hold a
professional certification
3. Amount of spending per full time employee on
professional development and training
4. Average number of hours per full time employee spent
on professional training and development
5. Total number of employees retained year –on-year
6. Total number of new employees as a percentage of
total employees 36

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39.  The world of procurement is changing and so are the organisations
where it takes place
 Skills now required of procurement and supply professionals now go
beyond the technical procurement skills but require robust
management and administrative superiority
 Procurement has to be truly seen as a value adding function as
opposed to a cost center
 Its strategic orientation has to be reflected through concrete actions
and professionals must be the champions.
 What worked yesterday to address a procurement challenge may not
work today because of rapid changes occasioned by ICT and use of
internet
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40.  Collectively and individually, the bar for procurement and supply function has to be
raised whether in public, private and NGO sectors
 It does not matter whether some are at a strategic level, while others are at a
tactical or an operational level
 It does not matter whether some of procurement professionals are in central,
parastatal or local governments
 Whether some are highly connected or in organizations which are ‘wet’ while
others are in dry ones, it is a collective responsibility
 Both men and women, both educated and non educated, both married and
unmarried, collectively we can surely position procurement and supply function at
a different level
 Let us all appreciate immensely that procurement performance management
refers to the holistic process of managing and increasing the added value of the
procurement organization.
 In doing so, the process is observed from the finding of savings potentials
(transparency in procurement) via modern methods of spend management and
their realization through procurement initiatives to the final measurement of
success and for sustainable management over the course of several years.
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41. THANK YOU
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