In our latest Q&A, well-renowned procurement leader Mayank Chandla shared his insights on procurement maturity – during a time of economic crisis – and the key performance assessment indicators to focus on.
We are now going to explore these performance assessment indicators in more detail.
Can you explain what a Source to Pay Practice Framework looks like?
Typically, we can classify procurement activities across Source to Pay in the following areas:
Procurement Governance – establishing policy and guidelines, strategies and objectives, roles and responsibilities, performance tracking and follow-up
Category Management – analysis and development of category strategy, targets, and action plan by category
Source to Contract Management – development and execution of sourcing strategy, and implementation of contracts
Purchase to Pay – covers entire spectrum of ordering and invoicing activities
Supplier Relationship Management – continuous and systematic supplier evaluation, supplier lifecycle performance and risk management
What are the key indicators of good practice in these areas?
We discussed Procurement Governance in the previous Q&A, so I will focus on Category Management and Source to Contract.
An organisation with good Category Management would demonstrate development of a category profile, which includes:
- Spend Analysis
- Needs Analysis
- Market Analysis
- Total Cost Calculations
- Opportunity Assessment and Eliminations
There should be continuous development and updating of detailed category strategy, defined KPIs and performance tracking against targets.
An organisation with good Sourcing Management would have the following in place:
- A sourcing strategy that aligns procurement activity with overall corporate strategy and objectives
- A Strategic Sourcing Methodology to develop sourcing strategies and category profiles based on needs and market analysis
- Awareness and consistency across the organisation (with all category managers) in using the methodology
- Common and consistent approach to managing Sourcing events (RfXs, Auctions)
- Availability of libraries and templates for various types of supporting documentation for sourcing events.
Can you share a few examples of best practice for Contract Management?
Good Contract Management requires:
- Well-defined governance for contract lifecycle management, including authoring in collaboration with suppliers, centralised digital storage of contracts and seamless handover into the purchasing process
- Availability of templates and legally approved clause libraries for contract documents
- Clear ownership of contracts between legal and sourcing managers
And how about for a Purchase to Pay Process?
Prerequisites for good P2P practices are good procurement governance and upstream source to contract and supplier management practices.
It is essential to have a good self-service requisition and ordering platform which has embedded buying channel, contract compliance and procurement policy.
Proper classification of categories, units of measures, an inbuilt delegation of authority, short approval flows which are primarily based on requisitions rather invoicing, unless the channel is invoicing against contracts.
Operationalising contracts is key for P2P, a good level of catalogue content and of course suppliers enabled for e-invoicing. As always clear process ownership is very important.
Lastly, what should be aiming for in Supplier Management Practices?
Supplier Management is key and a topic in itself, but in brief there are two key indicators:
- Optimising Supply Base
- Managing Supplier Performance and Risk
It is imperative for procurement to define criteria for what would constitute a strategic, preferred and approved supplier for them.
For example, a strategic supplier would be representative of either a unique offering, significant investment, seen as a building block for future growth and generally associated with a high switching cost.
In my mind, one of the greatest values that procurement can deliver is managing strategic suppliers through a well-defined performance management programme that encompasses holistic performance on KPIs i.e. Cost, Quality, Innovation, Continuity of Supply and Account Management.
A transparent supplier performance management activity helps add value to both buyers and suppliers and helps organisation deliver greater experience to their customers and enhance the brand value.