• Written by Muhammed Abdulla NC, CEO

Every week, procurement teams sit through meetings where they are asked to justify the return on investment of their initiatives, only to struggle with measuring the impact of their work. This is because the counterfactual - what would have happened without the intervention - is often invisible, making it difficult to determine the true effect of their efforts.

Leading measures you can actually observe

In order to measure the effectiveness of procurement initiatives, it's essential to focus on leading measures that can be observed and tracked over time. This includes monitoring changes in spend patterns, supplier performance, and contract compliance. By tracking these measures, procurement teams can identify areas where their initiatives are having a positive impact and make adjustments as needed.

A good example of this is a category manager who uses AsscherAi to track changes in spend with a particular supplier, allowing them to see the impact of a newly negotiated contract on their overall expenditure. This information can then be used to inform future procurement decisions and optimize their strategy.

Why aggregate outcome metrics move for unrelated reasons

Aggregate outcome metrics, such as total spend or savings, can be misleading when it comes to measuring the effectiveness of procurement initiatives. This is because these metrics can be influenced by a wide range of factors, including changes in market prices, shifts in business needs, and external economic conditions. As a result, it's possible for these metrics to move for reasons unrelated to the procurement team's efforts, making it difficult to determine the true impact of their work.

Most people get wrong the idea that aggregate metrics are a reliable way to measure procurement performance, and they are wrong. These metrics are often too broad and can be influenced by too many factors, making them a poor choice for measuring the effectiveness of specific initiatives.

The procurement data this depends on

In order to effectively measure the impact of procurement initiatives, it's essential to have access to high-quality procurement data. This includes purchase orders, supplier contracts and terms, invoice history, and category structure. By analyzing this data, procurement teams can gain a deeper understanding of their spend patterns, supplier performance, and contract compliance, allowing them to make more informed decisions and optimize their strategy.

For example, a shift supervisor can use AsscherAi to analyze the maintenance log and identify areas where procurement initiatives are having a positive impact on equipment uptime and overall plant performance. This information can then be used to inform future procurement decisions and optimize their maintenance strategy.

What it changes about

Effective measurement of procurement initiatives can have a significant impact on spend fragmented across suppliers and contract terms diverging from what is paid. By tracking leading measures and analyzing procurement data, procurement teams can identify areas where they can consolidate spend, renegotiate contracts, and optimize their supplier base. This can lead to significant cost savings and improved efficiency, as well as better relationships with suppliers and improved contract compliance.

A procurement team that can measure the impact of their initiatives is better equipped to make informed decisions and drive real change within their organization. This is especially important in large organizations where procurement decisions can have a significant impact on the bottom line, and can be a key factor in achieving operational excellence, as described in our operations guide.

Measured with

In order to measure the effectiveness of procurement initiatives, it's essential to use a range of metrics that provide a comprehensive view of procurement performance. This includes spend under management, price variance to contract, and supplier concentration. By tracking these metrics, procurement teams can gain a deeper understanding of their spend patterns, supplier performance, and contract compliance, allowing them to make more informed decisions and optimize their strategy.

For example, a procurement manager can use AsscherAi to track spend under management and identify areas where they can consolidate spend and renegotiate contracts. This information can then be used to inform future procurement decisions and optimize their supplier base. If you're interested in learning more about how AsscherAi can help your organization, please contact us to discuss your needs.

What this does not do

While effective measurement of procurement initiatives can have a significant impact on procurement performance, it's not a silver bullet. It's not a replacement for good procurement practice, and it's not a guarantee of success. It's also not a one-time exercise, but rather an ongoing process that requires continuous monitoring and analysis. By understanding what measurement can and cannot do, procurement teams can set realistic expectations and use measurement as a tool to drive real change within their organization.