"Measurement is the step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it."
— H James Harrington
The above quote has become so closely linked to KPIs, I think if I didn’t use it I’d lose credibility.
KPIs can help you to understand areas of success and challenge and adjust plans based on the outcomes. KPIs are a concise way of reporting the status of activities and sharing success stories within the team, executives and stakeholders. Internal goal setting becomes easier and clearer to communicate with standardised KPIs. External benchmarking also requires KPIs in order to be effective.
KPIs can help you to understand areas of success and challenge and adjust plans based on the outcomes. KPIs are a concise way of reporting the status of activities and sharing success stories within the team, executives and stakeholders. Internal goal setting becomes easier and clearer to communicate with standardised KPIs. External benchmarking also requires KPIs in order to be effective.
Leaders understand the value of KPIs, which should align with the vision and strategy. So what exactly should you be measuring in strategic sourcing? To drive organisational behaviour towards defined goals, it’s critical to track the right types of activities. If it’s measured, then it can be controlled, and if it can be controlled then it can be improved. Or so goes the thinking. But if you’re not using the right metrics… well, good luck trying to improve anything! Strategic sourcing KPIs are not one size fits all: you’ll have to analyse both your department’s and your company’s overarching goals and objectives to decide where to focus your efforts.
Many of the more common strategic sourcing KPIs are quantitative, such as Total cost of ownership, cost avoidance, on-time delivery, return on investment, managed spend as percentage of total spend. You may also want to consider qualitative KPIs, which don’t necessarily have black and white measurements. Some guiding questions for qualitative strategic sourcing KPIs include:
To help you hone your strategic sourcing KPIs, here are five things to avoid:
1. Focusing solely on cost savings
While cost savings are usually the number 1 focus for most strategic sourcing functions, achieving low unit costs should not come at the expense of quality or delivery KPIs.
2. Setting up too many KPIs
If you have too many KPIs, you’ll either spend all your time measuring and analysing rather than acting, or you’ll never be able to deliver. Prioritise and start out small. You can always add more later.
3. Creating unevenly balanced KPIs
It may be smart to focus the majority of your KPIs on certain objectives, but this can lead to lack of insight in other key areas. Lopsided KPIs can lead to inefficient strategic sourcing practices.
4. Setting up conflicting KPIs
Look for areas where strategic sourcing KPIs may conflict with the goals of other stakeholders. This doesn’t necessarily mean that you’ll need to scrap them, only that you’ll need to discuss the issues with the necessary stakeholders and look for common ground.
5. Misguiding behaviour
You shouldn’t be so beholden to KPIs that you avoid making strategic decisions for fear of failing to meet certain KPIs. KPIs are a guide for improvement, not a means of meting out punishment.
Remember that measurements can also be qualitative in nature.
In summary, KPIs are an effective way to measure organisational performance and execution and drive it to align with an agreed strategy and goals. Strategic sourcing KPIs need to focus on essential, present data in a proactive manner and also be selected to take stakeholders’ needs into account. When done well, KPIs can be an effective communications tool . When used incorrectly, they can generate a lot of redundant reporting work and drive the wrong types of behaviours. At the end of the day, you get what you measure.
I’d love to hear which KPIs you use in your strategic sourcing, and any other suggestions on the topic.
Many of the more common strategic sourcing KPIs are quantitative, such as Total cost of ownership, cost avoidance, on-time delivery, return on investment, managed spend as percentage of total spend. You may also want to consider qualitative KPIs, which don’t necessarily have black and white measurements. Some guiding questions for qualitative strategic sourcing KPIs include:
- How satisfied are our internal customers?
- Have I obtained buy-in (e.g. for procedures, new technology and established objectives) from all stakeholders?
- What kind of relationship have we developed with suppliers?
To help you hone your strategic sourcing KPIs, here are five things to avoid:
1. Focusing solely on cost savings
While cost savings are usually the number 1 focus for most strategic sourcing functions, achieving low unit costs should not come at the expense of quality or delivery KPIs.
2. Setting up too many KPIs
If you have too many KPIs, you’ll either spend all your time measuring and analysing rather than acting, or you’ll never be able to deliver. Prioritise and start out small. You can always add more later.
3. Creating unevenly balanced KPIs
It may be smart to focus the majority of your KPIs on certain objectives, but this can lead to lack of insight in other key areas. Lopsided KPIs can lead to inefficient strategic sourcing practices.
4. Setting up conflicting KPIs
Look for areas where strategic sourcing KPIs may conflict with the goals of other stakeholders. This doesn’t necessarily mean that you’ll need to scrap them, only that you’ll need to discuss the issues with the necessary stakeholders and look for common ground.
5. Misguiding behaviour
You shouldn’t be so beholden to KPIs that you avoid making strategic decisions for fear of failing to meet certain KPIs. KPIs are a guide for improvement, not a means of meting out punishment.
Remember that measurements can also be qualitative in nature.
In summary, KPIs are an effective way to measure organisational performance and execution and drive it to align with an agreed strategy and goals. Strategic sourcing KPIs need to focus on essential, present data in a proactive manner and also be selected to take stakeholders’ needs into account. When done well, KPIs can be an effective communications tool . When used incorrectly, they can generate a lot of redundant reporting work and drive the wrong types of behaviours. At the end of the day, you get what you measure.
I’d love to hear which KPIs you use in your strategic sourcing, and any other suggestions on the topic.