When we talk to Procurement Directors and CPOs, many of them have a good idea, based on their experience and observations, of where potential savings opportunities exist within their business. They can assess the competency levels within their team to develop a view of where performance is high but they often comment that they lack clear evidence of how well the team is managing categories of spend. This means it’s difficult to track and monitor performance.
Many Procurement Teams, due to a limit on resources, are unable to give the same level of attention to all categories of spend. They are aware that opportunities exist within the categories they are not focused on but do not know where to prioritise activity to maximise return.
To help with these issues, we have developed our Savings Insight product to turn spend data into insight that you can act on. In the previous article we looked at how Clean Data is the essential foundation to start the process. Here we examine how we assess the maturity of each spend category and use that insight to drive improved delivery in your teams.
What is the Promote Category Maturity Score?
We have developed a scoring system that utilises key data points that we derive from the clean data in our analytics tool. We combine all these data points into a single score for each category of spend. Some of the data points that impact the score are:
- Spend under contract
- Compliance with purchase to pay policy
- Spend with suppliers who have a low credit score
- Historic savings delivered
- Contract Management arrangements in place
- Length of supplier tail
We have developed a standard weighting for scoring against each data point. We then adjust the standard weightings to reflect the reality of each organisation’s savings delivery approach and policies. Each category area is assigned a score from 0-100. Scores of over 75 are considered leading practice examples. Conversely, a score less than 25 is requiring urgent attention.
How can the score provide insight you can act on?
The score creates a transparent and systematic way to analyse performance for each category. It enables Procurement Directors to identify where the team are experiencing success or where there are areas for attention. Because it is based on accurate data, it is more than just a subjective assessment of performance. It really makes a step change in performance management of Procurement Teams.
We are transparent with our clients about the key factors that are impacting categories with low scores. Addressing the issues identified by the data points resulting in a low score help to create an action plan for each category. We recommend that Category Managers build these data points into their Category Planning and set attainable targets for success. A CPO is then able to see the issue identified, the work that is underway to resolve and, most importantly, monitor the improvement as it happens. This provides insight on improvement that are early indicators of longer-term delivery such as savings realisation. Procurement Leaders can see that their teams are moving in the right direction and develop confidence in the wider targets being achieved. Our solution provides the baseline data and then can actively monitor how performance improves. It’s clear, objective performance data that is easily available to leaders.
We recommend that our clients ‘pull’ data from our solution into their Category Plans. We provide bespoke reporting aligned to the format and presentation of your category plans. The maturity score for each Category can be shown and the improvement plans documented. Updates of progress should take place at least every quarter, with the latest data showing progress against the baseline and targets that were set.
Additionally, our analytics solution can cut the same data in many ways to provide further insight. Perhaps, there may be issues with areas of the business that are less likely to co-operate with Procurement or follow internal policies. We have developed the Maturity Score concept to help identify the areas of your organisation where further engagement may be needed to drive compliance. The data allows you to target this effort specifically to the types of spend and business units where the impact and cost of non-compliance is highest.
Our Maturity Score has another key purpose in the Savings Insight. In a future article we will look at how we are able to use it to predict the savings opportunity for each category. If you would like to know more or see a demo please get in touch.