CFO – when was the last time you checked the temperature of your procurement department?
A man walks into the doctor's office and complains about back pains. The man is in his late forties and slightly overweight. The doctor asks the man to take a seat and begins to ask him a number of questions. “How often do you exercise?”, “Do you have a balanced diet?", “Have you suffered from back pains before?”, etc. In other words, the doctor makes an assessment based on a mix of experience and observations combined with a number of diagnostic questions. It is a highly efficient approach for identifying the cause of the patient’s problem.
But what does that have to do with procurement?
Procurement functions traditionally benchmark their unit prices against prices in companies which they see as comparable. However, many do not realise that it is rarely feasible to do a 1:1 benchmark of prices as e.g. volume can make a critical difference from one company to the next. The companies would be better of benchmarking their procurement processes instead. The processes will be the same across company size and industry, and a comparison with other companies’ procurement processes will therefore allow for a far clearer picture of the procurement function’s efficiency and potential for optimisation. Such a benchmark will be able to identify far larger potentials than solely pricing optimisation. And in many ways, the process is similar to the doctor’s method for making a diagnosis on the patient’s health.
Read the full article here.