Author: Henning Petzold
In many organisations procurement reporting starts with savings and related benefits. These are the most prominent priorities; hence this is what procurement functions and professionals focus on in their reporting. Unfortunately, that is often also where the reporting stops, aside maybe from some additional metrics relating to total and category spend. But what about the additional ‘treasures’ around spend statistics, operational efficiencies, contractual and supplier performance?
Halfway through my career, I was in a board meeting where the CEO addressed his managers after some disappointing reports. The CEO stated, that if he knows more about a business function than it’s manager does, than that manager is not doing his job to the extend needed or expected. Tough words, but at the time, being responsible for Procurement, I couldn’t agree more!
Procurement reporting can be a window of opportunities to engage business partners and functions, or ‘internal customers’ as I prefer to call them, to uncover inefficiencies, disconnected processes or hidden opportunities. We, Procurement, should share our insights and make recommendations to our customers to improve the business overall.
Procurement professionals have the ‘power’ to provide visibility. Besides Finance and through their day-to-day management, the Procurement function has usually the best access and understanding over the end-to-end business processes. From the supply of goods and services that make up business offerings, to customer deliveries, relevant internal corporate services, procurement processes and policies, procurement staff supports and often also influences them.
Spend knowledge and process visibility are the foundation for a credible reputation of the Procurement function. Aside from factors such as spend type and volume, team size and capability as well as the overall state of the business, incl. the governance and mandate handed to Procurement, from my experience, the best starting point for reporting should be the maturity of the procurement organisation. In general, I am differentiating between 3 reporting stages.
- Gain stakeholder / business attention
Aim: Offer simple information to discuss value creation opportunities while improving basic administrative efficiency
At this point reporting should create awareness of procurement habits and improve spend transparency, e.g. number of PO raised by business function and overall; number of active suppliers engaged for similar materials.
Spend insights should be used to move procurement reporting from a defensive, e.g. ‘Our savings are…’ or ‘Our total spend is… ’, to a proactive mode, e.g. ‘Did you know we are increasing our supplier base by 1% every month through newly created suppliers while our product / service portfolio hasn’t materially changed in the last 6 months?’.
Creating transparency across the company and for individual business functions with the potential to compare provides talking points to show that Procurement is here to help.
- Establish cross-functional cooperation
Aim: Target operational efficiencies across the end-to-end procurement and contracting process.
Once recognised, and business units have an appetite for more insight, reporting should focus on business efficiencies, e.g. the approval process for new suppliers to drive spend towards preferred suppliers across indirect and at least basic direct materials as well as statistics around active, passive and newly created suppliers.
Cooperation with Finance should focus on improvement of reporting quality and user education, e.g. quality of accounting details or to target misuse of procedures and procurement methods, incl. corporate credit cards.
My favourite reporting eye opener is an estimate for the total cost from raising a purchase order to payment of invoice. Over the years most organisations ending up with a cost between $200-300 per order, which usually creates buy-in for governance and workflow improvements.
Procurement functions should also increase their scope on supply contracts, starting with ‘spend under contract’, actively managing a contract register and providing early reminders on upcoming expirations.
- Become the Supply Chain Partner
Aim: Drive or actively support business development
Mature Procurement functions should have their reporting focus on strategic planning and be increasingly tasked to secure product / service quality and availability across the company value chain. While managing the full category management lifecycle, reporting content needs to create transparency around supply risks, supplier performance and innovation potential, incl. cost-relevant productivity improvements, in order to provide competitive differentiators for company customers.
Benefits reporting should be comprehensive and internally audited, e.g. by Finance. Benefits are diferentiated between measurable cost reductions, cost avoidance or contributions to sales margins. Many larger companies may even have 10 or more benefit types to document procurement impact.
When embarking on any of the 3 stages, a few simple rules should be adhered to:
- Manage expectations with internal customers and executive management
- ‘Don’t bite off more than you can chew’
- Ensure understanding of the relevant internal processes, e.g. around order processing, payment procedures, material & supplier master data or asset management
- Understand the information sources, e.g. Purchase order value vs. paid invoices
- Conduct internal ‘sounding’ before sharing reports to avoid credibility loss
Finally, a comment on reporting tools as ‘big’ is not always better. Most data is already available and it’s just a matter of identifying or combining the right reports.
To start with, Excel can be good entry point (‘Power of the Pivot’) and I am still amazed how often basic excel skills are missing in Procurement teams.
For more advanced reporting, automated reports with a monthly refresh can be maintained via a BI solution (cloud). This can be accomplished, if you have a team member with advanced analytical skills. And if you don’t have one, hire one – even without any procurement experience, analytical skills will be core in the future of Procurement (but that’s a different topic).
Reporting applications from the usual ‘IT Software Suspect’, build and customised to your needs, should be easy to manage and only implemented after reporting requirements have been clearly defined. Aside from the running cost, be mindful of high implementation fees. Ask yourself, if a report has to be developed just for my requirements, is it really required? Are my reports of real value to my internal customers? If it’s not already part of the standard reporting functions, it might be overkill.
The conclusion is simple: The direct return on investment (ROI) from Reporting alone is zero. Value derives from the actions that are taken from the conclusions or as a result of the reports.
Henning will be discussing this and more about Digital in Procurement as the PASA conference on November 22/23 in Sydney.
What is your Supply Challenge? www.supplychallenge.com.au
“Unlocking Value through Collaboration” is the theme for the 5th Annual PASA Premier ConfeX on 11th & 12th October 2017 at Crown Promenade Melbourne. The programme is packed with case studies and practical advice on how to work more collaboratively. Check out the programme here.