Evidence from IIAPS Benchmarking & Improvement Methodologies
Most leading organisations have developed a category management and strategic sourcing process, so why do so many of them fail to deliver exceptional value for money outcomes?
Over the last ten years IIAPS benchmarked a large number of organisations using its PSCM Index Methodology. This approach analyses organisations against 184 attributes of procurement and supply chain management competence. The figure below demonstrates the current performance of organisations by sector when scored against a potential world-class top score of 100%.
Few organisations score in the Top Quartile (over 75%), which demonstrates the current lack of overall use of all of the tools that are potentially available to manage procurement and supply chains effectively. Interestingly enough, when we analyse only the use of tools for category management in our database, it is clear that there are significant gaps in across particular steps in the process.
The figure above demonstrates that organisations score highest for the use of tools in Steps 5 and 6—the market test and negotiation process. They also score reasonably well in Step 3 supply market analysis. The evidence shows, however, that there are significant gaps in performance in the pre-contractual Steps 1, 2 & 4 and post-contractual Steps 7 & 8.
Our view is that it is in these poorest performing Steps that the greatest impact can be made in leveraging improved value for money. So why is performance sub-optimal and so weak in these areas?
IIAPS benchmarking research indicates that there are 12 key causes why sub-optimal performance occurs:
- Lack of cross-functional buy-in so that all value for money options are never considered
- Lack of early involvement so that options are closed
- Insufficient time and resources (people/money) to undertake the necessary analysis of options
- Excessive fragmentation of spend, with short-term management philosophies dominating organisational sourcing thinking
- Lack of rigorous and robust current and future spend management data with a lack of segmentation methodology to identify categories of spend
- Lack of embedded performance management culture using rigorous and robust KPIs for all categories of spend, with focus only on price/cost savings rather than value for money KPIs
- Endemic maverick spend, with a lack of mandate for Procurement staff to be involved in the whole of the sourcing process pre- and post-contractually
- Lack of embedded and on-line processes/systems to manage categories of spend, and to undertake sourcing strategy development and/or supplier relationship management
- Lack of use of sophisticated power and leverage positioning analytical tools to develop sourcing strategies
- Lack of knowledge management, leading to staff reinventing the wheel
- Lack of fully competent staff, with a fully rigorous methodology to analyse all value for money trade-off options
- Failure to fully develop supplier relationship management options in the pre-contractual steps of the process
In our benchmarking experience (as discussed in our World-Class or Best-in-Class? White Paper) these issues recur across all organisations time and again.
We will be writing blogs in the future about each of these 12 key causes of sub-optimal performance. In these blogs my colleagues and I will try to explain IIAPS thinking about how to resolve these issues and improve competence in category management and strategic sourcing.