Complete Guide to Procurement Performance Management

For a second, let’s go back to business 101. All businesses have their vision and mission that comes from the top and each department translates them into their goals and objectives. In an ideal world, they all work in synergy, and that results in the business moving 1 step closer to success. However, things are quite different when you are out of the classroom. 

Business operations have a lot of uncertainty. From external to internal factors, everything has an effect on your operations, and dealing with all that requires effective performance management. 

For procurement operations, performance management becomes even more important. The constant identification, measuring, and analyzing that procurement performance management requires, allows businesses to be agile and shift their priorities. 

Introduction to procurement performance management

In its essence, performance management means one single thing. Doing everything possible to make sure that the business performs well. 

Historically, procurement performance management had been restricted to the 3 main constraints: cost, deadlines, and quality. The famous line about choosing 2 between cheap, good, and fast applies over here as well, and traditional businesses have always been comfortable balancing these quantitative criteria. 

Modern businesses are different. In addition to the quantitative elements, they need additional finesse and a greater focus on the qualitative side of things. Some modern performance parameters that are increasingly becoming more important are: 

• Relationship with the supplier 
• Internal customer satisfaction 
• Corporate social responsibility
• Compliance

And much more!

Another crucial thing to note is that procurement performance management is not a one-time activity. It’s a recurring process that iteratively gets better and more tailored for your business. The procurement industry has an open secret that consistency is the key to operational excellence. Today, many high-performance teams have been using it to maintain a competitive edge over the competition. 

The highs and lows of procurement performance management

There is no doubt that procurement performance management has a lot of benefits for a business. After all, striving for better efficiency and effectiveness can hardly go wrong. However, the process comes with its fair share of challenges as well. 

Here are a few major ones. 

1. Data integration

Modern procurement heavily relies on data. With numerous data sources involved, it can be difficult to filter out unnecessary information and concentrate on essential aspects. Moreover, the qualitative nature of modern procurement data makes it even more challenging to identify important details without the assistance of appropriate technology.

The issue becomes more prominent in the case of SaaS procurement. Managing licenses, ensuring compliance, and minimizing costs without disrupting operations can prove to be quite challenging. Procurement performance management demands timely and well-informed decisions that take into account the broader implications. This is a major challenge faced by many contemporary procurement teams.

2. Value proposition

While cost savings are an important consideration in procurement, they do not fully encompass the value that procurement brings to an organization. Defining and measuring other value drivers, such as supplier innovation, risk mitigation, and sustainability, can be challenging. However, an even greater challenge is coordinating with all members of the organization and ensuring alignment.

For example, let's consider a situation where the Project Management Office (PMO) requests a specific new SaaS tool for project and portfolio management. They believe this tool will significantly enhance the organization's project management capabilities. However, it is crucial to consult with other teams as well. Perhaps the developers are not comfortable with the learning curve of the new tool, or maybe the management is hesitant to invest in additional tools at this time. Striking a balance among these considerations while managing costs effectively requires robust measurement frameworks and metrics.

3. Synergy between different departments

In the same example, it is a major challenge for procurement to ensure that all departments are aligned. When objectives and priorities are not in sync among these departments, it can impede procurement's ability to achieve organizational goals and is the main cause of issues like shadow IT. To achieve alignment, effective communication, collaboration, and a shared understanding of objectives are needed.

4. Supplier relationship management

Effective procurement performance management goes beyond transactional relationships with suppliers and involves creating strategic partnerships. Strong supplier relationships require communication, collaboration, and initiatives to build trust. Challenges may arise due to supplier consolidation, geopolitical factors, or cultural differences, which require proactive management strategies.

5. Technology adoption

Procurement performance management heavily relies on technology for data collection, analysis, and reporting. However, many organizations struggle with outdated or fragmented systems that hinder visibility and efficiency. Adopting modern procurement technologies, such as advanced analytics, artificial intelligence, and automation tools, can improve performance management. However, this requires effective change management, the right expertise, resources, and, most importantly, time.

Building an effective procurement performance system

Creating an effective procurement performance system is easier said than done. It requires careful planning and a holistic and iterative approach that’s specifically designed for your business. There is no one-size-fits-all approach for any business but the following steps are some common elements of any procurement performance strategy. 

• Define Objectives: Establish clear goals for procurement performance management that align with the organization's overall objectives. These goals should focus on improving efficiency, reducing costs, enhancing quality, and ensuring compliance. 
• Assess Current Processes: Conduct a thorough analysis of the current procurement processes to identify inefficiencies, bottlenecks, and areas for improvement. This assessment should include evaluating the procurement team's skills, knowledge, and tools.
• Develop a Procurement Strategy: Based on the assessment, create a procurement strategy that outlines the approach to procurement, including supplier selection, license management, and effective risk mitigation. This strategy should be aligned with the organization's overall business objectives.
• Establish Key Performance Indicators (KPIs): Identify and set measurable KPIs to track procurement performance. These KPIs should include metrics such as cost savings, supplier performance, process efficiency, and compliance rates.
• Implement Technology: Leverage procurement software and tools to streamline procurement processes, improve visibility, and enhance data-driven decision-making. This includes using data analytics to gain insights into procurement processes and identify trends, inefficiencies, and opportunities for cost savings.
• Foster a Culture of Improvement: SaaS tools have a learning curve. It’s important to foster a culture of improvement and promote an iterative process. This involves ongoing training and professional development to ensure the team stays up-to-date with best practices and new technologies.
• Monitor and Refine: Regularly monitor procurement performance and refine the strategy as needed. This includes reviewing KPIs, adjusting processes, and implementing new technologies to ensure the procurement function remains efficient, effective, and aligned with the organization's goals.
• Make Data-Driven Decisions: Ensure seamless integration of data across procurement systems, including supplier data, contract data, and spend data. This facilitates data-driven decision-making and helps to identify areas for improvement.
• Develop a Supplier Relationship Management Strategy: Develop a strategy for managing supplier relationships that focuses on building long-term partnerships, fostering trust, and promoting collaboration. This includes setting clear expectations, establishing communication channels, and implementing performance metrics for suppliers.
• Stay Away from Automated Licenses: One unique advice for SaaS procurement is to stay as far away as possible from automated renewals. You lose all your leverage with the supplier and it prevents you from getting the best deal possible. A few months before license expiry is perhaps the best time for you to sit at the negotiation table with your supplier and ensure an excellent deal. 
• Accelerate your Deal Cycle: SaaS procurement requires agility. So, there is no point in having numerous back-and-forth discussions with the suppliers. You need to accelerate your deal cycles to ensure that your businesses can easily reorient according to the current situation.  

These steps are just the beginning. The right approach requires constant planning and effort from your business. Keep on experimenting to find the perfect solution for your business and see your business gain a competitive edge with its efficient processes and performance. 

Experience procurement performance management at its finest with Spendflo

With Spendflo, you can optimize your procurement strategy, making it more effective and in aligned with the modern SaaS-dependent atmosphere. Spendflo offers a range of features that streamline procurement performance management. From user-friendly dashboards that provide real-time insights to powerful analytics engines that uncover cost-saving opportunities, and automated reminders for expiring licenses, Spendflo has everything your organization needs to make data-driven decisions that lead to success.

But Spendflo is more than just numbers and metrics. It also focuses on fostering meaningful relationships with suppliers and stakeholders. Our platform facilitates seamless collaboration and trust-building to ensure everyone is on the same page.

Don't want to spend time negotiating or dealing with license agreements? Don't worry, we've got you covered. Spendflo's assisted buying feature allows your team to concentrate on other important tasks. Leave the tedious negotiations and contractual details to us, and we'll ensure you get the best deal for your business.

There's even more you can achieve with Spendflo. Book a demo with our team today and start experiencing procurement at its best.