CEB Procurement Leadership Council

Procurement Dashboards
Best Practices in Procurement’s Value
Measurement
A FRAMEWORK FOR MEMBER CONVERSATIONS
The mission of The Corporate Executive Board Company and its affiliates (CEB) is to unlock the potential of organizations and leaders by advancing the science and practice of
management. When we bring leaders together, it is crucial that our discussions neither restrict competition nor improperly share inside information. All other conversations are welcomed
and encouraged.

CONFIDENTIALITY AND INTELLECTUAL PROPERTY

These materials have been prepared by CEB for the exclusive and individual use of our member companies. These materials contain valuable confidential and proprietary information
belonging to CEB, and they may not be shared with any third party (including independent contractors and consultants) without the prior approval of CEB. CEB retains any and all
intellectual property rights in these materials and requires retention of the copyright mark on all pages reproduced.

LEGAL CAVEAT
CEB is not able to guarantee the accuracy of the information or analysis contained in these materials. Furthermore, CEB is not engaged in rendering legal, accounting, or any other
professional services. CEB specifically disclaims liability for any damages, claims, or losses that may arise from a) any errors or omissions in these materials, whether caused by CEB or
its sources, or b) reliance upon any recommendation made by CEB.

2
ROADMAP FOR THE PRESENTATION

What Is Currently Dashboard Best

Introduction Templates
Being Tracked Practices

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

3
 5
 The degree of
Procurement’s future
HOW CAN WE INCREASE PROCUREMENT RETURNS?
success will depend
on current investment Historical and Potential Trajectories of Procurement’s ROI1
decisions made by the
organization.
If we are to land here in 2021,
what functional investments
■■ Past growth in Procurement’s
do we need to make today?
ROI does not guarantee that

Procurement Performance
this trend will continue into 2021
the future.

■■ Given the inflection point of

2009
the function, the investment Procurement ROI = 9.52 2011 ?
decisions made today will 2007 Coverage = 85%
have a big impact on the
2005
future direction of the Procurement ROI = 6.8
function. Coverage = 79%
Procurement ROI = 5.8 2021
Procurement ROI = 7.7
■■ Some investment decisions Coverage = 62% What functional investments
Coverage = 82%
will drive continued will we have had to make
advancement, whereas today if we land here in 2021?
others may result in a Time
drop-off in Procurement’s
importance.

n = 61 (2005).
n = 78 (2007).
n = 63 (2009).
n = 121 (2011).

1 Procurement ROI is defined as the total savings produced divided by total budget for the function.
© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, Procurement Organization Performance (POP) Survey, 2010.

4
 6
 Most organizations want
their teams to adopt more
PROCUREMENT TAKING ON BIGGER, BOLDER BETS
sophisticated techniques,
but many rely heavily on A Strategic Framework for Project Portfolio Analysis
those techniques that are
most familiar.

■■ Procurement staff often

spend most of their time
■■ Broker Strategic Alliances
on the strategic sourcing ■■ Influence Product Design
and demand management ■■ Supplier Sourced Innovation
projects, as historically
that has been where the Product and Brand Impact
opportunity was, and now
it is what they are most
Joint Cost Reduction
comfortable with.
Process Engineering
■■ Having a well-balanced Outsource and LCCS
project mix involves Cost Structure Transformation
balancing more traditional
projects (those that improve
the buy or reduce demand) Encourage Cost Discipline
with more advanced Set Policy and Ensure Compliance
initiatives (such as changing Standardize Services and Components
the cost structure or in Demand Management
influencing the product/
brand).
Rationalize Suppliers
Use Spend
Competitive Bidding
Strategic Sourcing

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

5
 7
MOVING TOWARD A BALANCED PORTFOLIO
Comparison of Project Breakdown for Organizations in the Top and Bottom Quartiles of Portfolio Mix1
(2011 and 2012 data)

Bottom Quartile Top Quartile

9%
Product and
Brand Impact
21%
55% Product and 31%
Strategic Brand Impact Strategic
Sourcing Sourcing

12%
Cost-
Structure
Transformation 27%
20%
Cost-Structure
23% Demand
Transformation
Demand Management
Management

n = 17. n = 17.

Increase in Performance for Organizations in the Top Quartile of Portfolio Mix

(2011 and 2012 data)

2.4x Total Savings

5x Number of Applied Supplier Ideas
14% higher Confidence and Autonomy2

n = 66.

1 Portfolio mix is having a well-balanced project mix based on the sophistication and diversity of procurement techniques used and the time horizon for
project payoff; totals may not equal 100% due to rounding.
2 Confidence and Autonomy score is based on a composite index built from confidence in Procurement’s delivery of enough future value to be a critical
business advisor; growth in future opportunity for value capture; business partner receptiveness to Procurement’s vision; freedom for Procurement to
select its own projects; and involvement of Procurement in business strategy settings.

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

6
 8
 These newer projects in
the portfolio mix cannot
RETHINKING HOW WE MEASURE PROCUREMENT VALUE
be quantified by savings
alone. The Hierarchy of Procurement Metrics

■■ The hierarchy of metrics

represents the most
essential “must-haves” at the
bottom of the pyramid and
the “nice-to-haves” at the
top of the pyramid.
Supplier Revenue Enablement
■■ As procurement Innovation
departments mature, they
move up the hierarchy in
terms of metrics they track
and report.

Process Risk Risk and Working

Re-Engineering Management Capital Reduction

Standardizing Setting up Encouraging

Specs Policy Cost Discipline Cost Avoidance

Rationalizing Competitive Negotiation Using Spend Year-Over-Year

Supply Base Bidding Savings

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

7
 9
ROADMAP FOR THE PRESENTATION

What Is Currently Dashboard Best

Introduction Templates
Being Tracked Practices

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

8
 10
 Findings from a recent
poll of the membership
WHAT IS BEING TRACKED NOW
support the Hierarchy of
Procurement Metrics.
100% Track This Metric
93%
Report This Metric to
■■ As Procurement’s solution Leadership
set expands, there is a 85%
parallel opportunity to 79%
expand Procurement
metrics.

64%
59%

50%
49%

27%
25%
22% 23%

14%
12%

0%
Year-Over- Cost Risk

Working Top-Line Something
Year Savings Avoidance Capital Impact Else

n = 107.

Note: Percentages represent “X” percentage of respondents selected this choice.

© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council.

9
 11
 While some industries are
ahead of others in terms
WHAT IS BEING TRACKED: BY INDUSTRY1
of metric maturity, there
are opportunities for all.
Year-Over-Year
Savings
Cost Avoidance
Chemicals/Materials
100% Risk

Working Capital
Services Consumer
80% Products/Retail Top-Line Impact

Other

60%

40%

Pharma/
Biotech Energy/Utilities
20%

Manufacturing/ Financial
Industrials Services/
Insurance

IT/ Food/Beverage
Telecommunications
n = 107.

1 Percentages represent “X” percentage of respondents track this metric.

© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN

10
 12
 Definitions vary across
all metrics, from revenue
DISCREPANCIES IN METHODOLOGY
enablement all the
way to year-over-year Year-Over-Year Savings: Annualizing Multiyear Contracts
savings; ultimately
Procurement should be
using the method that is 100%

recognized and agreed

on by their business
partners.

73%
■■ Seventy-three percent of
respondents are credited for
only the first year of savings
in a multiyear contract.

■■ We support the second 50%

definition, annualized and
credited for each year, to
ensure that incentives are in
place for multiyear savings.
22%

5%

0%
Annualized and Credited

Credited
Annualized and Other
for First Year Only for Each Year
(e.g., $10 Million in Year (e.g., $10 Million Each
One, and That Is All) Year for Four Years)

n = 37.

Note: Percentages represent “X” percentage of respondents selected this choice.

© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council.

11
 13
 Of people who track cost
avoidance, 75% said that
DISCREPANCIES IN METHODOLOGY (CONTINUED)
avoiding a proposed cost
increase is one viable Cost Avoidance Calculations
method of calculation.

100%
Here were a few ways that Other
■■ Beyond avoiding a cost
was tracked:
increase, there are three
usually accepted methods of ■■ Changes in configuration and
constructing a baseline for definitions of terms on which
the savings calculation: 75% the cost is based

–– Market-based baseline ■■ In-house resource rate-based

baseline calculation
–– Bid-based baseline
■■ TCO, alternatives development
–– Budget-based baseline

50%
42%

28% 28%

19%

9%

0%
Avoiding a Market Price Average of

Lowest of Budget-Based Other
Proposed Baseline First Round First Round Baseline
Cost Increase Calculation Bids Baseline Bids Baseline Calculation
Calculation Calculation

n = 107.

Note: These tracking methodologies are not mutually exclusive. Percentages represent “X” percentage of respondents selected this choice.
© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council.

12
 14
 Among people who
track working capital as
DISCREPANCIES IN METHODOLOGY (CONTINUED)
a Procurement metric,
74% said they include Working Capital as a Component of Savings
this as part of their dollar
savings figure.
100%
Of People Who Track Here were a few other ways
Of All Respondents Working Capital Working Capital is tracked:
■■ Inventory optimization
■■ Reported separated from
74% savings
■■ Weighted average term (WAT)

50%

20%

0%
Incorporate (Better Payment Terms)1

Incorporate (Better Payment Terms)1
(Cost of Capital) into Their Savings (Cost of Capital) into Their Savings
Calculation Calculation

n = 107.

1 Percentages represent “X” percentage of respondents selected this choice.

© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council.

13
 15
 Risk can mean different
things to different
DISCREPANCIES IN METHODOLOGY (CONTINUED)
companies.
Different Components of Risk

■■ Supplier risk and market

risk are two areas that are 100%
Here were a few other dimensions
relevant to almost all types
of risk that were tracked:
of companies and were also
the two most commonly ■■ Safety and Logistics Risk
tracked areas. 82%
■■ FCPA Vetting Process
■■ Commodity Price Risk to
■■ Market or Category Risk
Margins
can refer to:
■■ Catastrophe Capability
–– Financial stability of 60%
an industry
–– Capacity issues
50% 48%
–– Price stability and
controls
–– Market share 33%
–– Regional risks
25%

12%

0%
Supplier Product Market or

Supplier Data Other
Financial Quality Risk Category Compliance Security
Risk—Red/ Risk to Policy
Yellow/Green

n = 107.

1 Percentages represent “X” percentage of respondents selected this choice.

© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council.

14
 16
 Very few procurement
teams are tracking the
TOP-LINE (REVENUE) IMPACT CALCULATIONS
impact they have on
revenue. Discrepancies in Methodology

■■ In the few cases where Average gross margin impact of the new initiative over three years
Procurement does track
revenue, the projects are
usually in new product Number of new product development projects with suppliers
development.

Vitality index (a measure of new product sales to total sales)

Revenues based on forecasted demands

Revenue generated, signed off by procurement leadership and finance department

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

15
 17
 The Procurement ROI
equation in five years
PUTTING IT ALL TOGETHER
should incorporate all of
the different components The Procurement Dashboard Vision in Five Years
of the hierarchy of metrics.

■■ Very few procurement

teams have reached this
all-encompassing dashboard
today, but there is a steady
shift in this direction.

ROI = +/– +/– +/– Working +/– +/–

Savings Quality Delivery Revenue Risk
Capital

Procurement + Business Unit

Costs Resource Costs

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

16
 18
ROADMAP FOR THE PRESENTATION

What Is Currently Dashboard Best

Introduction Templates
Being Tracked Practices

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

17
 19
PROCUREMENT PRACTICES
Though there are many best practices when creating Procurement dashboards, here we will focus on three:

1
Clearly Define the Metric

2
Tailor to Audience

3
Benchmark Performance

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

18
 20
 This checklist provides
a list of parameters
ENSURING MEASURABILITY
for effective metric
measurement.
For Each Selected Metric, Determine the Appropriate:

Unit of Measure
Quantitative Target
Threshold (When should it be considered a significant problem?)
Frequency of Measurement
Frequency of Reporting
Expected “Life” of Metric (When will this metric be reviewed for relevance and target adjustments?)
Formula for Calculating Metric (including critical assumptions, sub-metrics, etc.)
Owner and Provider (responsible for acting on metric and collecting data on metric, respectively)
Data Sources
Estimated Cost of Measurement (in personnel hours per year, system cost per year, etc.)

Final Assessment

Selected for the given dashboard

Potential inclusion in another dashboard
Will be measured but not reported (e.g., data source for another metric)
Discarded

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

19
 21
 Using the dashboard
you built, conduct a
METRICS SELF-ASSESSMENT
self-assessment of the
metrics you currently use
within your organization. 1. Selection Yes No
1. Are the metrics clearly defined?

2. If necessary, are calculation instructions provided?

3. Are the metrics necessary? Can you articulate the problem and issue each
metric will address (e.g., decreasing quality, schedule slippage)?
4. Are the metrics actionable? Can you articulate how each metric will help
decide a course of action?
2. Prioritization
5. Are the metrics relatively easy and cost-effective to collect?

6. Are the metrics fault-tolerant? That is, how susceptible are they to being
misreported or misinterpreted?
7. Are the metrics suitable for your portfolio of activities? Do they translate
across activities?
3. Collection
8. Are there sufficient incentives to ensure timely, accurate, and complete
collection of data?
9. Are there reviews to ensure data accuracy and integrity?

10. Are the sources of data for the metrics clearly understood and consistently
used?
11. If necessary, are value thresholds or precision bands set?

12. Are owners and providers of metrics clearly identified?

13. Is the frequency of measurement and updates specified and made

clear to staff?
14. Is there sufficient automation to relieve collection tedium?

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source: CEB, CEB Finance Leadership Council, 2011.

20
 22
 Using the dashboard
you built, conduct a
METRICS SELF-ASSESSMENT (CONTINUED)
self-assessment of the
metrics you currently use
within your organization 4. Reporting Yes No
(continued).
15. Are the data presented clearly, minimizing chances of confusion or
misinterpretation?
16. Are reports customized for key audiences, and do they provide them with
actionable information?
17. Do reports provide readers with the ability to drill down into the underlying
data?

18. Do reports effectively use available data to maximize visibility?

19. Do reports provide context for the measured values (e.g., historical data,
external benchmarks, or useful comments)?
5. Usage
20. Do you promote a culture where performance is discussed without distrust,
suspicion, or defensiveness about the metrics used?
21. Are metrics used to motivate rather than intimidate?

22. Are there clear response plans in place when metrics values miss their targets?

23. Are reports seen and used by business executives senior enough to make
decisions based on the information presented?
24. Are reports and metrics reviewed on a regular basis to ensure continued
relevance to changing conditions and business needs?

Assessment

Calculate Total “Yes” Answers:

> 20 = Advanced Practitioner

15–20 = Robust Metrics Infrastructure
< 15 = Early Stages of Metrics Program

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source: CEB, CEB Finance Leadership Council, 2011.

21
 23
 These decision criteria
will help you determine
METRICS SELECTION DECISION RULES
the relevance of
particular metrics in Determining Relevance and Actionability
existing scorecards.

Begin scorecard Determine if the

design from metric will provide
No
audience supporting data for
perspective. another metric or
Has the
historical data for
audience
future analysis. If
for the
yes, measure it, but Determine if the
scorecard No
don’t include in the problem is relevant
been
scorecard. to another
identified?
Can you articulate audience. If yes,
GO
Yes the problem or include it in a
issue that this different scorecard.
No
metric will address Otherwise, discard
(deteriorating metric.
service quality, Is this a problem
GO
progress of key Yes of relevance to
initiative, etc.)? the intended
audience?
No
Discard
Can you articulate metric.
GO
Yes how this metric
will solve the
problem or
support decision
making on this
DO involve decision makers up issue? Include
GO
front in metrics selection. Yes metric in
scorecard.

DON’T assume more is

better. Stress-test metrics for
actionability and relevance to the
intended audience.

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source: CEB, CEB Accounting & Reporting Leadership Council, 2009.

22
 24
PROCUREMENT PRACTICES
Though there are many best practices when creating Procurement dashboards, here we will focus on three:

1
Clearly Define the Metric

2
Tailor to Audience

3
Benchmark Performance

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

23
 25
 The effort to
direct, monitor,
BEYOND THE NUMBERS: MEASUREMENT
and communicate
performance is a
AND PROCUREMENT’S BROADER ROLE
multidimensional
challenge. Performance Measures
600+

■■ CEB staff have studied

dashboards that contain
over 600 different metrics
that can be grouped into
20 categories along these 20
four dimensions for the
procurement executive: Total Number of Metrics Average Number of Metrics
on Member Dashboards per Member Dashboard
–– CPO up to CEO and
board Key Categories
–– CPO across to business
units and other functions ■■ Supplier Performance
–– CPO down to staff ■■ Supply Base
■■ Price CEO and Board
–– CPO out to suppliers
■■ Quality and Delivery
■■ Savings
■■ Terms
■■ Value Drivers
■■ Supplier Diversity
■■ Competitiveness

Business Units
Suppliers CFO and Other
Functions

■■ Procurement ■■ Spend
Organization ■■ Cost
■■ Skill Development ■■ Compliance
■■ Process Efficiency Staff ■■ Customer Line of Sight
■■ Project Status ■■ Digitization
■■ Inventory
■■ Safety

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source CEB, CEB Procurement Leadership Council, 2012.

24
 26
 Each tile on the board
represents specific
SOURCE FOR VALUE RATHER THAN FOR PRICE
impact (positive or
negative) for a particular Business Growth
stakeholder. Risk
Competitive Product Staff Productivity Supply Audit Potential
Revenue
Advantage Excellence and Morale Rationalization (Product, Country,
Market)
Weight Weight Weight Weight Weight Weight Weight
■■ The weight associated with ± 11 ±3 ±3 ±7 ±8 ±7 ± 11

each tile must be agreed CEO and Board

on in advance to align with
Corporate
organizational priorities. Social
Partnership and
Collaboration
Responsibility
Weight Weight
± 11 ± 11
Total Weight
100

External Stakeholders2
Regulatory Supplier
Compliance Continuity
New, Jointly Surfaced Solution Original Business Partner Solution

Suppliers
Weight Weight
± 11 ± 11
Impact Weight Value1 Impact Weight Value1
Savings 7 $150,000 Savings 7 $140,000
Staff 7 $250,000 Process (4) Opportunity
Brand Reduced Cost
Perception Productivity Efficiency Cost to Serve
Business 7 $400,000 Innovation (3) Opportunity
Weight Weight
± 11 Growth Cost ± 11

Community Concentration
Impact Optimization

Weight Weight
± 11 Internal Business Partners ± 11

Supplier
Process
Working Capital Quality Delivery Relationship Innovation Savings
Efficiency
Management
Weight Weight Weight Weight Weight Weight Weight
±6 ±3 ±1 ±4 ±3 ±3 ±7

1 Quantify value when possible.

© 2013 The Corporate Executive Board Company.
2 Group consists of regulators, customers, financial institutions, and the community.
All Rights Reserved. PSC4798613SYN Source CEB, CEB Procurement Leadership Council, 2012.

25
 27
 These checklists show
“must have” and “leading
MEMBER CHECKLIST
edge” metrics for
consideration.
CPO up to CEO and Board CPO Across to Business Units and Other
Functions
■■ Analysis of member Principle: U
 se measures that matter to the CEO Principle: Show returns on strategic partnerships.
dashboards reveals exciting and CFO.
new directions as well as Frequency of Procurement’s engagement with
several “must have” and  ompetitive advantage (e.g., price
C internal customers
cutting-edge measures. performance versus best in class, by category) Savings ROI (savings compared to budget)
Revenue “enabled” by procurement activity Savings generated by key productivity
■■ Based on member Year-over-year procurement savings initiatives
discussions and CEB study, contribution to bottom line (EPS, cash flow,
an initial checklist provides EVA, etc.)
members with items Avoid: F
 ocus on compliance with existing
for consideration when Avoid: Tracking cost savings only efforts only
reviewing and evolving their
own dashboards.

CPO Down to Staff CPO Out to Suppliers

Principle: Focus on discipline and development. Principle: B

 roaden metrics to audit the wider role
of suppliers.
Year-over-year savings against market price
indices 360-degree supplier performance, including
Leadership bench strength (percentage of viability, quality, innovation, and e-readiness
leaders completing leadership/management Supplier diversity spend and RFQ
training) participation
Customized goals for individual staff Supplier satisfaction index (of us as
customers)

Avoid: M
 easuring process alone (POs per
buyer, etc.) Avoid: Transactional metrics only

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council, 2012.

26
 28
PROCUREMENT PRACTICES
Though there are many best practices when creating Procurement dashboards, here we will focus on three:

1
Clearly Define the Metric

2
Tailor to Audience

3
Benchmark Performance

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

27
 29
RECOMMENDED PERFORMANCE METRICS
Metrics Tracked by CEB Procurement Leadership Council for External Benchmarking Purposes

Business Alignment 1. Establish Business Alignment: Understand internal

customers’ priorities for Procurement; identify areas of
misalignment; target improvement opportunities.

Customer of Choice 1. Become a Customer of Choice: Understand critical

suppliers’ perspectives and identify pain points in the
relationship.

Operational Performance 1. Procurement ROI: 5. Spend-per-FTE:

(Year-Over-Year Savings Procurement-Managed
+ Cost Avoidance)/ Spend/Function FTEs
Function Budget 6. Savings-per-FTE:
2. Savings Rate: (Year-Over-Year Savings
(Year Over-Year Savings + Cost Avoidance)/
+ Cost Avoidance)/ Function FTEs
Procurement Managed 7. Spend Coverage:
Spend Procurement-Managed
3. Function Cost: Function Spend/Addressable
Budget/Procurement- Organizational Spend
Managed Spend
4. Cost-per-FTE: Personnel
Budget/Function FTEs

Value-Add Processes 1. Portfolio Mix: Achieve a balanced portfolio of activities

to maximize value creation.

Talent Management 1. Develop Excellence in 2. Develop Excellence in 3. Develop Excellence in 4. Develop Excellence in
Category Management Supplier Management Risk Management Internal Relationship
Management

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

28
 30
ROADMAP FOR THE PRESENTATION

What Is Currently Dashboard Best

Introduction Templates
Being Tracked Practices

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

29
 31
TRUST, BUT VERIFY
Value Tracking Form

Suppliers use the value Opportunity Savings Form

tracking form to have their
savings ideas verified. Vendor Name: Branch: Originator: Telephone Number:
Idea Date: Commodity: Commodity Manager: Idea Number: Crediting ideas to the
BHP site on which saving is applicable originator encourages staff
Blackwater Peakdowns Gregry Crinum Saraji  oonyella/
G Hay Point Norwich All Sites Other to identify opportunities.
Riverside Park
Implementation period for the idea
Start Date: End Date:
Idea Description: Proposed Costs:

Savings Achieved Period:

From: To:
Action Taken to Ensure Implementation:

Opportunity/Expected Benefits:

Completed by:
Name: ____________________________________________________
Signature: _____________________ Date: _______________________
Documenting savings
Idea Is Realistic and Should Be Progressed:
ensures assumptions Method of Calculation: Site Department Name Signature Date
remain visible throughout (You must attach documentation to show how the savings Backwater
value capture process. calculated.) Crinum
Goonyella
Peak Downs Sign-off is required at stage
Current Status of Costs: Saraji gates to ensure ideas are
Gregory credible and follow through
Norwhich Park to implementation.
Savings categories help Hay Point
disaggregate expected Cost Savings to BHP: Commodity Manager
value for easier tracking. Cost-Saving Category Idea Implemented and Approved:
Product Cost $ Site Department Name Signature Date
Inventory Reduction $ Backwater
Training $ Crinum
Transaction Cost $ Goonyella
Service $ Peak Downs
Rationalization $ Saraji
Time Saving (i.e., Labor Cost) $ Gregory
Other $ Norwhich Park
Total Savings $ Hay Point

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

30
 32
CONFIDENCE IN REPORTING

1. Account for market exchange rate shifts and convert savings into correct currency.
Data Normalization Steps
Procurement separates uncontrollable 2. Eliminate uncontrollable price factors (taxes, intercompany transfers, duties and tariffs,
price and volume factors to ascertain commodity price market swings).
actual impact. 3. Adjust savings for volume changes based on estimated usage.
4. Deduct associated implementation costs from savings.
5. Add in value of volume reductions from operational improvement.

EBIT Year-Over-Year
Value Reporting Categories ■■ Year-over-year savings
Procurement tracks value in four core
–– (Old Price – New Price) x Current Volume
categories with distinct calculations for
each. EBIT Mitigating (Cost Avoidance)
■■ Negotiated reduction from contracted increase

–– (Lowest Initial Tender – Accepted Price) x Current Volume

■■ 
Avoidance of proposed cost increase (verified through should-cost model)
EBIT Revenue Improvement
■■ Volume impacts from process improvements, eliminated bottlenecks

■■ Decreases in selling costs/penalties

Balance Sheet Projects

■■ Gross value of improvement in working capital

■■ Capital expenditure reductions

■■ Reduced investment or inventory

Required Reporting Procedures

Reporting Guidelines ■■ Savings are reported only after signed off by business partners.
Prior to formal release, Procurement
ensures that benefits reports meet
■■ Savings are recorded and reported by business unit.
guidelines for verification. ■■ Savings must be booked in the year that they impact EBIT.
■■ Up to three years incremental benefit may be recognized.

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

31
 33
 This scorecard takes
top executive mandates
MEASURING AGAINST CEO MANDATES
of value creation,
disaggregates them into Balanced Scorecard
distinct procurement Current YTD/
tasks, and assigns Perspective Details Sponsor Measure Frequency Period Forecast Target Trend
sponsorship over each Business Maximize Value Added EVA
Q 2
activity. Results
Savings benefits are
Exceed Customer Overall Customer translated into CEO currency
M
Expectations Satisfaction of economic value-add.
■■ Measures connected Customer Refine and Increase Project Plan Milestones
to initiatives translate M
and Market "Sourcing Share"
subsequent benefits into the Focus
Implement Customer Project Plan Milestones
CEO language of “economic Relations Management M
value added.” (CRM) Strategy
Define and Clarify Incremental Sale Revenue
M
■■ Individuals or groups Reciprocity
identified to lead initiatives Expand "Self-Service" Project Plan Milestones M
are ultimately responsible Define and Implement Number of Commodity
M
for project completion and Commodity Management Management Portfolios
value creation. Define, Develop, and Cumulative Number of
Implement Processes for Suppliers in Supplier
Q
■■ To identify problem areas, Supplier Management Management program
Capabilities
an intuitive “flagging”
system is deployed to 1 Percentage of Value
Q
Executive directives are Commitment Enabled
measure “drift” of initiatives
Process decomposed into smaller Percentage of Decreased
from targets and prescribe tactical projects.
Management Transaction Related Q
corrective action. Manual Interventions
E-Enable the Supply Chain
Percentage of Project
Q
Deployment Dates Met
Percentage of Projects
Deployed Within Cost Q
Variance Parameters
Expand and Exploit Percentage of Demand
M
Demand Met Met
Optimize Assets/Inventory 2002 Inventory Levels M
Percentage of Projects >
M
90 Days

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN Source: CEB, CEB Procurement Leadership Council, 2012.

32
 34
 This scorecard takes
top executive mandates
MEASURING AGAINST CEO MANDATES (CONTINUED)
of value creation,
disaggregates them into Balanced Scorecard
distinct procurement Current YTD/
tasks, and assigns Perspective Details Sponsor Measure Frequency Period Forecast Target Trend
sponsorship over each Define, Develop, and Project Plan Milestones
3
activity (Continued). Implement a Process
M Sponsors are responsible
Decommissioning and
for shepherding projects
Reuse Efforts
through to completion and
■■ Measures connected Achieve a World-Class, Percentage of RFPs
M
documenting end value-add.
to initiatives translate Diverse Supplier Base Supplier Diversity Spend
Process
subsequent benefits into the Management
Percentage of RFPs with
M
CEO language of “economic Supplier Diversity
(Continued)
value added.” Improve the Supplier Percentage of PO
“Electronic” Relationship Suppliers with End-to- M
End Electronic Processing
■■ Individuals or groups
Percentage of PO
identified to lead initiatives
Suppliers with End-to- M
are ultimately responsible End Electronic Processing
for project completion and
Transform Culture to One of Percentage of Team BSCs
value creation. Urgency and Excellence by Implemented
Implementing the Balanced M
■■ To identify problem areas, Scorecard (BSC) Process in
an intuitive “flagging” the Teams

system is deployed to Human Develop and Implement a Training Hours per

Resources Workforce Management Employee M
measure “drift” of initiatives
Focus, Plan
from targets and prescribe Leadership,
corrective action. Market a Standard Project Plan Milestones
and M
Signature Service Set
Information
and Analysis Leading the Corporation Project Plan Milestones
to a New Fiscal Policy That
M
Governs Supply Chain
Activities
Grow and Leverage the Information Productivity
S
Knowledge Resources

Trend Explanation 4
According to the Target, the According to the Target, the According to the Target, the An intuitive flagging
YTD/Forecast for current YTD/Forecast for current YTD/Forecast for current system provides quick
month versus YTD/Forecast month versus YTD/Forecast month versus YTD/Forecast diagnosis of problems
previous month is getting previous month is getting previous month is equal to and deployment of
closer to the target. farther from the target. last period. corrective actions.
© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN

33
 35
DEMONSTRATING PROCUREMENT VALUE
Measuring and Communicating Procurement’s Enterprise Contributions

Strategic Objectives Strategic Measures

Financial ■■ Meet EPS and SVA Targets ■■ Corporate Measure
■■ Manage CAP/Opex Expenses ■■ Supply Chain Op Cost per Dollar Spent
■■ Capture Merger Savings ■■ Budget to Actual
■■ Increase Net Value to Customers ■■ Cost per Customer/Cost per Megawatt Hour
■■ Merger Savings
■■ Net Value Productivity
Customer ■■ Innovative Solutions ■■ Innovative Solutions
■■ Strategic Partnerships ■■ Customer Satisfaction
■■ Timely, Quality, Cost-Effective Services ■■ Service Level Agreement Performance
■■ Selected Market Basket Performance
Internal Identify ■■ Implementation Rate of Supply Chain Business Cases
■■ Compelling Business Cases ■■ Percentage of Supply Chain Divisions with Relationship Plans
■■ Understand Customer Needs ■■ Key Supplier Performance Metrics
■■ Use Supply Network

■■ Percentage of Total Spend Sourced Through Supply Chain

Communicate ■■ Diversity RFQ Opportunities
■■ Implementation Partner ■■ Diversity Spend/Total Spend
■■ Supplier Diversity

■■ Delivery Versus Need

Execute ■■ Fill Rate (Stock and Non-Stock Items)
■■ Product and Service Orders ■■ Balanced Inventory
■■ Optimize Inventory ■■ Revenue/Expense Ratio
■■ Recovery Value

People and ■■ Employee Safety ■■ Safety Incident Rate

Technology ■■ Competencies and Skills ■■ Employee Survey
■■ Knowledge Organization ■■ Best Practice Implementation
■■ Technology ■■ Communications Plan Implementation
■■ Deployment of Ancillary Projects

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

34
 36
 Strategic sourcing
communicates impact on
DIRECT FINANCIAL IMPACT MODEL
enterprise revenue and
expenses. Procurement Financial Impact Communication
Illustrative

Values are included where possible to

show directionally correct impact—
not to quantify actual benefits.

Activities Demonstrating Procurement’s Positive Impact on Enterprise Financials

Activities Demonstrating Procurement’s Positive Impact on Enterprise Financials
Revenue Cash Infusion Opportunity Creation Consulting Services Adv. and Sourcing
Revenue Cash Infusion
$6.5 M Opportunity Creation Consulting Services
(Planned) Adv. and Sourcing
Coordination (Planned)
$6.5 M (Planned) Coordination (Planned)
Vendor Bonuses Increased Ad Revenue Provide Sourcing/ Best Practice Sharing
Vendor Bonuses
■■ Retention (stay) Increased Ad Revenue
■■ Promote new Provide Sourcing/Services Best
■■ Negotiation and Practice Sharing
Training
■■ Retention (stay) ■■ Promote new ■■ Negotiation Services and Training
bonus technology (UV to Other Newspapers ■■ Coordinate with
bonus
■■ New business technology
printing) (UV to
■■ Other Newspapers
Leveraging existing
■■ Coordination with
Advertising to
■■ New business printing). ■■ Using existing Advertising to
bonuses ■■ Coordinate sourcing talent improve market
bonuses ■■ Coordinate
commercial printing sourcing talent improve market
awareness and share
commercial printing
sites/capabilities awareness
strategyand
andshare
best
sites/capabilities
(increased process strategy
practices best
and
(increased process
efficiency) practices
■■ Joint sales calls

efficiency). ■■ Joint sales calls

Expenses Negotiated Savings Efficiencies Cost Reduction

Expenses Negotiated Savings Efficiencies Value of Information Cost Reduction
$30 M $2.0 M Value of Information $1.1 M
$30 M $2.0 M $1.1 M
Purchasing consortium Improving Procurement Create central database Reduction in Invoicing
Purchasing Consortium
development (120 Improving
ProcessProcurement
Efficiency Creation of Central
of all utilities Reduction
Costs in Invoicing
Development (120
contracts impacting 47 Process
■■ Efficiency
Reduced headcount Database
■■ of All
Centralized Utilities Costs
■■ Automation and

Contracts Impacting
categories)
■■ Reduced head count
through automation
■■ Centralized
warehouse of
■■ Automation and
consolidation
47 ■Categories)
■ Capital equipment through automation
■■ Increased staff warehouse
companyofcontracts consolidation
■■ Third-party auditing
■■ Capital equipment ■■ Increased staff company contracts ■■ Third-party auditing
negotiations productivity ■■ Contractual audits ■■ Online ordering

negotiations
■■ Contract negations productivity ■■ Contractual audits ■■ Online ordering
■■ Process mapping
■■ Contract negations ■■ Process mapping

Information is considered a critical

enabler of both expense and
revenue contributions.
© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN

35
 37
 Procurement breaks its
DECODING ROTA IMPACT
1

total contribution into

distinct categories based
on ROTA impact. Procurement ROTA Contribution Conversion
Illustrative

■■ Procurement maintains three Procurement Annual Total Milli-ROTA Milli-ROTA Impact ROTA Points
distinct value categories that Project Impact Contribution Conversion (Col. B/Col. C)
drive ROTA improvements:
Cost Savings $90,000,000 Cost Savings 4,167 4.17%
cost-savings initiatives,
30 Projects $21,600
asset-reduction projects, and
sales increases.
Asset Reduction $65,000,000 Asset Reduction 602 0.60%
15 Projects $108,000

Sales Increase $10,000,000 Sales Increase 55 0.05%

2 Projects $181,600

Total Annual 4.82%

ROTA Impact

Calculating the Denominator

A large contribution
is required to move
Moving Annual Total Profit ROTA through sales
Savings x 0.001 due to the net margin
Target Return on Total Assets
“multiplier.”

Asset Moving Annual Average ROTA Assets

Target Return on Total Assets x 0.001
Reduction
Calculating the
impact using current
Moving Annual Net Sales goals ensures
Sales Increase Target Return on Total Assets x 0.001
the calculation’s
timeliness for
stakeholders.

1 Pseudonym.

© 2013 The Corporate Executive Board Company.

All Rights Reserved. PSC4798613SYN

36
 38
 Value creation matrix
maps procurement
A VISION OF WHAT IS POSSIBLE
activities to business
objectives to Value Creation Matrix
demonstrate the total Extract
impact of procurement Value
Stream Project How (Actions) What (Outcomes)
Business
Result
engagement. Consistent supplier performance Value
Select better suppliers Project Improved plant efficiency COGS
How (Actions) What (Outcomes)
Business
measures Stream Result

Improvement through measurement

Improved raw material quality Improved uptime / OEEplanning workload
Reduced COGS leads
Improve quality performance Reduce rejections, testing, and Reduced back orders Sales
disposition Reduced overhead to improved accuracy
COGS
Fewer suppliers Sales
mean

Supplier Rationalization
Increased response to customer demand Reduced backorders Reduced administrative costs SSG&A
Improve delivery performance reduced re-certifiCOGS
cation
Reduce number of suppliers
Reduced need for late schedule changes
and
Reduced admin work on changes
Reduced supplier schedule changes Lower acquistion costs COGS
manage proliferationReduced backorders
Increased response to customer demand Sales
Improve service performance Formulas are
Year-on-year cost improvements Manage suppliers to targeted improvements
Improved plant efficiency (OEE, reduced
waste)
COGS updated to
Challenge service levels Stop paying for services / specs which provide no
customer value Improve transactional efficiency
Reduced aquistion costs COGS alter incentives
Better understanding of supplier process allows
Improve payment terms Improved negotiation, lower acquisition
and redirect
improved negotiations and identifies improvement COGS
Supplier systems audits opportunities
costs
Leverage transportation terms category
Drive process improvements upstream (suppliers) Improved BD plant efficiency COGS
Audit learning transfers best practice to BD Improved BD plant efficiency COGS managers’
Eliminate inbound testing through
Stop routine inspection of consistently high quality raw
materials Low cost sourcing Reduced inspection workload COGS activities.
certification Reduce inventory levels Improved asset utilization RONA
Lower inspection time improves manufacturing flexibility Reduced backorders Sales
New projects Right materials at the right place at the right time-- RONA, Free
create the same output with less inventory
Improved asset utilization, improved turns
Cash Activities are
can be added Inventory reduction Lower levels reduce base for 10% chargeEarly involvement Reduced capital charge COGS
linked to key
to the list if they obsolescence or damage
in NPD sourcing
Lower inventory levels reduce the exposure to Lower risk of obsolete or damaged
inventory
COGS
stakeholder
demonstrate Bill for vacant space utilized Reduced overhead cost COGS

Lease out space to suppliers

Share service expenses COGS
metrics, tracing
value creation. Utilization of joint the business

Product Differentiation
excess capacity
Vendor warehousing (supplier holds Improved delivery performance Reduced late schdule changes COGS
impact of
Lean Supply

RONA, Free
dedicated material for BD) Reduced BD inventory levels Improved asset utilization, improved turns

Collaborative sourcing (buyImproved

Increase inventory turns (WIP and raw material) fromasset utilization
Cash
RONA
Procurement
Kanban manufacturing flexibility
others’ contracts at discount)
Improve predictability of production, higher
Reduced backorders Sales activity.
Improved supplier delivery performance Reduced late schdule changes COGS
Hold inventory without owning it Improved asset utilization RONA
Consignment stock Lower lead times--higher manufacturing flexibility
Access to new technology
Reduced backorders Sales
Supplier’s inventory is present near point of use Reduced late schdule changes COGS
through supplier
Harmonize specifications to improve process at supplier Reduced acquistions costs, improved BD
COGS
and BD plants uptime / OEE
Specification harmonization
Co-marketing
Training facilitates quality improvement projects at Improved uptime / OEE COGS
Supplier Six Sigma supplier
and sales Reduced rejection overhead COGS
Supplier Kaizen Supplier improvements--blitzes with plant personnel Reduced manufacturing cost COGS

Joint Process Improvement (JPI) Make vs. buy

Joint BD / supplier teams improve shared processes
Reduced administrative cost, improved
RONA SSG&A
teams cycle time and turns

Supplier validates
new product

Matrix Creation Guidelines Matrix Deployment

1. Focus on the critical 80% of activities. 1. U
 se in target setting and project prioritization/
2. Regularly revise to reflect changing planning.
stakeholder priorities. 2. Demonstrates Procurement’s potential impact
to key stakeholders during project scoping.
© 2013 The Corporate Executive Board Company.
All Rights Reserved. PSC4798613SYN

37
 39