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How to Use Procurement KPIs to Motivate Process Excellence

Procurement operations teams face big challenges, even if they have access to data from procurement KPIs. First, getting their stakeholders to use contracts that are pre-approved by procurement and include specific and necessary terminology. Second, convincing stakeholders to adhere to common sense standards around issues like competitive pricing and best value award decision-making. Third, getting stakeholders to use processes that are compliant.

Getting stakeholder buy-in is a challenge because often stakeholders lack the incentive to do so. Following procurement’s processes is not directly beneficial to them. In addition, stakeholders often see their job as critically strategic to a company’s operational performance. From their perspective, that beats complying with procurement standards—even though those processes are designed to be in the company’s best financial interest. 

The solution may not be what you expect. Burying stakeholders in transactional cycles involving tedious email chains and spreadsheet management doesn’t work. It’s seen as forcing “busywork.”  Instead of trying to force business process compliance, consider gamifying procurement KPIs. 

Why? Because people balk against being forced to follow what they feel is an unnecessary process, but they love to play games. Turn compliance into a competition, and you will see results. Here’s how to transform a basic, backwards-looking KPI report into a dynamic leaderboard that motivates everyone (including stakeholders) to embrace procurement process excellence.

 

Gamification of Procurement KPIs

Key Performance Indicators (or KPIs) are traditionally backwards-looking. That’s fine for reporting on what happened over a period of time. But real-time data is needed for real-time feedback to create gamification.  

Stakeholders will lose interest if you distribute a weekly KPI report. They need to see instant feedback on the moves they make and their relative position compared to others. This visibility is a big motivator. People don’t just want to “win,” they also don’t want people to see them as someone who is “losing.”

 

Creating Visibility in Backwards-Looking KPIs

The need for visibility and instant feedback is why you need a procurement leaderboard reflecting real-time data. This provides that critical visibility that is missing in KPI reports and other backward-looking KPI measurements.

People want to be the best at something, and if they are visibly besting everyone else on a leaderboard, that is a powerful incentive. However, some companies find that participation levels become even more impressive if they offer a small personal reward, like a gift card.

As a bonus, real-time data related to KPIs can provide valuable, up-to-date feedback for stakeholders that guides them in undertaking sourcing activities. That feedback provides guidance that helps to keep them following the procurement team’s processes.

The following three procurement KPIs that are particularly important. These are the ones you’ll want to focus on first when developing a dynamic procurement leaderboard.

 

Cost Savings Forecasting

The cost savings forecasting KPI is one of the most critical for procurement. Corporate overspending is endemic, but this means procurement has a real opportunity to deliver savings. Typically this will be through bulk volume discounts or by centralizing a series of fragmented purchases into a single contract. 

Procurement teams can generate a savings forecast based on the planned activity pattern in their project pipelines. With this forecast, they can then set an attainable target: a cost savings forecasting KPI.

The reality is that most companies tend to prioritize purchasing activities based on business urgency. That runs contrary to what procurement is trying to do. However, by using this KPI, you can instead steer the decision-making toward business impact. Doing so can be recognized as being a positive action, which is then reflected on the leaderboard. 

 

Purchase Price Variance and Sales Equivalency

Next, we have the purchase price variance and sales equivalency KPI. This one is a favorite of CFOs and finance departments. They can use it to understand how many more sales would need to be closed for margins to reach the expected level.

What the purchase price variance and sales equivalency KPI does is to use best operational practices to help normalize the price of a single SKU or part number across an area of spend. This could be through supplier consolidation, but it could also be a matter of the sourcing team leveraging approved or preferred price agreements. The money saved by normalizing the price (ideally to the best price among transactions) can be quickly translated into an equivalency number for top-line revenue. That’s where the CFO finds the KPI so valuable. 

 

Exception Frequency

Finally, the exception frequency KPI. When a category or workstream within an organization conducts transactions with such frequency and randomness that each one has the potential to be exceptional, this makes it all but impossible to benchmark. At the other extreme, some departments may see transactions follow regular patterns, such as seasonal purchases. 

The exception frequency KPI can be a valuable tool for finding similar transactions at a given time, based on frequency. This means those undertaking the sourcing have an added layer of confidence around the transaction and the interval.   

 

Take the Next Step

Gamification is a proven way to get stakeholders to adopt your procurement processes. However, you can’t have a leaderboard with static and backward-looking KPIs. You need real-time data. Visit Arkestro to learn how to orchestrate your procurement operations and get a customized KPI dashboard.

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

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