{"id":11378,"date":"2021-04-13T09:16:05","date_gmt":"2021-04-13T13:16:05","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?page_id=11378"},"modified":"2021-09-28T10:51:37","modified_gmt":"2021-09-28T14:51:37","slug":"procurement-operations-goals","status":"publish","type":"page","link":"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/procurement-operations-goals\/","title":{"rendered":"Procurement Operations Goals"},"content":{"rendered":"

Are your Procurement Operations Goals SMART?<\/h3><\/div><\/div><\/div>

PurchTips edition #457<\/p>\n<\/div>

It is highly recommended that procurement leaders set a few powerful goals!<\/h4><\/div><\/div><\/div>

\"\"<\/p>\n

And not attempt to \u201cboil the ocean\u201d These goals can be general so that tasks roll up to support them. Perhaps this is best illustrated by an example. Many planning experts recommend that three to five goals are a good, manageable number. This does not mean that only three to five items will be attempted all year.<\/p>\n

What it means is that there are three to five broad areas to concentrate on and measure.<\/p>\n

Some Typical\u00a0Procurement Department goals\u00a0may be:<\/p>\n

    \n
  1. Reduce costs<\/strong><\/li>\n
  2. Improve cycle time<\/strong><\/li>\n
  3. Improve quality<\/strong><\/li>\n
  4. Improve service<\/strong><\/li>\n<\/ol>\n

    Each of these goals should have a target<\/strong><\/p>\n

    Examples of targets may be:<\/p>\n

      \n
    1. Reduce costs<\/strong>\u00a0\u2013 Minimum $2,000,000 per year<\/li>\n
    2. Improve cycle time\u00a0<\/strong>\u2013 Minimum 95% on-time delivery<\/li>\n
    3. Improve quality<\/strong>\u00a0\u2013 Maximum 5% inspection rejection rate<\/li>\n
    4. Improve service<\/strong>\u00a0\u2013 Maximum 25 complaints about suppliers<\/li>\n<\/ol>\n

      With goals this general, it is easy to distribute responsibility for contributing to the goals to each staff member.<\/p>\n

      For example<\/strong>,\u00a0five buyers responsible for contributing to the goals. Each buyer can then have her own goals as per the following example:<\/strong><\/p>\n

      Buyer #1<\/strong>\u00a0\u2013 Buys packaging \u2013 goal is to save $150,000 per year<\/p>\n

      Buyer #2<\/strong>\u00a0\u2013 Buys MRO items (except IT) \u2013 goal is to save $500,000 per year<\/p>\n

      Buyer #3<\/strong>\u00a0\u2013 Buys outsourced services \u2013 goal is to save $500,000 per year<\/p>\n

      Buyer #4<\/strong>\u00a0\u2013 Buys raw materials \u2013 goal is to save $600,000 per year<\/p>\n

      Buyer #5<\/strong>\u00a0\u2013 Buys IT hardware \u2013 goal is to save $250,000 per year<\/p>\n

      Now each of those savings numbers may be broken down further into tasks, such as the MRO buyer saving $80,000 on office supplies and the rest on other categories, but all tasks are tied into a department goal rather than being stand-alone goals. It is much more powerful when buyers\u2019 goals and tasks are tied to the success of the whole department. When coming up with goals, it is helpful to have a baseline for each goal.<\/p>\n

      A baseline is a measurement of things as they are today in their current state<\/strong>.<\/p>\n

      This helps ensure that your goals are realistic. It is nice to say that you are targeting 95% on-time delivery, but if you do not realize that you\u2019re only at 60% today, you may be ignoring some of the problems that need to be resolved now. If those problems are not resolved early, you risk not even knowing about them until the end of the year or whenever you do your first measurement of actual performance, and then you will appear to be a failure for not coming close to your own goals.<\/p>\n

      Therefore, establish a baseline!<\/strong><\/p>\n

      One of the most important aspects of a procurement manager\u2019s job is to report to senior management the performance of the purchasing department.<\/p>\n

      Senior management likes to see metrics reported:<\/strong>\u00a0statistics that are indicators of performance. Many procurement departments stumble when trying to determine their metrics. The tendency is to select way too many metrics to report. Procurement departments take everything that can be quantified and report it. And that is usually a mistake. Think about watching baseball on television. What \u201cmetrics\u201d flash on the screen at the end of the inning? Runs, hits, and errors. Now are those all of the things that could be measured in a baseball game? Certainly not.<\/p>\n

      So why do not things like average pitch speed, number of stolen bases, and the collective weight of the players flash on the screen?<\/p>\n

      Two reasons:<\/strong><\/p>\n

        \n
      1. Those metrics are not as relevant in giving the viewer an indication of how the game is going<\/li>\n
      2. The more metrics that you share, the more difficult it is for the viewer to really understand how the game is going<\/li>\n<\/ol>\n

        NLPA recommends that three or four good metrics are the optimal number of metrics to report<\/strong>\u00a0to senior management:<\/strong><\/p>\n