The Involvement of Measurement And Analysis of Performance in Procurement Management
Regardless of all the hard work a procurement team puts into their actions, it is possible that they may not be doing as well as they think they are. Instead of letting themselves continue, many in procurement management will set aside the time to measure and analyze their performance. This isn't always something that is decided on their own, as employers and business leaders will often take action to address the performance of their staff on multiple levels to ensure things are in good working order. In many cases, these performance reviews and analyzes are a regularly scheduled event that is spaced out in such a way that there is a suitable sample size and time allotted to make adjustments based on the results.
This article will discuss what is involved in measuring and analyzing performance in procurement. Typical indicators and means of measuring will be included, as well as common problems that analysis may interfere with the outcome. What is listed here isn't specific to any procurement style, process, or other demographic features, and can be applied to any part of procurement management.
Why Measure Performance?
Measuring performance is often the main way of determining if the procurement team is working effectively to accomplish their goals. Just because things seem to be going well on the surface and there's no noticeable problems does not mean everything is fine. Analysis of a procurement team's performance can actually help identify and measure several different things:
Catch Developing Problems--As with auditing financial records, measuring performance can help identify discrepancies and catch problems early on. Issues that may seem subtle or minor at the time of analysis can grow over time and do significant damage if not handled in time. Many issues can be easily fixed when caught early, as their effects are usually not as wide spread as their counterparts that have had time to grow. It makes things significantly less complicated and some simple solutions prove to be highly beneficial when applied directly to the problem. With the frequency of performance measuring, it is possible to reduce the rate of severe issues and lower the risks that they present.
Effectiveness of Strategy Usage--The success rate of most strategies cannot be clearly determined without taking a close look at their effectiveness. When they're in action, there's almost too much focus on their implementation to make sure that it's being done correctly. Measurement and analysis of the procurement team's performance can provide the needed opportunity to measure the strategies the team uses. The data collected can determine if it is worth continuing a specific strategy's usage or if it's time to try something new. As a performance review will also identify problems that are directly related to strategies, it is possible to pick up on errors in a strategy's implementation that may be interfering with its effectiveness. You can then fix it (or try to), and then reanalyze at the next performance measurement.
Progression Towards Goals--Performance involves a number of factors that are analyzed in order for it to be accurately measured. This includes the team's progression towards their goals and the efficiency of their actions. Usually when there's interference or some kind of problem attached to their progress, it's can be tied to productivity issues. Accurately gauge their efficiency and progress and you can use that information to help improve workplace productivity overall while still fixing the original problem. Obstacles in the procurement team that are interfering with their progression towards their goals will undoubtedly be interfering with other elements of their work.
Need for Adjustments--Measurement of performance often is a chance to identify areas that need to be adjusted and determine how that can be done. These can be small tweaks done with little extra work or large ones that call for an overhaul of the team's practices. Again, change or adjustment isn't necessarily a bad thing or something that businesses should dread. The changing state of the business world means that these can be highly beneficial in helping the team--and the business they work for--keep up with those changes in real time. With that in mind, performance analysis and measurement should be seen as an opportunity and not a chore or nuisance.Interested in learning more? Why not take an online class in Procurement Management?
KPIs are specific indicators that can provide clear and accurate information regarding the performance of a group, a plan or strategy, or a specific person. They are often things that can be accurately measured and applied to what is being analyzed, usually in a way that is of significant importance. Any area that is considered to be crucial to standard operations--hence why they are considered to be key--can act as a KPI. Examples can include financial elements like profit and costs, turnover rates (staff and customers), and product quality factors (e.g. defects). These are all things that have recordable data associated with them, making them a perfect resource to measure performance. However, this also means that they can be skewed based on data errors that have gone unchecked. Consider exercising some caution when analyzing KPIs, especially if there have been data errors associated with those areas in the past.
Once you understand what it is you are looking for and why, you can actually take action to measure performance. Scheduling of performance analysis, as mentioned, should be done with some regularity and the data should be collected from the time since the previous measurements. If it's been a year since the last analysis, keep it to data and indicators from within the last year. You can still compare the data from the new measurements with the previous one to determine changes, but it should not be included in the actual analysis.
There isn't a strict process for measuring and analyzing performance, as it often depends on the situation and the information. The means of measuring is going to vary, and companies often choose a specific format that they are comfortable with or that is accurate to the source. All data being used for performance needs to be appropriately collected--record keeping practices can help with this task. This alone may be the longest part of the entire situation, especially if the gap between reviews is large. The person(s) who is doing the actual analysis and measurement should be someone who is familiar with the process and who is not going to skew the data due to conflicts of interest.
What the outcome of that analysis ultimately ends up being is ultimately up to the interpretation of those who are doing the measuring. However, there are a few things that they should factor into their analysis.
Documented and Quantifiable Data--As mentioned, the data being analyzed to measure performance needs to be something that can actually be quantified. That information cannot be pulled out of thin air or be something that is heavily vague with a variety of meanings. There also has to be thorough documentation that backs up the data to show that there is not only enough to be analyzed, but that it is legitimate in its origins. Most of the data will also be used to find solutions to any problems detected, so that paper trail is rather necessary.
Margin of Error--It's unlike that measurements for performance are going to be very precise. The variance in data interpretation means that there is going to be some margin of error in play, which can skew any conclusions an analysis has. Unless it is very clear that this is how things are, the outcome(s) of a performance measurement should not be treated as an absolute.
Consider Outliers--With any data sample, there is the potential for an outlier or two to be in the mix and skew the final outcome. It's one of the main reasons why the margin of error discussed above is a thing in analysis. Outliers in performance measurement can happen and they need to be treated as what they are. A procurement team could have had stellar performance throughout the last year with the exception of one week--that bad week acts as an outlier. Actively looking at the information in the data instead of just blindly crunching numbers can help identify outliers and determine if they can be excluded.
Extraordinary Circumstances--Instances where there were extraordinary circumstances involved can act as outliers, but they can occupy a rather large section of the data that disqualifies them from being identified as such. These are often cases where there was a major problem--think on the scale of a natural disaster that disrupted normal operations for an extended period of time. It doesn't always have to be an event that involved the procurement team either, as anyone they work with can have extraordinary circumstances that disrupt external organizations. Wildfires in the western U.S. often disrupt shipping routes in those areas for weeks, which can extend all through the supply chain that those orders are in.
Metrics vs. KPI--While they can both be used in measuring performance, metrics and KPIs offer different kinds of data. KPIs are indicators with specific measurable and strategic purposes that data can be pulled from at any time. Metrics, on the other hand, include data on aspects of a business' activities but only within a specific set of time. There can be different ways of measurement with both of these and that can lead to different data sets on the same topic. Choosing the wrong one will have an impact on what it is that you conclude and the actions you take based on that conclusion. Know what it is that you are analyzing and why that option to avoid problems.
While you may be using performance analysis and measurement to identify problems in the procurement team, the process itself can encounter a few bumps as well. Some of these problems are simply due to how the measurement was handled or who the person interpreting information was. There is also the possibility that that some may not be things that are entirely avoidable or within your control.
Inaccurate Data--If the data is off in some way--poorly recorded, used the wrong indicators, blatant errors, etc.--then you're likely going to have a problem when you try to reach a conclusion for the team's performance. The analysis is not going to properly reflect the team's work and that can be problematic for them. Telling someone that they have a problem when they don't can actually cause more problems than they fix, as most will make changes in order to correct the perceived situation.
Relationship Issues--The internal and external relationships that the procurement team has with the groups they work for can also be an issue. Things are simply not going to go well if people are not getting alone. If there's a problem in the relationship between the team and a particular supplier, it's not going to reflect well in the data. Problems and disagreements make it harder for people to willingly or unwillingly work together on a shared task. Communication, quality, and productivity often all decrease drastically when there is something going on relationship-wise, whether it's related to procurement or not.
Data Size--A small data size often makes it difficult to get a very detailed and clear picture of what has been going on regarding performance. This often means that there isn't enough data to analyze, usually because of the time frame that data is being pulled from. The team size or the scope of their workload can also lead to inconclusive results due to limited data.
Lack of Cooperation--The aversion that some people have towards the idea of a performance review means that it's possible that someone isn't going to be willing to cooperate. Some teams may see a big performance measurement as a disruption of their work and not as something that can be helpful long-term. There can be resistance especially if the person who is doing the analysis and measurement is someone who is considered an ‘outsider' and not a part of the procurement team or department.
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