Finding And Exploiting Best Practice In Your Organisation
Robert Patrick Maguire
Robert Patrick Maguire, Director, Performance Diagnostics Ltd., 44 (0) 181 742 3930 Rob_Maguire@Compuserve.com
84th Annual International Conference Proceedings - 1999
By focusing on simple top-level results to assess buyers' performance, managers are missing the most crucial determinant of performance - the buying process.
Measuring buying performance is a conundrum. Even the most die-hard devotees of performance measurement are likely to confess that traditional measurement tools just aren't up to the job.
Many measures - such as purchase price variance, savings made, coverage and number of suppliers used - are useful at having a good stab at getting a feel for a purchasing team's output, but they throw up more questions and problems than they answer. They don't take into account the differences between purchasing teams nor how to set purchase price variance against different teams and buyers. They tell a manager what results buyers are getting, but not necessarily how well they are doing the job.
This drive for results based assessment has overshadowed the more crucial issue of identifying best practice and getting the buying process right. As several companies have realised too late, it's an oversight not to be sniffed at.
Poor procurement processes have been the cause of major financial accounting errors and share price slides for companies from retailing to automotive manufacturing. These experiences provide sobering reminders, should any be needed, that purchasing processes do have serious implications for the overall health of a firm. By using inappropriate performance measurement criteria, companies can actively reward buying behaviour that is against a company's best interests. As long as purchasing is regarded simply as being about the measurement of prices paid or some other output based indicator, buyers will be encouraged to act in ways that ignores the quality of the buying process.
Many companies are indeed aware of the importance of the issue. The rise of purchasing benchmarking clubs in recent years is, in part, a reaction to the problem of assessing performance. Managers felt that if they could assess their outputs against a number of other companies they could start to get a feel for how well they were performing. The problem with traditional benchmarking is that it can only identify differences, it does not signpost reasons for good or bad performance. More dangerously, traditional benchmarking can introduce red herrings. What appears successful in one industry does not necessarily translate well to another industry or company culture. Like traditional measures, benchmarking often focuses on outputs. By asking themselves 'what results are we getting' purchasing managers have overlooked a more important question: 'are we delivering a purchasing process that gives us maximum competitive advantage.'
The drive for results has overshadowed the importance of the how people purchase.
Shifting the focus from outputs to process can resolve problems for managers. First, it helps to overcome the assessment issue by allowing them to assess a buyer's performance according to their adherence to the purchasing processes established by the company. Secondly, it gives managers a tool for pinpointing strengths and weakness of a team's performance as a whole. If adherence to best practice processes is strong but results are poor, managers can more accurately pinpoint which parts of the purchasing process needs to be changed.
For buyers, it should mean that they are not penalised for poor results caused by poor processes over which they do not necessarily have any say. But assessing the strengths and weaknesses of a purchasing process is problematic in the absence of measurement tools.
The newly appointed head of purchasing for a UK drinks company, who wanted to be able to pinpoint the strengths and weakness of his buying department so that he could agree a strategy to take the function forward, turned to a recently developed tool.
Using a self administered questionnaire based model for performance assessment developed by Performance Diagnostics Limited, he compiled a purchasing performance profile to establish a route map for the development of the purchasing function. The profile gave the purchasing team a language to debate where changes were needed. It provided a vehicle to establish a goal to work towards and to set priorities for future development with the involvement of the entire purchasing community.
PDL's Purchasing Profile model was developed to help companies identify their strengths and weaknesses according to 20 criteria found to exist in 'excellent' purchasing processes. The 20 factors were identified by PDL's accumulated experience in purchasing and from drawing on the experience of clients, practitioners and other consultants.
For each of the criteria the process began with the development of a short model of excellence. In turn, each of these was investigated to identify the behaviours that truly differentiate between positive and negative results. Following a review of the responses of some 600 purchasing professionals these indicators were distilled to develop the questionnaire. Respondents are asked to respond to approximately 250 questions, which combine to provide a score on each of the elements listed below.
- Competence Development
- Cost Management
- Supply Market Research
- Demand Planning
- Negotiation Planning
- Setting Objectives
- Stock Management
- Price Management
- Supplier Management
- Quality Management
- Supplier Recruitment
- Risk Analysis
- Risk Reduction
- Strategy Development
- Specification Development
- Systems & Information
The model works on two levels. Using a workbook, Purchasing managers are asked to plot their aspirations for their purchasing department by identifying the level of attainment they wish to set for each element: effectively establishing their priorities. Strength in all 20 is not mandatory.
In the second stage employees with purchasing responsibilities (not necessarily in the purchasing function) complete a questionnaire that asks them to rate the occurrence in how they conduct their job of a series of statements about purchasing. The exercise is very similar to psychometric tests and indeed has undergone the rigorous testing required of psychometric questionnaires to ensure the validity of the questionnaire and that the output provides a reliable picture of actual practices in the business. Some typical examples are illustrated below:
Neither agree nor disagree
We offer our resources and expertise to improve suppliers' processes
There is multi-functional input to the purchasing strategy
We have little formal market information
Our purchasing strategies are formally reviewed
We investigate potential variables in advance of a negotiation
PDL feeds back a briefing on the strengths and weaknesses of a company's purchasing process based on the questionnaire results and identifies gaps with actual activities and a company's aspirations. It also enables the team to identify differences in perceptions between different segments of the purchasing community. (The process is the focus not the people)
A US-based international telecomm company, which operates communications networks world-wide and has purchasing centres in 5 countries, wanted to assess purchasing strengths and weaknesses without committing to a large-scale consulting exercise. It used the model to identify centres for purchasing process excellence within the company from which other parts could learn. The management team then set out to put in place a process by which this best practice could be rolled out across the business.
UK defence company AWE has used the Purchasing Profile alongside traditional performance measures to help it set improvement targets.
AWE purchasing manager Tony Batley said the profile that resulted from the questionnaires presented an accurate picture:
"We recognised ourselves in the profile. For example, we have excellent purchasing procedures - but you would expect that from a company in our industry where adherence to regulations is part of our culture. The profile gave us a common base for discussing what we want to focus on and be better at." Batley says 'It has helped us move on to setting objectives for improvement in our performance.'
While feedback to the model has been positive, the Purchasing Profile is not a panacea for all the problems inherent in measuring purchasing performance.
The strengths of the model are that it provides a common language for management and purchasers to discuss and understand the strengths and weaknesses of their company's purchasing. By including the feedback of all people involved in the purchasing process in a statistically validated questionnaire it provides a far more accurate profile than managers could elicit by simply looking at results, or through a conventional interview based assessment. However using the Purchasing Profile for personal assessment needs to be approached carefully. Although some clients have, not surprisingly, been eager for individual profiles to be provided as part of the feedback the approach lends itself most powerfully to analysis across and between groups.
The profile does not comment overtly on people's capabilities or capacities. It describes what people do and therefore it provides insight into conformance with the best practice. It can be used to see where non-conformance to best practice processes is occurring and that issue can be addressed. However, if someone is conforming to best practice processes and their performance is judged to be poor, then, at the end of the day purchasing managers have to take responsibility for changing their processes, rather than their buyers.
No one model is ever likely to resolve the problems inherent in assessing buyer performance. But shifting the argument from results to processes may at least be a step in the right direction.
The six phases in developing your own model as the basis for assessing and strengthening your performance based on best practice within your organisation are discussed below:
Typically, there are six elements in conducting a benchmarking programme. Different organisations have different levels of expertise and understanding in some (or all) six areas and the support required may be more in terms of resources than expertise. I have outlined the six elements below:
Elements of Benchmarking
- Developing the organisational capability: It is necessary to agree what benchmarking is about and what shape a programme should take. There is also frequently a need to provide staff undertaking the programme with some training in the tools available.
- Building the process model: Our approach to benchmarking focuses heavily on building a model of the process to be benchmarked and developing a composite view of where best practice would be expected to be found and what it might be expected to look like.
- Compiling a best practice group: Learning is easiest with a good teacher. The aim of a benchmarking group is to bring together a group of practitioners, which are interested to improve a common process and which can each bring experience of excellence in one or more of the elements of the benchmarking model which has been agreed.
- Gathering data from participating businesses: The group will need a common, agreed, approach to gathering the data from within their organisations which can then be used to prepare an action plan to transfer best practice between members.
- Building the business case: The purpose of benchmarking is to improve business practices. This will require that the investment necessary to achieve the various improvements that have been signposted by the comparisons be costed and compared with the benefits arising from successful implementation.
- Planning and implementation: The final part of a benchmarking programme is to plan for the selected and agreed improvements and implement the necessary changes in working practices to deliver the identified benefits.
Benchmarking is best done by members of the organisation itself: external consultants can be valuable to assist the core team with prior experience and introductions to potential best practice group members.
Phase 1. Benchmarking workshops: typically a workshop would last between one and two days depending upon the extent to which you wish to drive down into the detail of developing the model which you will later use for the benchmarking process. Such a workshop may be valuable to yourself and your colleagues who will benchmark the purchasing process as a means of developing an agreed approach to benchmarking within the function.
Phase 2. In this phase it is necessary to compile a definition of the process to be benchmarked. This should clearly establish the scope of the process, the start and end points and the key inputs and required outputs. It is also important to identify the measures of process effectiveness and the extent to which each of the elements contributes to achieving the overall objectives.
Phase 3. This phase is concerned with identifying the industries where relevant best practice might be expected to exist for each of the elements and, more specifically, targeting companies and individuals who could form part of a think tank to exchange ideas and skills.
It cannot be guaranteed that the companies or individuals that are targeted will be persuaded to join the group. One can only try and, if unsuccessful, try again until you find an acceptable alternative. Alternatively, there is frequently a great deal of information to be gathered from the public writings of companies. This can often provide a ready-made model of excellence.
Phase 4. Good data collection is key to an efficient and useful benchmarking exercise. Interview and questionnaire design plays a major part in gathering information, which is easy to analyse and supports the end objective. It is very important that the benchmarking team gathers data in an efficient and focused way that avoids the pitfalls of gathering the wrong data or gathering too much data.
Phase 5. The estimation of benefits from changes is key to successful implementation and avoidance of doubt. This is the stage which will convince senior management or other functions impacted by any changes of the need to make amend working practices. It is also absolutely crucial that proposals are costed and the benefits publicised to demonstrate that the programme is not just another initiative but rather is a genuine approach to improving the business performance.
Phase 6. The benchmarking team needs to support the through the implementation stage of a benchmarking programme. It is important to customise the support and challenge given to those involved and provide them with different levels of input and different types of expertise to reflect the changes in the pressures on their businesses.
Examples of the types of support that might be required include:
- compiling supplier cost models
- analysing cross-company expenditure trends
- assisting negotiating teams
- skills practice workshops
- facilitating benchmarking visits
All of the above are designed to move the implementation forward to deliver benefits in the most efficient and effective way.