It is very easy to establish whether the economic and financial standing of a company or country is sound. Economist and financial experts developed various indicators for economic and financial performance. This has enabled researchers to gather and report relevant data to evaluate the outcomes.
PURCHASING & SUPPLY: NYASHA CHIZU
Most procurement systems do not gather relevant data to evaluate the performance of procurement systems and the review of such performance will then be difficult. Accountants gather accounting data and report it in a standard format of the trial balance, profit and loss accounts, balance sheet and cash flows. From such standard information, standards ratios of performance can be derived.
The most commonly used measure of procurement is the service level. Service level relates to the extent with which the requirements of users are satisfied. The performance of procurement is measured from the downstream side, where the level of stockholding reflects the competencies within the procurement department.
Such a measure will require that procuring entities develop a mechanism to collect data on the number of requests received and the number of such requests that have been satisfied.
With such data, procuring entities can assess how many requests were satisfied on demand including how much time was spent in satisfying the outstanding requirements. Such information is necessary to establish how schedules, quality and costs are achieved as planned.
Time is a critical resource in every organisation. It is desirable that everything is availed on demand, but it is not practical that everything is available on request.
The alternative to avoiding a stock-out is holding stock which comes at a cost. It becomes the reason why organisations employ experts to undertake material forecasting, as well as the categorisation of materials in order to ensure that critical stock is available on demand.
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It is not out of the ordinary that some stock are produced only on demand. An efficient procurement unit will then be capable to plan the procurement in time for delivery when the materials are required in the organisation.
Management of inbound quality is very critical in a procurement process. Materials can be delivered on time but schedules may be delayed if the delivered quality does not meet the minimum standards.
Quality management is not a once-off process, it is actually a system that should be embedded in the organisation. Quality management starts at the time specifications are designed, the requirements must be fit for the purpose.
They must not be under or over-stated. Understatement of requirements implies inferior inputs that ultimately affect the quality of the final product.
On the other hand, superior quality implies additional costs to a product that could have been avoided. The quality just has to be right for the product to compete on the market with the right level of customer appeal.
The other critical element when reviewing the performance of a procuring unit is how they manage costs. Costs that can be avoided during procurement arise from at least two angles.
Initially, the costs could have be added on from poor specifications as earlier discussed. Specifications may be lower than the required standard leading to additional costs of reworking or redesigning a product to meet the required standard. Over specification results in obvious direct costs from premium prices that could have been avoided.
A procurement plan is the essential tool to assess whether the procuring entity is managing effectively.
A procurement plan details the level of quality of a product that shall be required, the time that the requirements shall be needed and the associated budget of that requirements.
From capturing the procurement activities against the procurement plan, one is able to assess the performance of the procuring entity.
Baselines and trends as the information is gathered aids in evaluating how the unit is performing. This is critical since one can only measure what he can control. Organisations need to put in place systems to measure the performance of procurement as it is now the driver of organisational competitiveness.
Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: [email protected] Skype: nyasha.chizu
