Hi Top Tips for Measuring Procurement’s Contribution to the Bottom Line:

Hi Top Tips for Measuring Procurement’s 

Contribution to the Bottom Line:

Numerous procurement professionals in the mining industry in order to understand the challenges faced on a daily basis, but also to get insights into what teams across Australia are doing in order to overcome those challenges. 

2015 is due to be a better year for most resources in terms of prices, but the companies who move ahead in that market will be those who are aggressive with their procurement practices in the back half of 2014.

We’ve researched with and heard from companies such as Vale Australia, Oz Minerals, Thiess, Rio Tinto, Alcoa, Hatch, Fortescue Metals Group, Orica and many, many more over the last 12 months in order to bring you this series of articles providing insights on what your peers are doing right now across 3 business and department-critical areas:

1. Cost Optimization.
2. Staff management and up-skilling.
3. Measuring (and delivering) procurement’s contribution to the company bottom line.

Part Two: Measuring Procurement’s Contribution to the 

Bottom Line

With procurement scrutinising spend by other departments it’s only natural that there is an increased focus on demonstrating the value the function delivers to the wider business and the bottom line. However, departmental savings are often credited to those functions rather than procurement, so how else can you ensure your procurement team are not under-valued and under-appreciated in the wider organisation?

Luiz Sapucaia, Procurement Manager, Vale Australia:

We have implemented KPIs to measure efficiency and improvements in the procurement area. In my opinion, the KPIs have to be aligned with operations requirements and client satisfaction is key for the success of procurement functions.

Jeff Bowman, Manager, Category Management Group,Thiess

Very simply: undiscounted spend on contract X savings factor = savings benefit. We report this monthly. We also measure sourcing share across all categories under management as well as have goals on % of addressable spend under management, however, these only indirectly impact the bottom line whereas the savings benefit is direct.

Richard Morgan, Principal, Aspec Engineering:

Reduction in cost due to intelligent use of competition between suppliers.

Andrew Edgecomb, Contracts Officer, OZ Minerals

Recording all cost savings achieved with each contractor/supplier and reporting this as part of my department’s KPIs to operational and senior management.

Lauro Azambuja, Principal Advisor, Procurement, CQUniversity Australia:

By defining the right modus operandi and the ideal point of cost (of the procurement team) versus benefit (cost/savings of the deliverables). This is a tuning process and each organization has its own point. It includes:

1. Transition the buying process from an isolated and transitory transaction to a sustainable and participative planned process, which includes procurement team , buyers (or budget stakeholders) and finance sharing equivalent responsibilities. In particular, by moving the buyers (or budget stakeholders) from the “audience” to the “stage”.
2. Operational excellence by all involved.
3. Mitigate legal and financial risk (contracts and strategies).
4. Identify opportunities to reduce costs and expedite the process.