benchmarking performance of the purchasing function florida government conference september 22, 2004

Benchmarking Performanceof the Purchasing Function

Florida Government Conference September 22, 2004

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Benchmarking Performance of the Purchasing Function September 22, 2004 Agenda

• Welcome / Meeting Overview

• Benchmarking – What is it? Why do it? How?

• The Benchmarking Process

• Benchmarking Resources/Examples

• Questions

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Meeting OverviewSound Familiar?

“I think we’re measuring the wrong things – and taking a lots of time and resources to do it. What we need to do is figure out what’s really important to our success and measure that.”

-- anonymous Purchasing Director (NY)

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• Questions

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“… a formalized attempt to compare and evaluate the products, services, and processes of organizations that are recognized as representing best practices against the organization conducting the benchmarking.”

What is Benchmarking?

Liebfried J.H.J. and C.J. McNair; Benchmarking: A Tool for Continuous Improvement, Harper Business, New York, 1999

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Why Benchmark?

• Identify Opportunities

• Set realistic but aggressive goals

• Challenge internal paradigms on what is possible

• Understand methods for improved processes

• Uncover strengths within your organization

• Learn from the leader’s experiences

• Better prioritize and allocate resources

Kay Kendall, Director, Quality and Six Sigma, Allied Signal Corp, Benchmarking from A to Z, November 1999

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• Internal Benchmarking - Comparing internal processes, usually within a multidivisional entity

• Competitive Benchmarking - Comparing direct competitors within the same industry across all functions

• Functional Benchmarking - Comparing a specific function across firms regardless of industry

• Generic Benchmarking - Comparing dissimilar functions to learn new technology or practices which may be translated to the original function/process

Approaches to Benchmarking

© Benchmarking PLUS 1999. Benchmarking PLUS, Level 6, 443 Little Collins Street, Melbourne, VIC 3000, Australia. Tel: +61-3 (03) 9600 2186. E-maiI: [email protected].

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• A Competitive Assessment - This is a macro analysis of a company within the same industry primarily used for strategic planning

• Just Copying - Copying leads to being the same. Benchmarking is looking for breakthrough ideas which set the process ahead of others

• Metrics - Although metrics are a key aspect, benchmarking focuses on improving the process and uses metrics to determine how well it is succeeding

• Geared Only to Manufacturing - Although manufacturing processes are more clear cut, with visible inputs and outputs, many great successes are in the indirect expense areas

Benchmarking is Not ...

Laura M Birou and Barbara Taylor Cofield, NAPM 79th Annual International Purchasing Conference Proceedings May 1994

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Benchmarking vs. Performance Measures

• “Both achievement and accountability are only possible when performance is measured against specific, limited and clearly defined targets.” -- Peter Drucker

• What is important to you? How do you know if you’re doing it?

• What is important to (and for) your staff? How do you (and they) know when goals are met?

• What is important to your contract users? How do you know if you’re meeting that need?

• What is important to business in your State? How do you know if you’re meeting that need?

• What is important to you and to your executive? How do you know if you’re meeting that need?

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Performance Measurement Steps

1. Identify key procurement activities

2. Define your expected or desired performance level (Here is where your benchmarking helps)

3. Measure the actual performance

4. Analyze the results (data)

5. Respond to the results

This information is proprietary and confidential to Accenture LLP. ©2002. All rights reserved.

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2. CREATE PLANS

3. EXECUTE PLANS

4. MEASURE RESULTS

1. STUDY CHANGING ENVIRONMENT • Confirm the mission

• Confirm the goals• Identify key activities• Determine major targets

and/or milestones • Select and plan

measures• Break down measures

into (annual) plans

• Carry out day-to-day work• Carry out performance

measurement work• Collect data• Make adjustments in plans

and measures as needed

• Look outside the agency• Look for opportunities and

threats• Look inside the agency • Look for strengths and

weaknesses • Find the key issues

• Decide how to evaluate• Analyze the data• Form conclusions• Identify improvements• Make change• Monitor results

PERFORMANCE MEASUREMENT CYCLE

OPTIMUM

PERFORMANCE

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Performance Benchmarking allows organizations to compare performance based upon Key Performance Indicators (KPI) or Critical Success Factors (CSF) metrics

Process Benchmarking allows organizations to compare process and procedures as well as performance

Types of Benchmarking

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• Answers the question: Where do you rank compared to others in your industry?

• Allows a wide range of performance indicators to be studied

• Allows comparisons to be easily made

• Assists in identifying priorities for improvement

• Allows performance shortfalls to be clearly seen

• Is a quick check

• An ideal pointer to processes you want to examine through process benchmarking

Performance Benchmarking

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• Answers the questions: What is the best practice of this process? Where are the best practitioners and what can we learn from them?

• Requires analysis of your own internal practices and performance

• Enables a detailed examination of the drivers for success and efficiency

• Helps develop an implementation process for closing the gaps between your process and that of the best performer

Process Benchmarking

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• Questions

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• Planning

• Collecting Data and Information

• Analyzing the Findings

• Recommendations – Making and Doing

• Monitoring and Reviewing

Benchmarking Process Steps

Public Sector Benchmarking Service - © Crown Copyright 2004

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• Don’t allow your focus to be so large that it can’t be adequately benchmarked

• Identify the critical processes/functions that impact the success of the strategic plan and organization

• Evaluate the critical processes/functions to:

• Map the current process

• Identify your customer’s expectations for that process

• Identify the current performance metrics of the critical processes/functions

• Identify potential partners

Planning Step


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Collecting Step

• Compile performance information on targeted processes/metrics

• Select and contact partners

• With partners, develop a benchmarking protocol

• Prepare questions and agree on terminology and performance measures to be used

• Distribute a schedule of questions to all partners

• Perform the data collection by method chosen (interviews, site visits, telephone, fax, email)

• Collate the findings to enable analysisPublic Sector Benchmarking Service - © Crown Copyright 2004

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Analyzing Step

• Review findings and produce tables, charts, and graphs to support the analysis

• Identify gaps in performance between your organization and the better performers

• Seek explanation for performance gaps

• Ensure that comparisons are meaningful and credible -- apply correction factors to account for differences in performance other than inefficiencies

• Identify realistic opportunities for improvements


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Recommendations Step

• Examine the feasibility of making the improvements in view of the conditions that apply within your organization

• Agree on the improvements that are likely to be feasible

• Develop action plan(s) for implementation

• Implement the action plans


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Monitoring Step

• Evaluate the benchmarking process used and the results of the improvements against objectives and success criteria plus overall efficiency and effectiveness

• Periodically re-consider and validate the benchmarks and consider trend benchmarking with your benchmarking partner(s) to track progress and improvements going forward.


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• Questions

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Purchasing Information Sources

• National Institute of Governmental Purchasing (NIGP)

• Institute for Supply Management (ISM)

• Center for Advanced Procurement Studies (CAPS)

• International City/County Management Association (ICMA)

• Procurement and Supply Chain Benchmarking Association (PASBA)

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ICMA Data Average (low/high)

% of $ awarded to WMBE 8 (0/20)

% of purchasing with p-card 5.5 (0/67)

# of new transactions per central purchasing FTE

1000 (<100/3500)

$mm of central purchasing per central FTE

11.2 (2/32)

# of protests filed and % sustained 2.9 and 8.5 (0&0/15&3.4)

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ICMA Data Average (low/high)

Calendar days from req to PO for informal bids

12 (2/45)

Calendar days from req to PO for existing contracts

11 (0/70)

Calendar days from req to PO for formal bids 44 (2/140)

Internal customer satisfaction - % excellent or good, quality of service

87 (38/97)

Internal customer satisfaction - % excellent or good, timeliness

85 (79/98)

Internal customer satisfaction - % excellent or good, overall

88 (85/100)

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Purchase spend as a percent of State budget dollars 26.91%

Purchasing operating expense as a percent of State budget dollars .21%

Purchasing operating expense as a percent of purchase spend 1.33%

Purchasing operating expense per purchasing employee $67,066

Purchasing employees as a percent of State employees .35%

Purchase spend per purchasing employee $9.97

Percent of purchase spend managed/controlled by purchasing 76.30%

Average annual spend on training per purchasing employee $675.00

Percent of active suppliers accounting for 80% of purchase spend 24.88%

Percent of active suppliers who are eProcurement enabled 2.53%

CAPS Government Metrics Example

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NIGP Benchmarks2000, updated bi-annually

• Annual procurement volume• Annual agency budget• Annual procurement operating budget• Training $ spend per purchasing FTE• Total population served• Total agency FTEs• Total centralized procurement FTEs• Total professional procurement staff• Number of PO’s issued• Number of informal and formal solicitations, and

average cycle times• Bid protests received and sustained

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Good Purchasing PerformanceWhat Measures Needed to Demonstrate?

• Well coordinated volume discounts

• Multiple vendors competing on major transactions

• Cost of administering centralized purchasing is low compared to transaction dollar volume

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Eight Key Performance Measures(NY OGS Example)

1. Customer Service

2. Value Added to Process or Service

3. Process Cycle Time

4. Financial Accountability

5. Quality

6. Employee Involvement

7. Agency/Organizational Capacity

8. Employee Productivity

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State Purchasing Customer Satisfaction Survey FY 03-04 Total Avg. 6.32 out of 10

• Responsiveness = 6.21 Is State Purchasing available and accessible? Do you know whom to contact with questions? Is it easy for you to contact the right person? If you leave a message, how long do you wait before a return phone call? If you request a personal meeting, do you get one?

• Timeliness = 6.22 Once a State Purchasing employee takes over an issue, how quickly do you receive an answer?

• Competence = 6.62 Do you receive accurate, error-free information from State Purchasing? Do you feel confident relying on information provided by State Purchasing? Do you view State Purchasing employees as purchasing professionals?

• Courtesy = 6.80 After interacting with State Purchasing, do you generally feel better or worse? Are State Purchasing employees polite and “customer-centric”? Do you experience State Purchasing as interested in understanding and resolving your needs?

• Value = 5.76 Is State Purchasing helping you reduce cost and/or improve service?

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State PurchasingFY 03-04 Financial Measures

• Savings on State Term Contracts

47% average savings YTD on contracts awarded FY 03-04 (low=2%, high=88%)

24% savings YTD on all contracts in effect month reported (low=8% high=70%)

• We missed our overall 28% goal, but the trend is strongly up

• Every agency dollar spent on STCs represents $.32 in savings, i.e., without the 24% discount, that dollar would have been $1.32

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State PurchasingFY 03-04 Financial Measures

• Spend on State Term Contract

STC spend comprised 33% of total purchase $ through SPURS/MFMP ($417mm out of $1,246mm)

• Cost of State Purchasing as a Percent of Spend

State Purchasing cost represents .97% of STC spend and .33% of total spend

• State Purchasing ROI is 1:56, i.e., for every dollar spent operating State Purchasing in FY 03-04 ($4mm), the State achieved $56 in savings ($227mm)

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• Questions

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QuestionsMore Information

Fred Springer

Director, State Purchasing

[email protected]

(850) 487-1898

http://dms.myflorida.com/purchasing

benchmarking performance of the purchasing function florida government conference september 22, 2004

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