|
Sourcing Metrics – Price Reduction Is Only One Measure of Success |
| Print |
|
E-mail
|
The story goes, “Hey Charlie, are you still the CPO at ACME Skate company?” “No Bob, I’m looking for work, do you have any leads?” “What happened? I thought you were going gang busters at ACME Skate - President’s Medal and Bonuses.” “Well Bob, I was the top dog for two years as I kept beating my savings goal, until last year when I missed my savings metric and they fired me.”
“Charlie, why did you miss your savings goal?” “Bob, every year my savings target grew and every year the President upped my savings goal. I tried to explain that at some point if I did my job right, savings should go to zero, but he didn’t understand. I was fired because I did my job.” “What kind of job are you looking for now.” “Bob, I want to be a consultant, they can always invent some new metric that justifies their continued employment”.
As this story points out, betting your career on making savings targets year after year is risky. You must develop other metrics that show the value you provide and the value of sourcing overall.
As a consultant almost every sourcing opportunity starts with – “How much money can we save” and our response is always, “Lets discuss savings as well as value”. Our free sourcing_value_estimator.xls quantifies the value in addition to savings. For example, one client selling machine parts sold to customers based on price and quality. Delivery was difficult for our client since they did not manufacture the parts and therefore couldn’t guarantee delivery. This made customers unhappy. We suggested to the CPO that in addition to including savings, he also set measurements for customer satisfaction, order volume and margin. We recommended that the company create another service level and higher price for “guaranteed delivery”. The CPO then sourced suppliers that, for a price, would reserve production capacity. Although savings went flat year after year and he missed his aggressive savings targets, the customer satisfaction level soared and revenue and profits increased over target. He received a nice bonus and, unlike our poor friend Charlie, he kept his job.
Good Sourcing!
|
