When Tim Minahan left Aberdeen to head to Procuri five years ago, the average tenure of procurement analysts at the firm dropped from years to quarters -- and in some cases, mere months. As some predicted at the time, Aberdeen would never be able to regain the research bench strength that Tim and his team once had. But Andrew Bartolini, who came in a couple of years ago, finally created some stability in the ranks. Earlier this week, however, Andrew quietly left the firm for a new venture that he is in the process of launching. Even though I don't know the details yet -- I am hoping to catch up next week at the Procurement Leaders event in Chicago -- I am sure he'll continue to build on his relationships and work in his previous endeavor. But where does this leave Aberdeen?

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Without question the procurement BPO space is heating up--at least as you listen to providers talking about it and going after it. I've personally not seen an uptick in the percentage of deals resulting in signed agreements, but it does feel like the market may be turning from one of window shoppers to those who are serious about pulling the trigger. Earlier this week, I came across this announcement that EGS, a London-based Spend Management solutions provider, had also launched into this market by signing its first deal with NHS Brent, a UK public sector client. EGS marks yet another entrant into the Procurement BPO market that also delivers other types of procurement solutions and services (many BPO providers like IBM and Accenture have different consulting, services, and even software arms, in the case of IBM).

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The more I have the opportunity to see how companies are (or aren't) strategically sourcing indirect goods and services, the more I recognize that there are still huge benefits to be captured even in those categories of spend where companies have traditionally developed expert capabilities, whether they be internal or external.

Take energy, for example. Most companies have a dedicated expert who works to ensure that the appropriate hedging strategy is in place. Most of those folks were in for a rough ride the past few years and I know of a few casualties and early retirements that resulted.

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Spend Matters would like to welcome back Pierre Mitchell, in his second post in this series..

In Part 1 of this two-part post, I talked about the importance of separating the notion of procurement VALUE (how strategic is the value delivered to the enterprise by Procurement's services?) from procurement PERFORMANCE (how effective and efficient is the performance for each service?). In this part, I'll talk about how to better measure that performance … and I’ll also ask for your help.

Measuring procurement EFFICIENCY is relatively straightforward in terms of looking at procurement FTEs, process costs, cycle times, etc. (I humbly submit that nobody measures this as well as my firm.) That said, it can be more complex than many think. For example, dividing your procurement budget by your total number of POs is a REALLY stupid way to measure a "Cost per PO" metric! I won't tell you why (hint: think activity-based costing).

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Today I'd like to welcome my old friend and colleague, Pierre Mitchell, to Spend Matters. In a series of posts, Pierre will be sharing his thoughts and soliciting input on key issues pertaining to procurement value and procurement performance. - Jason

I'd like to thank Jason for letting me guest post. I remember about a year before Jason started Spend Matters, we were enjoying a drink at WorldSource, the old FreeMarkets conference, and talking about how we should set up a blog in the procurement area. Flash forward to today, and Jason has the most successful blog in the space. Well done! Jason has been gently prodding me to do the same, but I've been foolishly absent aside from the occasional conference presentation, article, webcast, etc. This will change soon, but until then …

The answer to the title of this blog post is: A LOT! Let me rephrase: How well does your Procurement scorecard REALLY reflect the Procurement value that you deliver? Obviously, purchase-price reduction is a narrow metric for value creation. Procurement value in pure economic terms is about more bang for the buck where “bang” is the utility the business gets from supplier products/services, divided by the bucks (i.e., spend), which then decomposes to activity vs. cost and then cost decomposes again down to price and non-price costs. So there's potentially a lot of value not being measured. For example: who usually gets blamed for the failure of supply assurance? Procurement. So, Procurement should be measured explicitly on supply risk on a top-level scorecard, and have associated resources for that. Less than 10% do, and that is obviously a problem.

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In my first job out of graduate school, I had perhaps the coolest job description any management consultant could wish for: to imagine and define potential futures for companies and industries. Obviously, there was a process behind this, but even with the constraints of working inside a defined rules set, I had an exceptionally neat job as a scenario planner. At the time, much of my work was focused on corporate strategy and planning, but I was sufficiently inspired by a number of customer situations to dig deeper on procurement and supply chain, an interest which ultimately led to a career in the market when I left the firm to join FreeMarkets. Still, scenario planning -- and scenario thinking -- has stayed with me to this day, and I remain convinced that scenarios not only have a place in the boardroom but also at the more tactical procurement and supply chain levels (even when it comes down to commodity strategy). A recent article in Procurement Leaders does a good job of explaining some of the basics of how companies can apply scenario approaches to their buy-side planning efforts.

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What will a thriving procurement function look like over the next five years or so? In this installment of the series, I join with Gregg Brandyberry, my partner at Wildfire Commerce, to explore a critical skill we believe is necessary to procurement professionals: the ability to get your business partners on your side.

Our original goal was to determine what procurement professionals should do in order to persuade decision makers to approve and fund their initiatives. However, when we engaged 15 procurement professionals and a CFO in a dialogue on this topic, we were intrigued by a broader theme that emerged: the importance of getting the people you're trying to influence onto your side.

It may seem obvious that such influencing skills are important, but it's not obvious what one should do. Here are six of the key ideas that came out of the session:

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Spend Matters research suggests that organizations collectively spend over a trillion dollars per year on a range of services categories. From legal to marketing to print to outsourcing, organizational spending across a breadth of often complicated and hard-to-manage services categories typically is large -- significantly larger than most companies realize before analyzing it -- and decentralized. When companies first start to tackle complicated services categories, one of the major challenges they discover is that price is often just one component of many that factor into services spending decisions. In addition, few organizations have any visibility into actual or total cost (rather than cost based on a unit of measure) for services categories until they receive an invoice from a contracted supplier.

Indeed, no one said that managing complex -- and in some cases, not-so-complex -- services categories was easy. After all, this is one of the reasons why procurement organizations often are involved in managing the sourcing and supplier relationship lifecycle for such categories as marketing, legal, and print only after they've tackled numerous other categories first. But the cost and non-cost rewards for tackling non-contingent services categories are often significant. The latest Spend Matters Compass series research brief (the second in our initial four-part series examining services procurement), examines the costs and opportunity of pursuing service. It's titled Services Spend: Beyond Contingent Labor -- Achieving and Implementing Savings Across Previously Unmanaged Categories.

This Compass Series paper provides strategies and approaches for pursuing non-contingent services categories, including recommendations for what to look for in technology and services partners. It also provides nine recommendations to procurement and finance organizations interested in getting a better cost and value handle on services spending. These include the importance of:

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We are now no more than 4 months away from a general election in the UK; it must be held by June 3rd, although under our system the government can choose the specific date within this timeframe. The strong favorite is May 6th, which would mean combining the national elections with the already scheduled local elections, saving the political parties money, which for Labour is a major issue as its finances are shaky.

Given the state of the economy, reducing public expenditure will be a major issue in the campaign, so public-sector (government) procurement is likely to be a stronger theme than usual. This can be seen in the campaign of David Cameron, leader of the opposition Conservatives, who appears to be making “openness” a major element of his proposition. In a speech this week, he said:

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My first two predictions in the Spend Matters 2010 forecasting series were certainly more controversial than this one. Still, one could argue that my third prediction, that an increasing number of procurement organizations will budget for supply, commodity, and supplier risk content in 2010, is the most important of the three so far. That's because, with increasing frequency, company procurement organizations -- not to mention finance and operations -- are becoming aware of the degree to which they've been flying VFR while up in the clouds in recent years (despite an initial perception that they were piloting their way through a perfectly clear environment). Increasingly, even average-performing procurement organizations are sensing the need to go up and down the ranks -- from the CPO to the category manager -- to invest more in the type of data and insights that can help them make better total-cost decisions and reduce or eliminate business risk.

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