I had the opportunity to ask a few questions to Alexandre Godvin, who has a particular perspective on the KPIs and IT tools of purchasing departments.
Alexandre is the founder and CEO of Winddle, a turnkey, modern, and collaborative solution to manage product development and sourcing operations for the retail and consumer goods industries.
Q: What are the main objectives and KPIs of well-managed purchasing departments?
In 2016, it still holds true that the margin rate is the main performance indicated used in purchasing departments for day-to-day operations and strategic decisions.
Other indicators, despite being clearly superior, are more complicated to calculate, and it means they are underused by managers.
As a typical example, the improvement of time-to-market (TTM) is a key challenge for a purchasing department, however having a complete breakdown of the whole process is difficult without reliable and structured data.
Instead, managers end up using the average delay on an order, since these data are easier to get. But this average delay compounds too many factors and doesn’t allow buyers to focus on the sole contribution of the supplier to the TTM. How, then, to evaluate the supplier’s real performance?
Another issue that symptomatic of a lack of cross-department collaboration lies with the KPIs related to quality. They are obviously at the core of any analysis of the supplier’s performance–on par with timing and pricing–but quality assurance is usually handled by a separate entity (i.e. an internal department, or outsourced to a third party).
This separate entity is often rather opaque and/or on a timetable that is different from that of the purchasing department. As a result, KPIs related to quality end up not being used to their full potential by buyers. Bridging that chasm between Quality and Purchase is a requirement for the successful handling of suppliers.
Finally, new indicators like social compliance or environmental impact are currently too open to interpretation or just too difficult to gather from currently available data. Even in the rare case where they are available, setting up meaningful targets for the teams is a challenge in and of itself.
Having said that, the situation has evolved. There are positive trends. Thanks to new IT tools, data is more readily available, and the margin rate has a less predominant role. KPIs are more balanced, and in short, more aligned with the strategic needs of purchasing departments.
Q: How can purchasers request quotations from several suppliers and get a high response rate?
The answer is very different depending on the size of the orders.
For central purchasing agencies offering large orders, many suppliers are willing to participate in an RFQ (Request For Quotation). The challenge then is more to use tools for sharing quotation requests easily, and for analyzing responses quickly, while retaining historical data to optimize future negotiations.
There are many IT solutions on the market addressing this need, for instance with Winddle on one end of the spectrum, focusing on direct procurement, structuring the RFQ while offering a very simple interface for the suppliers to provide their quotes. On the other end, solutions like Ariba, are more designed for indirect procurement and offer a larger range of financial information.
However, for a small company, the main challenge is to find a reliable supplier. Marketplaces like Alibaba then become the entry point to find new suppliers, which can then be invited on a collaborative platform, to start keeping track of the history of the relationship, building up the database as the company grows–it is a valuable asset and it needs to be a key concern, even in the early stages of the company.
Q: What IT tools (besides Outlook and Excel) do purchasing departments use the most? What other types of IT tools would most purchasing departments benefit from? How would they benefit?
First, the most widely used software is an ERP. Purchasing departments generally use it to keep their catalogues and inventories up to date.
In larger and more mature companies, the purchasing department relies on dedicated RFQ solutions, such as Ariba. These solutions have been a great improvement, they provide structured data and a history of collaborations, but their main focus is financial information.
With the rise of the new challenges mentioned previously, purchasing departments start to use more collaborative tools. These solutions can be used to frame the communication with vendors (Supplier Relationship Managements tools) or to work on the follow-up of orders with the suppliers (Project Management solutions).
These solutions are mainly cross-functional and can provide real-time information, aggregating updates from every stakeholder. This is key to a better understanding of potential difficulties, to reach the due date, and to allow for quick corrective actions.
Q: What are the common obstacles to implementing a new IT tool? Any tips for successful implementation?
User adoption is definitely the most common obstacle. Here are a few tips to overcome it:
- Communication is critical. You need to define precisely why the project is happening, who will be involved, and what the main goals this new IT tool aims to accomplish.
- Don’t rush it. Define intermediate milestone to show the progress. A step-by-step implementation will help alleviate information overload and give more time to users to feel confident with the software. More importantly, make sure each of those steps gets the same amount of attention when it comes to training: do not let your users skip a beat and make sure no one gets left behind.
- When you select your solution, don’t forget that design and user experience are also a feature. A user-friendly interface will facilitate user adoption. Similarly, make use of the customization features to create an environment that looks and feels familiar – small touches, such as using the same names as the ones they are used to can go a long way to improving users’ onboarding. To that end, involve your team during the configuration of the new tool and do not hesitate to go back to the drawing board a few times once you get your first feedback.
Alexandre can be reached at alexandre.godvin [at]winddle.com.
Does your company employ inspectors/auditors? Read how software for quality inspections can help!