procurement kpi’s for maximum cost savings - nlpa · procurement kpi’s for maximum cost savings...
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Procurement KPI’s For Maximum Cost Savings
NOTE: If the audio quality from your computer is poor, you can dial in to 1-513-241-0892 & use conference code 951074#. Write these #’s down in case you
need them later!
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Procurement KPI’s For Maximum Cost Savings
Charles Dominick, SPSM, SPSM2President & Founder, Next Level Purchasing Association
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Think Outside The Box
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Think Outside The Box
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KPI’s Defined
Key Performance Indicators (KPI’s): Statistics that measure how well a business is performing in the areas that are the most critical to its overall success
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How do you react to the “more cost savings” edict?
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“The Sales Funnel”
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Sales KPI’s
• # of Leads• Conversion Rate
• Average # Transactions/Customer
• Average Transaction Value
• Pre-tax Profit Margin
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Sales KPI’s
• # of Leads: 2,000,000• Conversion Rate: 20%
• Average # Transactions/Customer: 2.5
• Average Transaction Value: $1,000
• Pre-tax Profit Margin: 15%
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Sales KPI’s
• # of Leads: 2,000,000• Conversion Rate: 20%# Customers: 400,000• Average # Transactions/Customer: 2.5# Transactions: 1,000,000• Average Transaction Value: $1,000Sales: $1,000,000,000• Pre-tax Profit Margin: 15%Pre-tax Profit: $150,000,000
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Procurement KPI’s• Total Spend• % Spend Under Management
• % of Spend Under Management Addressed
• % Savings For Addressed Spend
• % Compliance
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Procurement KPI’s• Total Spend: $1,000,000,000• % Spend Under Management: 60%
• % of Spend Under Management Addressed: 50%
• % Savings For Addressed Spend: 2%
• % Compliance: 75%
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Procurement KPI’s• Total Spend: $1,000,000,000• % Spend Under Management: 60%Spend Under Management: $600,000,000• % of Spend Under Management
Addressed: 50%Addressed Spend: $300,000,000• % Savings For Addressed Spend: 2%Negotiated Savings: $6,000,000• % Compliance: 75%Realized Savings: $4,500,000
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How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000Conversion Rate 20%# Customers 400,000Average # Transactions/Customer
2.5
# Transactions 1,000,000Average Transaction Value $1,000Sales $1,000,000,000Pre-tax Profit Margin 15%Pre-tax Profit $150,000,000
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How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000
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How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000 484,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000 1,331,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000 $1,464,100,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000 $241,576,500
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How Sales KPI’s Are UsedKPI Last Year Improved By 10%# Leads 2,000,000 2,200,000Conversion Rate 20% 22%# Customers 400,000 484,000Average # Transactions/Customer
2.5 2.75
# Transactions 1,000,000 1,331,000Average Transaction Value $1,000 $1,100Sales $1,000,000,000 $1,464,100,000Pre-tax Profit Margin 15% 16.5%Pre-tax Profit $150,000,000 $241,576,500
That’s a 61% increase in Pre-tax Profit!
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How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000% Spend Under Management 60%Spend Under Management $600,000,000% Spend Under Management Addressed
50%
Addressed Spend $300,000,000% Savings For AddressedSpend
2%
Negotiated Savings $6,000,000% Compliance 75%Realized Savings $4,500,000
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How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000% Compliance 75% 82.5%Realized Savings $4,500,000
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How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000 $660,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000 $363,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000 $7,986,000% Compliance 75% 82.5%Realized Savings $4,500,000 $6,588,450
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How Procurement KPI’s Can Be UsedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 66%Spend Under Management $600,000,000 $660,000,000% Spend Under Management Addressed
50% 55%
Addressed Spend $300,000,000 $363,000,000% Savings For AddressedSpend
2% 2.2%
Negotiated Savings $6,000,000 $7,986,000% Compliance 75% 82.5%Realized Savings $4,500,000 $6,588,450
That’s a 46% increase in Realized Savings!
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If Just “Compliance” Was ImprovedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 60%Spend Under Management $600,000,000 $600,000,000% Spend Under Management Addressed
50% 50%
Addressed Spend $300,000,000 $300,000,000% Savings For AddressedSpend
2% 2%
Negotiated Savings $6,000,000 $6,000,000% Compliance 75% 100%Realized Savings $4,500,000 $6,000,000
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If Just “% Spend Under Management” Was ImprovedKPI Last Year Improved By 10%Total Spend $1,000,000,000 $1,000,000,000% Spend Under Management 60% 87.846%Spend Under Management $600,000,000 $878,460,000% Spend Under Management Addressed
50% 50%
Addressed Spend $300,000,000 $439,230,000% Savings For AddressedSpend
2% 2%
Negotiated Savings $6,000,000 $8,784,600% Compliance 75% 75%Realized Savings $4,500,000 $6,588,450
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How To Improve % Spend Under Management• Requires “vertical” influence• Demonstrate results to earn
management’s confidence• Show how other companies address non-
traditional spend via procurement
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How To Improve % Spend Under Management Addressed• Requires increased productivity• Process improvement• Better-trained staff• Productivity improvement tools• More people• Utilize external resources (GPO’s,
consultants, etc.)
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How To Improve % Savings For Addressed Spend• Better-trained staff (especially for
negotiation)• Cost savings tools (eSourcing)• More advanced practices (value analysis,
supplier collaboration for cost take-out, etc.)
• Cooperative buying
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How To Improve % Compliance• Requires “horizontal” influence• Appeal to budget holders:
– Get more out of their budget– Have their people focus on core competencies– Compare compliance between departments
• Bottom line: procurement department has to be the best department at procurement!
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Summary• Maximizing cost savings isn’t the result of
one thing, it’s the result of many things• Measure those key performance
indicators:– % Spend Under Management– % Spend Under Management Addressed– % Savings For Addressed Spend– % Compliance
• Focus on improving KPI’s and you will improve your bottom line results!
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Bring this presentation on-site to your organization!• “Procurement KPI’s For Maximum Cost
Savings” and other on-site seminars are available from Next Level Purchasing!
• Call +1-412-294-1991 for a quote!
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“How can I get the slides from today’s webinar?”Type of account: Premium
MembershipAll-Access Corporate Subscription
NLPA webinar slides and on-demand replaysTemplates (e.g., RFP, cost savings, etc.)
Transcriptions from interviews with procurement expertsAll online Express CoursesAll full-length online courses, including certificationAccess for entire departmentCost Starting at $15.99/mo. Call for quote
+1-412-294-1990
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Procurement KPI’s For Maximum Cost Savings
Charles Dominick, SPSM, SPSM2President & Founder, Next Level Purchasing Association