Procurement Performance - How a Balanced Scorecard For Procurement Drives Improved Performance

The balanced scorecard is a performance measurement tool that uses both financial and non-financial measures to show how an organisation is achieving its objectives. It takes four perspectives (financial, customer, process and learning) which are the keys to excellence and creates performance measures that keep these perspectives in balance. Although first created to help organisations with their corporate strategy, the concept has since been extended to help individual departments and functions such as procurement.

What you need to do is to create strategies for each of these four perspectives that are linked to your procurement objectives and then design performance measures that show your progress towards achieving those objectives.

Here is an example of a procurement balanced scorecard in action.

Financial perspective: this shows how you need to appear to your organisation in achieving your financial objectives. For example, to realise significant cash benefits through improved sourcing practices. Your strategy might be to identify new savings opportunities through improved spend management and build a pipeline of future savings with supporting business cases. The performance measure for this would be the value of savings delivered as a percentage of the value of spend.

Customer perspective: this shows how you need to appear to your internal customers (for example budget holders for spend with third parties). Your objective might be to work with them to identify, quantify and plan mitigating actions to reduce the risk to their business from supplier failures. This is balanced with the financial perspective because it prevents you driving prices so hard that suppliers start to make a loss and withdraw from the market. Your strategy could be to develop a proactive approach to managing risk by creating a greater influence over supply chain partners and their acceptance of shared risk. Your performance measure could be to have zero risks that are rated severe or greater.

Process perspective: this shows progress in developing the processes that are needed for the management of the other perspectives. Your objective in this case might be to systematise processes that are currently carried out manually and your strategy is then to acquire and deploy enabling technology such as eProcurement or knowledge management. A performance measure for this is the percentage of spend that is managed by technology.

Learning perspective: this covers the skills and knowledge you need to acquire in order to meet the objectives of the other perspectives. Your objective could be to establish a reputation as the acknowledged experts in how to achieve more with financial budgets with your colleagues outside of procurement. Your strategy could be to install a competency map and use it to drive training and recruitment plans. Your performance measure would then be the percentage of the competencies identified in the map that have been acquired by your procurement team.

By designing strategies and performance measures that keep these four perspectives in balance, you stand a much greater chance of improving your procurement performance.