Reward Buyers for performance!

June 11th, 2007 at 02:46am Sean Delaney - Iasta UK

62% of respondents to the recent annual ISM survey said they received bonuses on top of their regular salaries. On average the bonuses received were around 16%.

Personally I like the idea of rewarding individuals based on their performance. However, the largest element of the bonus measure is often based on the organisations performance. The downside to this is that it does not reflect the individuals’ performance and is therefore less motivational.

When attempting to measure the performance of procurement, organisations will resort to such tactics as rebates, which frankly, is a very blunt stick. It does not take into account supplier performance and non price improvements like client web portals etc.

So what is the solution?

I do believe that the time is now right to start to look at rewarding procurement differently. The benefits of eSourcing are easy to measure. Whether you conduct a live event or closed bid the resulting commercial benefits are transparent and auditable.

But what about the implemented savings achieved I hear you say? So often when it comes to implementing the most commercial sourcing strategy the stakeholder will allow some leakage in the award. As we know from a recent Aberdeen survey this leakage is typically around 2%.

As procurement professionals whilst eSourcing takes us part of the way towards accountability, I think new developments in SRM and Spend Analysis software complete the accountability circle. The automation of the complete sourcing process makes it more economical to quickly measure performance post contract award.

The ability not only to measure the negotiated benefit but to also monitor ongoing performance of suppliers now make it possible to reward procurement in a much more motivating fashion.

However, with any measure, it must not be too cumbersome to collate, it must align the individuals’ goals with the goals of the organisation, it must be transparent, and finally individuals must be able to track performance regularly. Here are some ideas for measuring performance (please feel free to suggest some more):

• Implemented savings – this is to ensure stakeholders have buy in.
• OTIF reports
• Customer satisfaction - use online surveys to measure.
• Customer satisfaction – measure complaints.
• Design – e.g. in retail, measure number of top selling designs.
• Quality – number of returns.
• Contract compliance – measure % of spend through the contract.

Through Spend Analysis, and ultimately SRM tools, these measures can be automated and weighted. So, in your next performance review with your boss save everyone’s time and make the following proposal:

1. 50% salary standard and guaranteed.
2. 15% based on organisational performance.
3. 35% based on the implemented deal benefits (based on the criteria listed above).

I would be interested in your feedback on their responses, however, I suspect they may not be ready for such a radical change.

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Entry Filed under: Analysts/Research, General, Spend Analysis, Supplier Performance, Supply Management Best Practices