We are always reminded that “What does not get measured, does not get managed”.
What we are rarely told is “Be careful what you measure, your outcomes might get worse!”
Why is that?
Consider a customer service representative measured on “number of calls per hour or day”. In the drive to meet performance expectations, a complex customer query that will take “too long” to solve often gets “pushed back” to the customer or deferred to another “ticket”. And this can, and does, happen every day in every business activity, resulting in poor service and satisfaction for the customer, supplier, colleague or stakeholder involved.
I read an intersting report this week from the Source to Pay technology provider, Coupa, this week where they share no less than 20 KEY metrics for the Source to Pay process, summarized below;
- Contract Management Cycle Time, Structured Spend, On-Contract Spend & Spend with Primary Suppliers
- Electronic PO Processing, Requisition-to-Order Cycle Time, Services Requisition-to-Order Cycle Time, Services Procurement Work Confirmation Cycle Time & Pre-Approved Spend
Supplier and Third-Party Risk Management
- Supplier Information Management Cycle Time, Risk Management Evaluation Completion Rate & Risk Management Evaluation Cycle Time
- Electronic Invoice Processing, Invoice Approval Cycle Time & First-Time Match Rate
- Expense Report Approval Cycle Time & Expense Report Lines Within Policy
- Invoices Paid Digitally, Suppliers Using Digital Payments & Payment Batch Approval Cycle Time
These are all generally “good” things, but they are also all LAGGING indicators, which make them interesting for comparison but NOT action oriented from a continuous improvement perspective.
Secondy, AVERAGES can disguise a multitude of process sins.
Thirdly, a myopic focus on these metrics can encourage “gaming the system” to exclude certain types of transactions that the measurer believes are not “in scope” and thus enhance the “achievement”.
We discussed this “KPI Paradox” in a recent webcast summarized here . .
If we want to IMPROVE process performance, we need leading indicators that expose process bottlenecks and defects, so that we can continuously diagnose root causes and enhance the process itself. The Lean principle of 𝗗𝗠𝗔𝗜𝗖 (𝗗𝗲𝗳𝗶𝗻𝗲 / 𝗠𝗲𝗮𝘀𝘂𝗿𝗲/ 𝗔𝗻𝗮𝗹𝘆𝘇𝗲 / 𝗜𝗺𝗽𝗿𝗼𝘃𝗲 / 𝗖𝗼𝗻𝘁𝗿𝗼𝗹) is key here, but the “measure” piece is often misdirected.
For any end-to-end process, Source to Pay in this case, we need to ask “What Does Good Look Like?”, maybe a balance of;
- Eliminate ”maverick” spend
- Optimise cost and value of goods and services
- Ensure healthy supply relationships
- Reduce cycle time of process
- Reduce effort and cost of process operation
- Optimize working capital
- Manage risk
Then the key is to identify what are the barriers to achieving this balanced set of objectives. The answer is in data, but even that is not as simple as it sounds. That’s another story for later.
You can read the “2022 Business Spend Management (BSM) Benchmark Report” from Coupa here . . .
Thanks for reading.