Buyer Performance Measurement Mistakes
PurchTips - Edition # 153
By Charles Dominick, SPSM
Are All Buyer Performance Measurements Good?
Measuring buyer performance can be tricky. Here are three mistakes commonly made when setting goals against which buyer performance is measured.
Mistake #1 - Having Cost Savings Be The Lone Metric. One of the most important metrics a purchasing department can share with top management is cost savings. But just because it is one of the most important metrics doesn't mean it should be the only metric.
If you only measure buyer performance on cost savings it could incent buyers to sacrifice quality, on-time delivery, and/or supplier service for lower prices. So a cost savings metric should be balanced by measuring these other aspects of purchasing performance to produce a clear assessment of the buyer's impact on total cost and overall company performance.
Mistake #2 - Not Using Net Cost Savings As A Metric. When calculating cost savings, price increases should be deducted from price reductions to produce a "net" cost savings number. One reason for doing this is that top management expects reported cost savings to equal actual profit improvement.
But also consider buyer motivations. By counting only gross cost savings, buyers may be inclined to ignore opportunities to minimize price increases on large spend categories while focusing their time on less critical categories where price reductions are possible, resulting in an overall lower positive impact on profit.
Mistake #3 - Not Taking Markets Into Account When Setting Goals. When some purchasing managers set cost savings goals, they look to "last year's numbers" or some other arbitrary figure to determine the targets for the next year. This can set buyers up for failure.
In the last few years, there has been cost volatility in many markets. If the purchasing department promises year-over-year price reductions in markets where prices are rapidly rising industry-wide, top management will likely be disappointed when actual performance is compared with those goals. So give consideration to market conditions when setting buyer goals. That isn't to say that price increases should be readily accepted just because that's the direction of the market, but rather that goals should estimate how much an aggressive effort can offset market price increases.
(keep reading for a FREE Offer)
Spotlight On Professional Development Opportunities
Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.
You see, today's employers refuse to reward employees for yesterday's skills. They demand that purchasing professionals like you use the most modern skills and achieve unprecedented results. They want you to save more money, achieve better operational performance, and reduce risk.
Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPod) at:
The Latest Purchasing News
- Purchasing Managers/Directors: Are you struggling to develop a plan for improving your team's performance? If so, visit: www.NextLevelPurchasing.com/benchmark
- Considering a career move? There are approximately 100 jobs preferring candidates with the SPSM® Certification posted at:
Worried about purchasing job security? The report "Career Survival in Supply Management" can help you.
"Career Survival In Supply Management,"follow the instructions at