How are CPOs measured?

29 June 2012

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29 June 2012 | Nick Martindale

Cost savings are not the only metric used to evaluate the performance of chief procurement officers as companies increasingly focus on non-tangible measures.

In an interview with CPO Agenda Dr Carlos Mena, director of the executive procurement network at Cranfield School of Management, says: “The trend is moving towards a portfolio approach, which includes financials. There are a number of additional measures, which might include the growth of the organisation, training and development for the employees or even internal customer measures – so how the procurement function is perceived by the different functions it serves.”

In the article, senior CPOs disclosed the metrics used to judge their performance and their opinions on the matter. Here’s a brief overview of what they said:

Ralf Garczorz, vice president of global supply chain and procurement at Johnson & Johnson 

Quality and reliability on the supply assurance side, followed by cost. And metrics are used to assess commodity price forecast accuracy to help look at net cost improvements. The cash impact of supply chain risk can also be used but it is an area where progress is needed.

Bo Andersson, CEO of the Russian GAZ Group and former president of global purchasing and supply chain at General Motors (GM)

Delivery, quality and cost, along with working capital and its potential to generate cash flow.

Shelley Stewart, CPO of US-based manufacturer Tyco

Supplier diversity is an additional measure used along with the conventional cost savings.  Stewart said a CPO’s ability to build a successful team needs recognition.

Richard Nixon, corporate advisory partner at KPMG

Spend under management should be considered with greater clarity around which supplier relationships belong to procurement, and defining the area where procurement provides a supporting role.

Malcolm Harrison, group director of plastic packaging at Rexam, and former CPO at Nestlé 

Uses risk mitigation practices in his metrics but does not reward his procurement team for avoiding risk.

Gary Caswell, managing director of Bretton Consulting. Formerly CPO at the Stationery Office and director of procurement at News Corporation

Supplier relationship management will increasingly be used to measure CPOs in the future.

Andrew Bartolini, chief research officer at Ardent Partners

Shareholder value is an effective measurement where there is a heavy element of direct procurement.

Phillip Duncan, chief procurement officer at Novartis

Assessed against a wide range of criteria, including savings, cash flow, payment, quality and service targets. He is currently looking at developing measures around innovation and supplier insight.

Click here to read the full article in CPO Agenda

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