Procurement performance measurement is critical for companies looking to achieve efficient operations. However, measuring procurement success is a complex issue, as bottom-up reported savings can significantly deviate from the key financial figures that CFOs look at. Arthur D. Little's latest study identifies the key challenges that companies currently face in developing a CFO-friendly procurement performance measurement. This report suggests a best practice approach to overcoming these challenges and consistently measuring purchasing success in the future. The views of CFOs and procurement officers often differ, as procurement plays an increasingly important role in achieving cost-cutting goals during a downturn. However, even if the purpose of a dedicated procurement performance is not up for discussion, its quantitative measurement remains a big issue. Practical experience shows significant divergences between performance figures reported by procurement departments and those in the CFOs' books. On average, management executives are able to analyze less than 50% of bottom-up reported savings. There are a variety of reasons for this, including different working definitions of terms, lack of data quality, and different reporting methods. To overcome these challenges, companies should establish clear and consistent definitions of procurement performance, invest in data quality and reporting systems, and regularly review and evaluate their procurement performance measurement processes.
