More on “Building a Bolder Legacy: The Procurement Mission is Under Way”
ROSMA management practices, done correctly, provide credible forecasts of the timing of benefits impact, which CFO’s appreciate even more.
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In a recent interview, SCMR dug a bit deeper into the recently released 2015 Return on Supply Management Assets (ROSMA) Performance Check Study, “Building a Bolder Legacy: The Procurement Mission is Under Way.”
Here are insights shared by Joe Raudabaugh, an A.T. Kearney partner.
“ROSMA is not really a new metric,” explained Raudabaugh. “ROSMA is a derivative of the age old DuPont return on net assets model developed in 1926 and embedded in virtually all finance textbooks. We just repurposed the logic and language to reflect the world of procurement. And, we did this in collaboration with scores of executives along the way. Early on we had a study group of F100 CPOs and CFOs that partnered to vet and shape the thinking and language. They also provided data to test the framework.”
So ROSMA is a proven metric, adds Raudabaugh.
He maintains that there are three imperatives:
(1) CFO’s “get it” as soon as they see the ROSMA framework; (2) they like it; and (3) ROSMA provides an integrated framework of otherwise standalone KPIs that radically improves the CFO-CPO partnership.
Here are other remarks shared by Raudabaugh on procurement trends:
The two executives can now more clearly identify which value drivers need attention (for example coverage, velocity, yield, compliance, etc.), how much financial value would result from improving metric-specific outcomes, and they are able to discuss the challenges affecting those drivers and/or align on support needs or programs to improve them.
Could CPOs have done this before? Some thankfully have had that level of discussion and insight in place for quite a while, but as we all know most don’t and the research from all sources, not just ours, validates that procurement is a function that has not yet been managed to the same demanding standards as other disciplines; thus the high variability in performance and the opportunity to strengthen the professions’ credibility and brand.
Finally, the numerator in the ROSMA calculation, if the underlying data and principles are applied correctly, maps directly to earnings impact, which is what CFO’s want clarified rather than obfuscated. ROSMA management practices, done correctly, provide credible forecasts of the timing of benefits impact, which CFO’s appreciate even more. We see many organizations adopting value management and they are delivering not only stronger results, but they are reporting much improved CFO relationships—enough said.
In the early days of sharing the ROSMA framework only the advanced CPOs with finance experience liked it; many CPOs were scared. CPOs are now more accepting of ROSMA. Value management in procurement has gained significant momentum over the past five years and will continue to do so. This is also evidenced by the growing frequency of the “value of procurement” topic on most meeting forum agenda’s (i.e. ISM, Procurement Leaders, procurement blogs, etc.).
We have been conducting ROSMA benchmarking since 2009 and as the data base grows we are seeing the top quartile players improving and the rest of the profiles or segments remaining stagnant. In our follow up with organizations that adopted value management, as noted above, we see improvements in procurement and financial performance.
As we reported, surprisingly a sizeable portion of the procurement profession doesn’t track the underlying data to report out on their performance drivers. Likewise the panel research we conducted with the CFO community shows the same story. What’s the surprise?
First, given that the private equity world is all over value management in procurement and with the growing adoption of Zero Based Budgeting (ZBB), why aren’t more procurement teams proactively accelerating the active management of their resources to drive more consistent performance? And second, if most CFOs recognize that procurement is under contributing to performance, why are not more of them pushing for improvement…. Or are we on the front end of a transformation? I believe the latter. With a few more C3 takeovers and proven value delivery from effective use of ZBB, and procurement will be pushed to a new level.
The ROSMA Performance Check benchmarking experience is improved annually as we find ways to improve the effectiveness of how the survey questions are communicated. We often receive suggestions from executives to augment the framework to include intangibles and other soft value contributions. As we have noted in previous publications, we are supportive of a holistic scorecard for procurement, including intangibles. The ROSMA framework is just one integrated set of metrics in a robust scorecard. But ROSMA is the hard financial performance set of metrics that tie results to financial performance and the mindset of the CFO - so we will not modify its calculus unless there are proven enhancements that align with the rules of finance.
We encourage the profession to build credibility using the language of finance. Lastly, ROSMA Performance Check has zero obligations. Participants receive a custom benchmark report and there is no cost.
A.T. Kearney is working together with CIPS and ISM to support the profession. We are also enrolling CPOs to the join forces to advance the profession by embracing the mission to build a bolder legacy for the next generation: positioning procurement as a critical source of strategic enterprise value; establishing the CPO as a core executive team member integral to the leadership narrative; and positioning procurement as a preferred career platform for tomorrow’s best talent.
Performance Check is an enabler and we hope that others will find additional ways to help advance this mission as well. I have been going to the leading campuses (Chicago Booth, Michigan, Carnegie Mellon, and others) with CPOs to tell the value management in procurement story. None of the top business schools have procurement in their curriculums. We are also meeting with Wall Street to improve analysts understanding. We all need to help to focus the lens on the profession.
We are proud to be supporting the profession along with CIPS and ISM on this platform for change. Improving the collaboration with finance can only help advance the credibility of the function, the CPO role and provide a chance for our high-performing procurement colleagues to be recognized and celebrated.
About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
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