Buying market share

There are a few topics that routinely get discussed in the procurement world. Later today I'll be talking with some ex-colleagues about a situation where their client wants a deeper understanding of how success will be measured in an outsourced procurement environment. Tim Minahan, at The Aberdeen Group, was thinking about this topic recently as well. Tim is an old hand at procurement services, and is one of the more reliable commentators for this sector. Here's a comment I left in response to his KPI post.

Hi Tim,

I agree with your comment:

“No single metric defines supply management success. (Although, I personally believe that spend under management, as defined above, comes pretty darn close.)”

I’ve been using “spend under management” as the leading indicator (metric) for indirect procurement department effectiveness for several years now. I’ve found it effective across several industries, and even in the public sector. I also often refer to it as our department’s “market share” as executives in other business units understand the language, and often intuitively accept that market share growth is “good”.

I measure procurement market share against two axis. First, from a category manager’s perspective, what’s the corporate-wide compliance with each of our category offerings. For example, “the compliance rate for our preferred cell phone carrier was 89% last quarter”. The second axis is from a customer perspective; what’s our market share for a given client department. For example, “our market share of the COO’s spend is 92%”.

The value of this approach is it provides feedback to allow the procurement department to understand what the rest of the organization values, and what it does not. It also enables discussions around client requirements “why is our market share so low on the east coast?”

Cheers,

David Rotor