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The PuMP® Performance Measure BlueprintWorkshop

CASE STUDY

GREENSPARK ENERGY CASE STUDY

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No part of this Case Study may be reproduced, transmitted, re-posted or duplicated in any form or by any means without permission of the author and publisher, Stacey Barr.

Version 5.0

© Stacey Barr, 1999-2016

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THE PuMP® PERFORMANCE MEASURE BLUEPRINT WORKSHOP


Table of Contents

About Greenspark Energy 4Greenspark Strategic Direction 5

About Greenspark’s Procurement Department 6

Step 1: Understanding Measurement's Purpose 7Procurement Department’s PuMP Diagnostic 8

Step 2: Mapping Measurable Results 9Measurability Tests for “generate a higher rate of return…” 10

Measurability Tests for “fit for purpose products and services” 11

Measurability Tests for “communicate with customers” 12

Mission, Vision and Strategic Goals, translated into Performance Results 14

Procurement Goals and Strategies, translated into Performance Results 15

Draft Results Map, featuring Procurement 16

Step 3: Designing Meaningful Measures 17Measure Design for “more energy is generated from fewer resource inputs” 18

Measure Design for “cost of the procurement process is minimsed” 19

Draft Results Map, with measures 20

Step 4: Building Buy-in to Measures 21Measure Gallery Feedback 22

Feedback survey of Measure Gallery Visitors 23

Step 5: Implementing Measures 24Measure Definition for Purchasing OpEx as % of Purchasing $ 25

Measure Definition for % Rejects 27

Step 6: Interpreting Signals from Measures 29Interpreting Purchasing OpEx as % of Purchasing $ 30

A few more of the Procurement Department’s XmR charts… 31

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Step 7: Reporting Performance Measures 32Step 8: Reaching Performance Targets 35Reaching the target for Cycle Time of Issues Resolution 36

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About

Greenspark Energy

Greenspark Energy is a publically traded community-owned utility that provides electricity from fossil fuels, wind and sunlight for a regional community made up of many small towns, farmland and wilderness.

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They are a vertically integrated utility, which means they manage the production, transmission, distribution and sale of electricity to their customers.

Greenspark operates in a regulated industry, which means they must serve all customers in their region at reasonable prices, despite the varying costs of providing energy to different parts of that region.

Greenspark has a strategic direction, as follows, that we will be working on as our case study for this workshop. The strategic direction here is somewhat fictitious, but very typical of the types of strategic goals a company like Greenspark Energy would have.

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Greenspark Strategic Direction

Mission To provide uninterrupted and affordable energy without causing harm to the community or its environment.

Vision To generate a surplus of renewable electricity that displaces enough fossil-based energy production to compensate for traffic and industrial emissions.

Strategic Goals1. Increase the efficiency of energy supply through delivery of the

works plan. We want to reduce our time and money and effort to generate energy, by making smarter choices in the products and services we buy, the way we use them, the infrastructure we build, the design of our business processes and the productivity of our workforce.

2. Generate a higher rate of return for shareholders from sustainable energy production. Our quest to build the infrastructure to capture non-fossil fuels (that is, wind, water and sunlight) depends on funding from ‘green investors’. We want to make sure we keep improving the profitability of providing green energy to improve the return our ‘green investors’ earn.

3. Enhance supply reliability and quality. Black-outs and brown-outs mean that our customers are inconvenienced if their equipment or appliances are damaged or their activities are negatively affected by surges in voltage or unexpected loss of power. We want to keep reducing interruptions to the supply of power.

4. Deliver community-based solutions for sustainable energy. Central to our vision and mission, we want to see our renewable energy products (solar systems, wind generation systems) growing in demand and use. More homes will have them, and more homes will be generating and supplying surplus energy back into the grid.

5. Create a ‘zero-harm culture’ to ensure a safe workplace for people. To protect our community and our staff from the danger of electricity, we want a workforce culture where everyone puts safety first, communicates safety risks in daily work tasks, and reports near-misses and their causes with zero blame.

6. Foster a resilient and adaptable workforce. With the challenge of our vision, our people need to work ON the business a lot more now, and not just IN the business. We want our people to willingly and proactively work on improving their processes and not just doing their processes, and without suffering chronic work stress.

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7. Lead the commitment to a more energy-efficient lifestyle in our community. We want to lead our community by example, to leave the world better than we found it, by being a role model of reducing the energy we use, reducing our waste to landfill, and reducing the “stuff” we buy and consume.

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About Greenspark’s Procurement Department

This part of the case study is based on, and in some places is an exact recount of, a Procurement Department’s measurement of a new strategy.

Peter, the Procurement Manager, is a very goal-oriented man, and he loves to learn and loves to get things done (the right things). His project officer, Adrian, plus a few others in the team, worked together with Peter to apply PuMP to develop meaningful performance measures for their new Goals and Strategies, which were aimed at Greenspark’s strategic goals of:

3. Increase the efficiency of energy supply through delivery of the works plan.

4. Generate a higher rate of return for shareholders from sustainable energy production.

The great thing was that Peter didn’t just want measures. He wanted results. And he and his team got results: through using the measures they created, they saved Greenspark about $20,000,000 in the first 12 months. In the first 2 years this saving totalled to $40,000,000. Peter has since been promoted to Senior Executive at this company.

Just like any implementation of PuMP (or any methodology for that matter), this case study does not represent perfection. But you will learn a great deal about the implementation and power of PuMP by studying it.

The Procurement Department created a set of goals and strategies and they wanted to measure all of them. These are a subset of those goals and strategies, which we will work on throughout this case study:

Procurement Department Goals1. Fit for purpose products & services.

2. Value for money procurement.

3. On time delivery of products & services.

Procurement Department Strategies1. Communicate to customers.

2. Train procurement staff in customer service and fact-based negotiation.

3. Implement supplier contract management process.

4. Improve inventory management process.

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Step 1:

Understanding Measurement’s

Purpose

Warming up the Procurement Measures Team started by carrying out a PuMP Diagnostic discussion to help everyone understand what good

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measurement was about, and to appreciate how good their measurement approach currently was.

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Procurement Department’s PuMP Diagnostic

The ratings for the first discussion about ‘Measurable Strategy’:Each member of the Procurement Measures Team provided their own rating, and they were tallied into the PuMP Diagnostic spread sheet, and averaged to get a score for each criterion and a score for each of the five sections:

Overall ratings for each of the 5 sections of the Diagnostic:

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Step 2:

Mapping Measurable Results

Following are a sample of Measurability Tests for Greenspark’s Strategic Goals, and for one of the Procurement Department’s Goals and one of their Strategies.

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You will see how goals don’t necessarily fail every one of the Measurability Tests. Sometimes you will have a goal that is already measurable, and it will pass all the Measurability Tests.

Following the Measurability Tests you will notice two tables that list all the performance results that were translated from the Strategic Goals, and the complete set of 3 Goals and 4 Strategies for the Procurement Department. You will be able to find all these on the Results Map.

All the ‘pink’ and ‘green’ results come from Greenspark’s mission, vision and Strategic Goals. All the ‘orange’ and ‘blue’ performance results come from the Procurement Department, and how they link to the Greenspark strategic performance results.

Notice in the Results Map how all their performance results form a cause-effect chain that ultimately is designed to focus on helping to achieve the Greenspark mission and vision.

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Measurability Tests for “generate a higher rate of return…”

Write your original goal here:

Generate a higher rate of return for shareholders from sustainable energy production.

TEST A: Is it a result?

YES. It's a result, but the wording could be more results-oriented: “shareholders earn a high rate of return from sustainable energy production”

TEST B: Are there any weasel words?

YES.

Weasel words Meaning

rate of return profit earned as a proportion of expenditure invested

sustainable energy production

gigawatt hours (GWh) produced from non-fossil fuels

New wording: “shareholders earn a high rate of return from energy produced from non-fossil fuels”

TEST C: Is the goal multi-focus?

NO.

TEST D: Should we improve it, can we improve it, and will we improve it?

Result Rationale

shareholders earn a high rate of return from energy produced from non-fossil fuels

Should? YES. It has a big impact on future investment in sustainable electricity – few will invest if there’s no profit there for them.

Can? YES. We know anecdotally there is a lot of waste in how we procure sustainable energy systems, which will reduce expenditure and improve profit as a

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consequence.

Will? YES. Via the Procurement Department’s priority and authority to streamline how we procure sustainable energy systems.

TEST E: Does the chosen result link to the strategy?

Chosen Result Links? If Yes, to which other result(s)?

shareholders earn a high rate of return from energy produced from non-fossil fuels

YES This result is one of our most important drivers of “surplus renewable energy offsets emissions”, a pink result on the Results Map.

Write your final performance result(s) here:

Shareholders earn a high rate of return from energy produced from non-fossil fuels.

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Measurability Tests for “fit for purpose products and services”


Fit for purpose products and services.


YES.


YES.

Weasel words Meaning

fit for purpose goods and services procured do not need rework or replacement

New goal wording: “goods and services procured do not need rework or replacement”


NO.

Replacement and rework could be treated separately but in this case they both are measured in dollars (time is converted to dollars) so they will stay in the one result statement. No apparent advantage of measuring them separately, as we want neither to be happening.


Result Rationale:

goods and services procured do not need rework or replacement

Should?

YES. It has a big impact on costs, the main theme of our strategy

Can? YES. We are actively involved in the relationship between suppliers and internal customers and can influence both parties.

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Will? YES. We allocated a team and budget to a) help suppliers to meet standards, b) reduce the number of suppliers, and c) help internal customers follow the purchasing policy.


Chosen Result Links?

If Yes, to which other result(s)?

goods and services procured do not need rework or replacement

YES This result is an important driver of “Expenditure Reduces”, a green result on the Results Map.


Goods and services procured do not need rework or replacement.

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Measurability Tests for “communicate with customers”


Communicate with customers.


NO.

Why do we want to do it? The result we want is "customers understand the purchasing policy and realise the benefits of utilising it"


Yes/No

If Yes, replace the weasel words with plain language and write the new result(s):

Weasel words: Meaning:

realise the benefits of utilising it

customers understand the purchasing policy and see that it is easy and fast to use and will follow it

New result: customers understand the purchasing policy and see that it is easy and fast to use and will follow it


YES.

There are really three components to this result:

1. "customers understand the purchasing policy"2. "the purchasing process is easy and fast" 3. "customers follow the purchasing policy"

Continued over…

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Result Rationale:

customers understand the purchasing policy

Should? NO. It is a consequence of the next result that follows...

Can?

Will?

the purchasing process is easy and fast

Should? YES. There are customers who are still finding it easier and faster to purchase from their own chosen suppliers.

Can? YES. We design the purchasing policy and process – it’s in our control.

Will? YES. It’s a normal part of the work we are here to do, and assigning a team to review the process is in the budget.

customers follow the purchasing policy

Should? YES. There is too much ‘maverick’ spending with suppliers we don't know about, and so goods are not "fit for purpose" or "value for money".

Can? YES. We can influence our internal customers by making the outcome better for them when they follow the purchasing policy.

Will? YES. We have set up a team and a budget to

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work with our customers individually and explore what will encourage them to use the purchasing policy.


Chosen Result Links? If Yes, to which other result(s)?

the purchasing process is easy and fast

YES Causal result for “the cost of the purchasing process is minimised”, a blue result on the Results Map

customers follow the purchasing policy

YES Causal result for “the cost of the purchasing process is minimised”, a blue result on the Results Map


The purchasing process is easy and fast.

Customers follow the purchasing policy.

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Mission, Vision and Strategic Goals, translated into Performance Results

What they started with: The translated Performance Results:

Mission:

To provide uninterrupted and affordable energy without causing harm to the community or its environment.

Everyone has the energy they need within their financial means.

We don’t pollute our environment. Our operations never hurt people.

Vision:

To generate a surplus of renewable electricity that displaces enough fossil-based energy production to compensate for traffic and industrial emissions.

Surplus renewable energy offsets emissions.

Strategic Goals:

1. Increase the efficiency of energy supply through delivery of the works plan.

More energy is generated from fewer resource inputs.

2. Generate a higher rate of return for shareholders from sustainable energy production.

Shareholders earn a high rate of return from energy produced from non-fossil fuels.

3. Enhance supply reliability and quality.

Customers experience uninterrupted supply.

Customers’ equipment is not damaged by voltage fluctuations.

4. Deliver community based solutions for sustainable energy.

Homes in our community generate more energy than they use.

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5. Create a ‘zero-harm culture’ to ensure a safe workplace for people.

6. Foster a resilient and adaptable workforce.

7. Lead the commitment to a more energy-efficient lifestyle in our community.

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Procurement Goals and Strategies, translated into Performance Results

What they started with: The translated Performance Results:

Goals:

1. Fit for purpose products & services.

Goods & services procured don’t need rework or replacement.

2. Value for money procurement. Goods & services are procured for lower prices.

Cost of procurement process is minimised.

3. On time delivery of products & services.

Business lines get their goods & services when they are needed.

Strategies:

1. Communicate to customers. Customers follow the purchasing policy.

The purchasing process is easy and fast.

2. Train procurement staff in customer service and fact-based negotiation.

Purchasing staff are strong negotiators.

3. Implement supplier performance management.

Suppliers meet the standards set in contracts.

4. Improve inventory management process.

Procurement staff respond fast and accurately to solve supply problems.

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Draft Results Map, featuring Procurement

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Step 3:

Designing Meaningful Measures

Following are two Measure Designs from Greenspark.

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One is for the Procurement Department’s ‘blue’ performance result of “cost of the procurement process is minimised”. Recall that this performance result was one of two results translated from their Goal of “Value for money procurement”.

The other is for Greenspark’s strategic performance result “more energy is generated from fewer resource inputs”.

Notice that their sensory specific statements aren’t necessarily sensory rich, but they are still very specific. It’s sometimes hard to be sensory specific when your result is something not immediately visible to the naked eye, like costs (when did you last see a supplier get paid in cold hard cash?) or electricity (other than lightening, but that doesn’t count). That’s no excuse not to try to make yours very sensory! I wanted to show you the real thing, because even if you don’t do the sensory step perfectly, good measures will still come out at the end.

Following the Measure Designs is another version of the Results Map, showing the measures chosen for each of the performance results.

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Measure Design for “more energy is generated from fewer resource inputs”

begin with the result in mind

more energy is generated from fewer resource inputs

list sensory evidence

we can generate the same total output of gigawatt hours with fewer operational staff

we can generate the same total output of gigawatt hours with a lower investment in capital

we can generate the same total output of gigawatt hours with a lower investment in maintenance

it takes less money to produce each gigawatt hour of energy that our community uses

create potential measures

potential measures strength

feasibility

1. Number of operational staff 3 7

2. Gigawatt hours consumed per operational staff

4 7

3. Gigawatt hours produced as a percentage of the theoretical production from 100% asset utilisation within safe operating limits

5 6

4. Maintenance expenditure per gigawatt hour consumed

3 7

5. Total operational expenditure per gigawatt hour produced, including generation, transmission, distribution and selling

6 7

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check the bigger picture

No single measure provides complete evidence, so a combination of operational resources and assets required to produce electricity is needed.

If too much focus is given to staff numbers, it will make it hard to build a strong culture of resilience and adaptability (Strategic Goal 6) and zero-harm (Strategic Goal 5).

name the measure(s)

Asset Capacity Utilisation = Gigawatt hours produced as a percentage of the theoretical production from 100% asset utilisation within safe operating limits.

Gigawatt Hour Cost = Total operational expenditure per gigawatt hour produced, including generation, transmission, distribution and selling.

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Measure Design for “cost of the procurement process is minimsed”

begin with the result in mind

cost of procurement process is minimised

list sensory evidence

we can purchase the same amount of goods and services with less people

we are increasing the dollar savings through automating steps in the procurement process

the procurement operating expenditure is getting smaller and smaller as a proportion of the amount of goods and services the organisation needs to procure

it costs us less to process each order for goods or services as time goes by

the total material and labour cost of procuring something for Greenspark Energy, from start to finish, is way less than the value of the thing being procured

staff are able to process more orders in the same amount of time

create potential measures

potential measures strength

feasibility

1. Purchase Employees as % Company Employees

2 7

2. % Total Purchase Transactions that are Totally Automated

2 5

3. % Cost Reduction Savings as % Purchasing $ Generated by Purchasing

4 7

4. Procurement Process Operating Expense as % of Purchasing $

6 7

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5. Order Fulfilment Costs (processing, allocating inventory, ordering, scheduling, reporting order status and initiating shipment)

4 5

6. Total Supply Chain Costs 7 1

7. Purchasing $ per Purchasing Employee 4 7

check the bigger picture

As the organisation grows, more goods and services will need to be procured, so cutting staff to save costs is not a wise move.

What about the costs associated with procurement of incorrect or inappropriate or unused goods? Is that a cost of the procurement process?

name the measure(s)

Purchasing OpEx as % of Purchasing $ = The operational costs of functions within the Procurement Department that are involved in procurement activities, as a percentage of the total purchase dollars for Greenspark Energy.

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Draft Results Map, with measures

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Step 4:

Building Buy-in to Measures

This is the Procurement Department’s Measure Gallery feedback. They collected this from approximately 50 of the 70 or so visitors that attended their Measure Gallery. They had invited over 200 of their colleagues and internal customers and managers.

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Measure Gallery Feedback

There are two ways to gather feedback at a Measure Gallery: with Post-it Notes directly on the Results Maps and Measure Designs, and using a Visitor’s Book for more general comments.

Post-it Note FeedbackA sample of the feedback that the Procurement Measures Team received directly on their Results Map and Measures is:

comment action

more measurements of cost effectiveness (ie cost/benefits of purchasing policy)

Measures Team to review

maybe the only blue bubble to bold is "cost of the procurement process is minimised"

Measures Team to review

inventory management is a big cost– need this on the results map

put into stage 2

key items/priorities and supporting measurements are accurate

no action

The measure ‘# Jobs Ordered off approved contracts’ doesn’t sound like it’s saying anything useful – what about %?

Consider removing this measure

Visitor’s Book FeedbackThe Visitor’s Book was a flipchart located near the door to the Measure Gallery room. As visitors were leaving, they were invited to make any final comments in the Visitor’s Book. Here’s a sample of what was shared, and how the Procurement Measures Team decided to respond:

comment action

project managers could attend Procurement team meetings to provide client updates (especially Network Operations)

may need Peter to follow up

importance of the results map as a marketing tool may need Peter to follow

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up

email this measurement work to remote offices Do a gallery roadshow

thanks for asking our opinion - seek feedback regularly send thankyou email to visitors

good that management are planning and getting feedback no action

Procurement need to work with other departments to ensure we are all on the same page. We have different priorities.

link to other Department Results Maps

evaluate opportunities for other data owners to contribute to data QA eg asset managers, project managers

may need Adrian & Measure Owners to follow up

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Feedback survey of Measure Gallery Visitors

A short survey form was handed to visitors as they left the Gallery, and the data were analysed to get a feeling for the impact of the Measure Gallery and an objective assessment of how much stakeholders agreed with Procurement’s new measures.

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Step 5:

Implementing Measures

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Following are two of the Procurement Department’s Measure Definitions, for the measure of Purchasing OpEx as % of Purchasing $ and the measure of % Rejects.

Notice how, in the first definition, the measure’s data is so clearly defined, including specific data codes and the queries to extract the data from the database system. This is very useful in ensuring a new reporting officer could successfully extract the data and keep the measure’s integrity.

Purchasing OpEx as % of Purchasing $ was originally chosen from a set of benchmark measures collated by CAPS Research (the Centre for Applied Procurement Studies). While the measure was deliberately chosen using PuMP Measure Design, being a benchmark measure made it possible for the team to choose targets based on known best practice. This isn’t a necessity, but just one possible way of choosing a target people can believe is achievable (because someone else has achieved it).

The second definition is for % Rejects, a measure where the data was not yet available as required. You can see evidence that they are still thinking through what to do with the measure until that data is available. Measure Definitions are very helpful in identifying the data you really need, as opposed to just limiting yourself to the data you already have. You’ll never get the data you need until you define your measures in this much detail.

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Measure Definition for Purchasing OpEx as % of Purchasing $

name Purchasing OpEx as % of Purchasing $

description The operational costs of functions within the Procurement Department that are involved in procurement activities, as a percentage of the total purchase dollars for Greenspark Energy.

intent The intent of this measure is to gauge the cost of getting products and services, versus the dollar value of those products and services. This is a form of efficiency measure.

where it fits

level/zone: Tactical (Blue)

result: “cost of procurement process is minimised”

measure relationships:

The following measure… is a…

% Spend Saving companion

Customer Rating of Ordering Simplicity cause

% Purchasing $ on Approved Contracts cause

% Purchasing $ on P-cards cause

# Jobs Ordered Off Approved Contracts cause

Asset Capacity Utilisation effect

Gigawatt Hour Cost effect

process / department:

Procurement Department

calculation formula: [purchasing_opex x 100%] / [material_cost + services_cost]

frequency: monthly

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scope: - The purchasing_opex relates just to the Procurement Department operating expenditure.

- The purchasing spend includes Greenspark Energy expenditure on all products and services procured.

data items: data item name

description source/availability

services_cost the amount paid to the supplier for provision of the service A/E (320,400,401,403,436,437,444,480,524,525,672,676)

manual query from SAP system: GPXGL_SS_SERVICES

material_cost the amount paid to the supplier for provision of the material (a/e 300, 321,322,424,432,446,520,523,526,660,662,664,666,668, 674,679,770,816,830,833,842,862,868)

manual query from SAP system: GPXGL_SS_MATERIAL

purchasing_opex

total operating cost of the procurement process, from Chart of Accounts system (Procurement Department incl Function codes 24011, 24020-24 and 24031)

manual query from SAP system: GPXGL_SS_PROOPEX

presentation

comparison type: trend over time

current performance level with target

presentation method:

XmR chart with targets displayed as points above due dates

frequency: monthly

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response Signal #1: Central Line is at or below target (low priority): This means we have successfully reached target and this measure only need be monitored for signals in case this new level of performance is not sustained.

Signal #2: Central Line shows decrease toward target (moderate priority): This means we are successfully reducing costs. All that is needed is a quick check to ensure that this improvement continues as a rate to reach the target within our set timeframe.

Signal #3: Central Line shows no change (high priority): This means that we are not successfully changing costs. We need to investigate the status of our cost reduction initiatives, conduct a Pareto analysis to determine the major cost drivers, and assign an improvement team to focus on the biggest cost drivers.

Signal #4: Central Line shows increase away from target (urgent priority): Costs are getting bigger. We need to investigate the factors that are causing this, including an analysis of related and connected performance results that may be having an impact. Assign an improvement team to analyse and work on overcoming these causes.

owner(s) performance owner(s)

General Manager Procurement

definition owner(s)

Procurement Performance Officer

notes - the original measure, Total Supply Chain Costs, seeks to track the whole of life costs of products and services, but is too much a data challenge at this point – an idea for the future, through the Commercial Tradeables project performance measurement initiative

- this corresponds to CAPS Research reports, measure number 3

- Utilities best practice:- mean: .68%; min: .23%; max: 1.33%; median: .67% (based on 19 companies)

- Cross Industry best practice:- mean: 6.03%; min: 0.04%; max: 24.13%

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Measure Definition for % Rejects

name % Rejects

description The % items/units delivered or services provided to Greenspark business units that are rejected for any reason.

intent To assess the extent to which products and services are "fit for purpose":- not over or under specifications. It is just as much an issue to remove "gold plating" as it is to ensure reliability of the products and services procured.

where it fits

level/zone: Tactical (Blue)

result: “goods & services procured don’t need rework or replacement”

measure relationships:

The following measure… is a…

DIFOT – to inventory cause

Asset Capacity Utilisation effect

Gigawatt Hour Cost effect

process / department:

Procurement Department

calculation formula: [sum (Raise_Discrep = “Y”) x 100%] / [count (line item number)]

frequency: Monthly, based on Receipt_Date

scope: What defines a reject: rejects that are found in stores (i.e. stores return the item) or warranty claims/rejects found in field?

Services are excluded at this time - what does a reject really mean for a service

data items: data item name

description source/availability

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Receipt_Date when the goods were received

MIMS - Discrepancy Reporting

Order_No purchase order number MIMS - Discrepancy Reporting

line item number

line item number on the purchase order

MIMS - Discrepancy Reporting (not currently available)

Raise_Discrep whether or not a discrepancy was raised for the specific line item on the purchase order

MIMS - Discrepancy Reporting

presentation

comparison type: trend over time

current performance level with target

presentation method:

XmR chart with targets displayed as points above due dates

frequency: monthly

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response Signal #1: Central Line is at or below target (low priority)

This means we have successfully reached target and this measure only need be monitored for signals in case this new level of performance is not sustained.

Signal #2: Central Line shows decrease toward target (moderate priority)

This means we are successfully reducing rejects. All that is needed is a quick check to ensure that this improvement continues as a rate to reach the target within our set timeframe.

Signal #3: Central Line shows no change (high priority)

This means that we are not successfully changing reject rates. We need to investigate the status of our supplier performance management initiatives, conduct a Pareto analysis to determine the major reject drivers, and assign an improvement team to focus on the biggest reject drivers.

Signal #4: Central Line shows increase away from target (urgent priority)

Rejects are getting more frequent. We need to investigate the factors that are causing this, including an analysis of related and connected performance results that may be having an impact. Assign an improvement team to analyse and work on overcoming these causes.

owner(s) performance owner(s)

General Manager Procurement

definition owner(s)

Procurement Performance Officer

data owner Inventory Manager

notes - current benchmark: Benchmarking Success, survey questions 3.10 or 7.8

- Is it possible to use number of orders where there were product returns divided by total orders dispatched in the interim until the item level calculation is possible?

- would it be better to use the Purchase Order date rather than the receipt date?

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Step 6:

Interpreting Signals from Measures

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This is one of the Procurement Department’s measures, displayed using an XmR chart (or Smart Chart, as I like to call them). It’s for their measure of Purchasing OpEx as % of Purchasing $.

Notice how the targets are placed on the charts as points above their due dates. These targets are for the Central Line on the XmR chart. They know when they have achieved the target when there is a signal that means the Central Line has to be recalculated and the recalculated value is at or below the target point, on or before the target date.

See how they quickly achieved their long term target? I’ve seen that happen a few times, when people start measuring performance this way. Partly it’s the clarity of the meaning of the target, and also the focus on cause analysis that it encourages.

XmR charts help people realise they can set more aggressive targets with confidence.

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Interpreting Purchasing OpEx as % of Purchasing $

Setting up the measureThe Procurement Measures Team sets up their measure in an XmR chart, measuring it monthly, and including some historic data they had available.

Continuing to monitor the measureAs more measure values are added, the Procurement Department look for signals. Three out of the last four points in a row are below the Central Line. That’s a signal of improvement.

Recalculating a new baselineAfter a few more measure values are added, the Central Line and Natural Process Limits are recalculated. It’s a big improvement, and means that the stretch target has already been achieved.

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A few more of the Procurement Department’s XmR charts…

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Step 7:

Reporting Performance

Measures

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This is an excerpt of the Procurement Department’s monthly performance report, that they designed using the PuMP® Reporting Performance technique.

They have a simple dashboard that highlights how each measure is doing, and which measures need priority attention.

Each measure has its own page, and that page adequately and appropriately answers those three essential questions that every performance report or dashboard should answer: what is performance doing? Why is it doing that? Now what should we do to improve performance?

Notice also the way the traffic lights have been designed. This idea of varying shades of the same colour is from Stephen Few’s book, Information Dashboard Design. No need for the gaudiness of red, amber and green.

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Step 8:

Reaching Performance Targets

This outlines how the Procurement Department pursued the targets for their measure of Cycle Time of Issues Resolution.

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Notice how useful the process flowchart is in identifying how to reduce the cycle time without blame or excuses, or throwing additional resources at the problem to compensate for it.

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Reaching the target for Cycle Time of Issues Resolution

Set sensible targetsCurrent performance for Cycle Time of Issues Resolution is 75 days. The target is to achieve a Central Line of 30 days in 3 months, and 10 days in 8 months from now.

Prioritise the performance gapsFrom the Procurement Dashboard, it’s clear that Cycle Time of Issues Resolution is a priority for improvement, given the size of the gap between current performance and targeted performance, and the fact that it has missed its previous target and shows no signal of improving at all. This is indicated by its darker red traffic light:

Find the causesThe current Procurement Issues Resolution process was flowcharted, and steps analysed by the Measures Team to find problems with how the process operated, which would impact the cycle time of resolving issues.

The ‘as-is’ Procurement Issues Resolution Process:

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Analysis of causesThe cycle time of resolving issues was broken down into each major stage of the process, to help prioritise where the problems were:

Summary of root causesTogether, the ‘as-is’ flowchart and the cycle time breakdown helped the team decide the root causes of the problem:

unclear accountabilities lack of time available after usual duties insufficient procurement officer knowledge or experience relating to the issue

Choose high-leverage solutionsClearly the Procurement Issues Resolution process needed changing, and changes the team made were designed to control those root causes:

Allocate one procurement officer full-time to resolving issues e.g. Procurement Troubleshooter. The Procurement Troubleshooter would be responsible for every issue raised by customers, and could recruit the assistance of appropriate procurement officers if and as required

Allocate each customer their own procurement officer as a single point of contact for any type of query or problem at all, and build this responsibility in to position descriptions

This resulted in a new Procurement Issues Resolution process design that would dramatically reduce the waiting times for allocating the problem, investigating it and also approvals for resolving it.

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The ‘to-be’ Procurement Resolution Process:

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Look for signals and check for impactWithin just a few months, there is a signal in the Cycle Time of Issues Resolution measure:

The signal is a short run, where three consecutive points are closer to a Natural Process Limit than they are to the Central Line. In another two or three months, they will be able to recalculate the Central Line and Limits and check if this improvement was enough to hit the target.

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