AT&T provides nine metrics no procurement group can live without
By William Atkinson -- Purchasing, 6/14/2007 2:00:00 AM
One might think that a procurement department at a company the size of AT&T would only be interested in high-level metrics, such as internal client satisfaction, to assess its overall performance. But the procurement organization at AT&T has realized that big wins are predicated on small gains and has metrics so seemingly small and exact that they measure the time it takes for contracts to get from procurement to a centralized quality auditor for review.
Interestingly, though, AT&T is able to capture all of the information it considers relevant—from the highest level general metric to the smallest and most detailed—in just nine metrics.
Going back to the early 1990s, AT&T based in San Antonio, Texas, has had a procurement philosophy that was consistent with Malcolm Baldrige National Quality Award criteria, which meant having a management framework that included an approach for procurement, a strategy to deploy that approach throughout the company, and measuring progress against results. "Since then, the procurement organization has had a vision statement and priorities designed to guide us with this philosophy," says Keith Connolly, vice president, strategic sourcing.
The vision is to maximize AT&T's supply chain performance, increase customer revenue, reduce the total cost of ownership, reduce cycle time, and meet the needs of AT&T's business partner organizations. The vision is brought to life via four priorities that operate the procurement organization: business partnership, financial management, operational excellence, and innovative teams. Within these four priorities are nine metrics.
"All of our procurement operations worldwide do their reporting based on these metrics," Connolly says. "We have a common dashboard, where any contract manager or procurement manager can see their results, as well as their directors'."
The first priority is Business Partnership and it has one metric attached to it: Business Partner Satisfaction. Connolly considers this to be the most important of the nine metrics.
"We work on behalf of clients within AT&T, and we need to make sure we are in lockstep with them and their needs," Connolly says. "When we complete a procurement milestone within an initiative, we send out a Web-based survey asking questions of our clients in terms of how satisfied they were with procurement's ability to meet all obligations." There are five category responses: Excellent, Good, Neutral, Unfavorable, and Poor. Procurement's goal is to get 90% of its clients to report "Excellent" or "Good."
The second priority, Financial Management, has two metrics. The first of these (Metric #2) is Contract Savings. "We know that, over time, there have been debates on how to count and value savings generated by procurement involvement," he explains. "We want to make sure our metrics resonate with the business." To this end, the procurement organization measures hard first-cost dollars. Was there a budget that procurement was able to reduce for the client, and that finance people would concur with? Procurement also measures softer costs, such as price increase avoidances and warranty extensions. Metric #3 is Budget Attainment. "We want to make sure we manage our budget in procurement as if it were our own money," Connolly says.
The third priority, Operational Excellence, has five metrics. AT&T's procurement organization is TL 9000-certified, which is the telecommunications industry quality standard based on ISO 9000. "Just as we expect suppliers to meet our quality requirements, we have quality requirements that we also strive to meet," he says.
The first of these five metrics (Metric #4) is Contract Document Quality. When procurement completes a contract, it sends it to a centralized quality auditor, who checks it against procurement's designated processes, procedures, and forms, to make sure the contract is being completed consistent with policies. The contracts are graded on a point scale.
Metric #5 is Manage Contract Expiration. "We make sure we don't have expired contracts, which could pose liability for the business," he states. Metric #6 is Contract Under Negotiation. Procurement monitors contracts that are under negotiation, and takes action of any of them end up past 90 days of the expected completion date. "We determine if the manager needs help with the contract," explains Connolly. Metric #7 is Contract to Auditor. This ensures that the completed contracts get down to the centralized quality auditor within a specified period for review, to make sure that procurement has not lost any contracts or that they are not experiencing any delays.
Metric #8 is Supplier Quality: AT&T has a program that involves rating its suppliers, and also placing them into categories of importance based on technical innovation, customer service, creative cost management, teamwork, and product/service performance. Supplier performance data is input onto a website, and the information is monitored to make sure suppliers are meeting the metrics. The internal goal is to make sure suppliers are meeting at least 90% of all their metrics. The results are also a springboard for procurement's annual supplier recognition program. "We are in our sixth year of this program," Connolly says. "Last year, we recognized our top 49 suppliers, out of about 5,000" and recognized them in the Wall Street Journal.
The fourth priority, Innovative Teams, has one metric, which is (Metric #9) Supplier Diversity. "AT&T is known as being one of the leaders in supplier diversity," emphasizes Connolly. "We have had this commitment for over 30 years." In the last 10 years, the company has spent $24.5 billion with diverse companies, which represented about 17% of all of its procurement dollars. Its current goal is to make sure that 21.5% of its dollars go to minority-owned, women-owned, or disabled veteran-owned businesses.
The procurement organization reviews its metrics monthly to ensure they are in line with its vision. Then, each year, when it goes through its business planning process, it determines if any of the metrics need to be updated or fine-tuned.
"If client organizations don't believe that we are adding value, they are going to be slower in bringing us to the table," Connolly says. At one time, the procurement organization was hovering in the mid-80s in terms of percentage of client satisfaction. But the organization has surpassed its business partner satisfaction metric of 90% for the last four years (92% in 2003, 93% in 2004, 94% in 2005, and 94% in 2006). "This improvement is objective evidence that our management approach is working," says Connolly.
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it costs the company money to award a contract to someone other than the lowest bidder
Roger Clegg - 5/12/2009 11:24:00 AM EDT -
Hard cost savings are but one way to gauge an effective procurement strategy. Soft cost strategies are significantly hire as organization like AT&T grow their total location count and have to add new vendors to the roles for procurment sake. The value of being able to return the internal resources to AT&T's core mission has a numerical value also. It is much more elusive to track or decern but equally as valid. Commodities are priced how they are priced. The big win is in the soft cost savings.
Daniel Boudreau - 5/11/2009 5:30:00 PM EDT
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