How can an objective be SMART ?
When it comes to management, it’s all about performance, performance, and performance !
But how do you know if your procurement department is performing well ? And how can you tell if your suppliers are up to the expectations ?
The answer is: always set-up a SMART objective.
What is a SMART objective ?
A SMART objective is an objective that fulfills the following criterias:
- Specific. It must be specific, it can’t be something vague. Start with those simple questions when setting up an objective and use the What Why When How technique:
- What do we want to achieve ?
- Why do we want to achieve it ?
- How do we want to achieve it ?
- When do we want to achieve it ?
- With who do we want to achieve it ?
- Where (scope) do we want to achieve it ?
- Measurable. It must have a measurable metric in terms of numbers, percentage, frequency, monetary value, etc. This is the only way to know if an objective has been achieved or not. Otherwise different people will have different opinion on the success or failure of the objective
- Achievable. It must be achievable. There is a difference between being ambitious and unrealistic
- Relevant. It must be relevant. Overperformance is not always good and needed, it is costly and effort can be invested elsewhere. .
- Time bound. A deadline creates a sense of urgency and expectation which will in turn help ensure that people will deliver on-time
Secret tip:
Situation and business environment can and will change. So make sure to add a final consideration to all your objectives.
Review. As mentioned previously, objectives must be relevant. And it is important to make sure that it stays this way, so you should periodically review all your objectives with your team and make some changes if needed.
How can I use it in procurement management and with suppliers ?
So now that we know what a SMART objective is, let’s see 3 examples of commonly used objectives that can be used in procurement.
Increase the supplier ABC on-time delivery from 90% to 95% accuracy for components XYZ used in our blah blah production line by August 2023
We are talking about a specific supplier for a specific product, with a measurable on-time delivery metric that can be calculated based on this formula: the ratio of order lines shipped on or before the requested delivery date / promised date versus the total number of order lines.
It is an achievable objective and very common to observe this level of service when it comes to delivery in many industries.
It is a relevant objective since those components are needed for our production.
There is a time-based goal which will keep us motivated and on-track.
Achieve a 2% cost saving versus budget on XYZ spend category by end of the fiscal year
It is specific since we are targeting a precise category (e.g. electronic, spare parts, PCB, etc.)
It is measurable, we are aiming for 5% versus the defined budget
It is achievable, the percentage is backed-up by realistic historical price, and considering that there are a lot of means to achieve this: spend consolidation, vendors reduction, negotiation, tenders, standardization, etc.
It is relevant, if this is a strategic category with a big impact on your bottom line then you should definitely pursue this goal
It is time bound since we aim to have this achieved before the end of our company’s fiscal year.
Reduce the numbers of vendors from 100 to 30 on the spend category powertools in the APAC Region in 2 years time-frame
We are talking about a specific scope which is the powertool category for Asia-Pacific
The number of vendors is a clearly measurable objective, it is common practice to have a list of approved corporate suppliers.
It is most likely an achievable objective, it would be a 80% cut which seems a good balance between challenging and rewarding.
The objective is relevant to procurement and serving our business needs as having too many vendors is costly to manage and would not provide spend consolidation benefit.
We have a deadline to accomplish this goal.
I think you get the gist by now.
SMART objectives are a simple yet effective recipe to success when it comes to managing suppliers and procurement performance.
Now it’s time for you to brainstorm on your SMART objectives, be creative and shine in your next meeting.
As always, you will find here a FREE template to help you define your objectives.
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