Case 17-1 Randall Corporation Paul Syrie, senior partner at Newcombe Consulting, was preparing his presentation for the CEO of a large client, Randall Corporation, the following day. Newcombe had been retained by Randall's CEO six months prior to assess the performance of his company's supply organization and to make recommendations that would reduce costs and im- prove the overall competitive position of the company. It was now Monday, March 23, and the purpose of the meeting on Tuesday morning was to establish appropriate metrics to monitor the performance of Randall's supply function. Newcombe was retained by Randall's CEO, who be- lieved that the company could be exploiting opportuni- ties in supply. Working with a large team of consultants from Newcombe, Paul and his group found that Randall had too many suppliers and too many people in the sup- ply function, and its costs were too high. The Newcombe team worked with the CPO and created a series of projects to address the problems identified, including changes in business processes and implementation of a new e-pro- curement system, consolidation and standardization of high-dollar spend categories, and renegotiation of con- tracts with key suppliers. THE RANDALL CONSULTING PROJECT SUPPLY METRICS As a final step in the project, Paul was charged by Wesley Riley with creating a new set of metrics for the supply organization, saying, Randall was a Fortune 500 company with annual sales of $33 billion. Its business units competed in the defense, technology, aerospace, and building systems sectors. Randall had a record of consistent profitability over the past decade, but its new CEO, Wesley Riley, had prom- ised to focus on cost control and earnings growth. Each business unit had a separate supply organization, which was supported by a 50-person corporate supply group. Divisional supply organizations focused on their division's specific needs, so that priorities and resources could be established on a business unit level. Meanwhile, common requirements and corporatewide initiatives were addressed through the corporate purchasing group located at company headquarters in Chicago. Total purchases represented approximately 50 percent of sales. Graham Chambers, the chief procurement officer (CPO), reported to Ronald Muise, executive vice president and chief administrative officer. I want four or five key measures reported to me every month so I can tell how well purchasing is doing. You also need to give Chambers a set of metrics so he can keep his eye on the ball. I don't want us slipping back into the same state we were in a year ago. I want to give an incentive for Chambers and his group to hit their tar- gets, so I plan on making these bonusable objectives for Graham and all of his direct reports. After careful consideration, Paul decided that he would recommend a set of 10 metrics: four executive level metrics for the CEO and six functional metrics for the CPO (see Exhibit 1). Each metric would be reported monthly EXHIBIT 1 Proposed Supply Metrics Executive Level Metrics Number of suppliers representing 80% of spend. Percentage of total dollar spend on enterprise contracts Percentage of total spend through e-business system. Cost-reduction target. Functional Level Metrics Total number of suppliers. E-business cost per transaction. Number of transactions per employee in the supply organization. Percentage of dollar spend through e-auctions. Percentage of first-time quality acceptance of parts shipped from suppliers. Health of the supply base. 528 Purchasing and Supply Management As Paul examined the metrics, he paused to consider the usefulness of what he had developed. Would Wes- ley Riley and Graham Chambers find the metrics use- ful? Were they the "right" measures for Randall? What targets should be set for each? Were there other metrics that should be added to the list? These were all questions that Paul knew he would be asked at the meeting the fol- lowing day.