A Gap analysis is the process of assessing desired business targets and performance against current performance. In a procurement setting, the analysis can be used to assess the current and future business requirements against the current goods, services and capabilities available from the current supply base. The resulting gaps can then prioritized to close the most important gaps first.
There are 4 steps to ensure a gap analysis realizes value to an organization:
1. Determine organizational targets & requirements
2. Identify the gaps
3. Prioritize the gaps
4. Action plan to resolve the gaps
A gap analysis is used to ensure the targets of the organization can be achieved. To identify the gaps, the organization needs to compare the current state with the desired state. A gap is any shortcoming of the supply base, be that product quality, quantity, innovation, delivery, future strategy, etc, compared to what is required by the organization.
The gaps should then be prioritized based on the importance of each gap in realising the organizational targets.
Conducting a Gap Analysis
A gap analysis can be conducted through following a simple 4 step process. Ultimately, the aim of the analysis is to resolve the gaps to achieve the organizational targets.
Step 1: Determine organizational targets & requirements:
Firsty, the organization needs to be clear on the organizational needs for both the current operations and future operations. Are there any issues with teh current organization operations? Is the organization planning to add a new line of products? Do they want to expand their organization to serve new regions? There could be several future states that the organization might be aiming at simultaneously. For a successful analysis, these states and their requirements need to be clearly understood. A good way of gathering business requirements is through the use of the Procuropedia business requirements canvas and the sustainable requirements canvas.
To ensure a compete set of requirements, the entire business from operational functions (for example, product development, manufacturing, etc) to support functions (finance, HR, etc) need to be involved in the gathering process.
Example
Step 2: Identifying the gaps
Once the requirements have been gathered, the next step is to identify any gaps by assessing the current situation to the desired targets and requirements. Supplier goods, services and capabilities need to be assessed against the organization’s requirements to identify the gaps.
As gaps are mostly situation-specific, purchasing managers should assess both the gradable metrics, such as order volumes, percentage of goods failing inspection, lead-time variance, etc. as well as qualitative information such as the inability of a supplier to innovate or provide for the new requirements.
Remedies for each gap can then be discussed, detailed and agreed.
Example
Step 3: Prioritize the gaps
The next step is to prioritize the gaps. This will allow the organization to use the available resources in the most impactful way.
The Impact-Effort Matrix is a simple but powerful way of prioritizing the gaps into a plan of action. The matrix plots the potential impact on the organization of resolving the gap by the amount of effort required to deliver the remedy.
Using this matrix, the gaps can be plotted into 4 quadrants:
Quick Wins – Gaps that require low-effort to deliver but have the highest impact. In most cases, these gaps should be delivered first.
Big Bets – Gaps that deliver high impact to the organization but require significant effort to deliver.
Money Pit – Gaps that require a lot of effort, yet have little to no impact. It is likely that any gaps in this quadrant do not warrant investment.
Fill-Ins – Gaps that are easy to minimize but potentially aren’t worth the investment.
Step 4: Create an action plan to resolve the remedies
Prioritizing and ranking the gaps allows the organization to put an action plan in place to resolve gaps one-by-one. This action plan can then be integrated into the operational procurement deliverables that allows procurement to deliver the goods and services that the business requires.
Conclusion
A gap analysis is a great way to identify and eliminate the difference in business requirements — both current and future — and the current state of sourcing activities of an organization. The process involves looking at the existing issues to compare the current situations against the required state of affairs. The buying organization details the business targets, identifies gaps, prioritizes them, and ultimately drafts an action plan to close the gaps to ensure the best use of resources in a category or across their organization.
Key Takeaways
- A gap analysis is an exceptionally powerful way of ensuring the resources of the procurement function are delivering the most important task to an organization
- The analysis is a dynamic and constant activity with new requirements emerging each day. The new requirements should be mapped and prioritized to understand its ultimate importance.
