Effective Hourly Rate: Doing More with Less in Procurement

Effective Hourly Rate is a concept I came across back in 2017.

Back when what seems like an eternity ago, I still had a corporate job. I was a Category Manager in a large FMCG company. And one of the things that constantly astounded me was how much of my day was wasted on mundane tasks.

I couldn’t understand why, in a company constantly looking for cost savings, there was so much inefficiency.

I was earning a 6-figure salary, only to spend a lot of my day performing tasks that could easily be done by a junior buyer, or even an admin assistant.

A couple of years before, I’d become interested in the idea of location independence and running my own business.

This led me down the rabbit hole of learning all about entrepreneurship.

I guess I’d always had this gene. When I was 7, I got called to the Headmistress’s office at primary school for selling membership to my dinosaur club.

It was a bargain, I thought. She obviously didn’t agree.

Anyhow, in the process of devouring many books on entrepreneurship, financial freedom, productivity, and building an audience online, 3 in particular stand out. They’re all about the concept of getting more done with less.

These are:

• Effective Hourly Rate driving how we approach task management
• The art of Eliminate, Delegate and Automate to free ourselves of admin or non-value added tass
• Time Freedom as a concept of wealth

I’ve chosen to dive into these today because it’s the perfect moment.

Procurement teams are being asked to deliver more, with fewer resources. Previously, we would take a more stoic approach and run around a bit like squirrels do when they’re busy collecting nuts for winter.

Now, however, thanks to technology, we have a real chance of successfully being more productive with smaller teams.

Applying some of this modern small business entrepreneur logic to procurement teams could go a long way to help us get there. Let’s go explore…

What is Effective Hourly Rate?

In James Schramko’s book, Work Less, Make More, he introduces the concept of the “Effective Hourly Rate” (EHR) as a pivotal metric for measuring productivity and optimising time management. EHR challenges the traditional thinking about task management, by focusing on the value generated per hour rather than just the hours worked.

You can grab a free digital copy here, if you’re curious about the concept in general.

This is not only relevant for freelance contractors or business owners. It can also apply to salaried employees too, as I’ll explain below when we tackle this in a procurement team’s context.

Schramko defines EHR as the income generated divided by the total hours spent on work-related activities, including both billable and non-billable hours.

This metric encourages professionals to prioritise high-value tasks that directly contribute to income generation and business growth. By calculating EHR regularly, individuals can identify tasks that yield the highest returns and allocate more time to these activities while delegating or minimizing lower-value tasks.

The concept promotes efficiency and effectiveness in work habits, emphasising the importance of strategic planning, delegation, and automation to increase productivity.

As a tool for fostering a mindset shift towards valuing outcomes over inputs, this is a particularly useful concept for the way CPOs and Heads of Procurement manage their teams.

Effective Hourly Rate Applied to Procurement Roles

Thinking in EHR terms enables teams to work smarter, not harder, and ultimately achieve more with less effort.

Here’s an example, using round numbers:

Now, I bet everyone reading this can come up with a list of typical tasks that Category Managers or Sourcing Managers do week in, week out, which you wouldn’t or shouldn’t pay someone $55.55 an hour to do…

• Booking flights and hotels
• Chasing contract signatures
• Filling out compliance documents
• Getting approval for payment terms changes or advance payments
• Justifying business trips. Probably the thing that irritated me most in a corporate job. Are you serious? You want me to justify why I’m offering to get out of bed at 5am in the middle of February, to fly WizzAir to some God-forsaken town where we have a production site?
• Arranging meetings
• Chasing stakeholders for feedback on supplier performance
• Fiddling around with PowerPoint slides
• Resolving P2P problems escalated by Accounts Payable

There are more, but I think you get the gist.

Which leads me nicely onto the next concept: how we should manage our workload.

Eliminate, Delegate, and Automate

In his book Free to Focus, author Michael Hyatt focuses on a framework built around the principles of eliminate, delegate, and automate to help individuals achieve greater productivity and work-life balance.

Here’s a clearer summary of the key concepts:

Eliminate

Hyatt advocates for the removal of tasks that don’t contribute to your goals or long-term success. He stresses the importance of identifying what is unnecessary in your workload and eliminating distractions, inefficiencies, and activities that do not add value.

By removing these non-essential tasks, you can focus your time and energy on what truly matters. This also involves saying “no” more often and setting clear boundaries.

Delegate

Eliminating unnecessary processes in Procurement requires strong, visionary leadership. Many organisations lack this. So, the second principle of “delegate” is perhaps more useful. It focuses on outsourcing tasks that others can and should do (see above), freeing up your time for higher-priority activities.

Hyatt suggests identifying administrative work or repetitive tasks that don’t require your unique expertise, and can be done by someone else,. By delegating these responsibilities, you can focus on work that leverages your strengths and maximises your impact.

Automate

The final principle involves using systems, and, most importantly, technology to automate repetitive tasks and streamline processes. Hyatt emphasises creating workflows and systems that handle routine work without requiring manual input.

This is where procuretech comes into play. Some tasks might require a bespoke automation bot, whereas others may be common workflows or tasks which are necessary for every procurement team.

Whether it’s a best-of-breed procurement software, a generic No Code application, a more comprehensive end-to-end suite, or more recently, the opportunities offered by Agentic AI. Each have their place, depending on organisational maturity, size of team, and budget.

When workload is optimised, this gives us more time to concentrate on tasks that really matter. In other words, it gives us what is known as time freedom.

Time Freedom: The 4 Hour Workweek?

In The 4-Hour Workweek, bestselling author and investor Tim Ferriss introduces a radical approach to work and lifestyle design, advocating for more freedom, mobility, and efficiency. The book challenges conventional notions of work, career, and success.

It offers a blueprint for achieving a life of freedom and fulfillment by working smarter, not harder.

Generally acknowledged as the “original digital nomad’s bible”, Ferriss breaks the book into four key principles, encapsulated in the acronym DEAL:

Definition

Ferriss encourages readers to rethink their assumptions about work and life, urging them to define what they truly want from life. This includes questioning the traditional 9-to-5 work structure and the societal expectations that drive people to work endlessly.

Elimination

The second principle focuses on eliminating unnecessary tasks and distractions using the 80/20 rule (Pareto Principle). This suggests that 80% of results come from just 20% of efforts. Ferriss recommends a similar approach to Hyatt to achieve this.

Automation

The book itself focuses on how to create and generate passive income streams. These are often online businesses, that require minimal day-to-day involvement. Applying this to a procurement context though could mean leveraging technology to free us from a lot of the routine work we get bogged down in day-to-day.

Liberation

Living life on your own terms is the final step. Ferriss is a huge advocate of remote work, allowing people to travel, pursue hobbies, or spend time with loved ones while still maintaining financial independence.

He also discusses the concept of mini-retirements.

These involve taking extended breaks from work throughout life rather than waiting for retirement. Something also which has become more popular for interim managers and freelance consultants, especially since the pandemic. Taking a break between assignments, or spending winter somewhere warmer, has definitely become more mainstream.

How can we apply this learning?

My recommendation would start with a time audit of you or your team. How much time each week to you spend on “busywork” vs. deep work?

How does your Effective Hourly Rate measure up to your typical daily tasks? Could any of them be delegated, if you hired an admin assistant for the team?

And, more importantly, how can existing manual workflows be automated to increase productivity and free up knowledge workers’ time?

Procurement truly has the opportunity to shine. But, as I explained a couple of weeks ago, the bullish scenario could easily become bearish. We need to grab the proverbial bull by its horns. We must take a ruthless approach to the tasks we do, and the relative value of each of them in relation to our salary and experience.