Procurement KPIs

What types of KPIs and performance measures are used in procurement?

Procurement KPIs are metrics that can be used to analyse internal and external procurement and supply activities. They can help organisations manage and optimise efficiencies in areas such as value, time, quality, and cost, helping procurement functions stay on track with their goals.

Here are just some of the procurement KPIs you can measure.

• Variance factors: For example, the difference between the price paid for a product or service and the price originally quoted or the number of disputed invoices against total invoices received.
• Orders raised: For example, in a manufacturing organisation, the number of items bought by the function from a company ERP system
• Supplier lead time: The time from when the supplier receives an order to when the order is shipped.
• Ordering efficiency: The number of orders raised, or deliveries received from, a single supplier
• On-time-in-full (OTIF): The number of deliveries received from a supplier in line with the delivery date, with no short shipments or quality defects .

What are examples of SMART KPIs?

SMART KPIs are an impactful way to ensure you pick good KPIs to track progress. SMART standards for specific, measurable, achievable, relevant and time and you can use apply this to choose effective procurement KPIs.

To create SMART KPIs, you’ll need to focus on your goals, define the situation and identify the challenge, choose your SMART KPIS and build a plan around it and monitor progress.

Some examples of SMART KPIs could be sales objectives, such as increasing customer engagement, sales conversion rates or hit total sales for new product offerings. Another could be customer retention, so lowering your average customer service response time or offering personalised solutions to customers. You could also look at employee retention such as increasing the number of benefits to employees or improve employee satisfaction rates. Whatever SMART KPI you choose, you need to determine the measurements to track progress.

Why measure the efficiency of your procurement process?

Measuring the efficiency of your procurement process is key to understanding the potential of your procurement function. It allows you to identify inefficiencies, improve stakeholder collaboration, reduce costs, mitigate risks and optimise your supplier relationships. You can measure your efficiency by tracking the spend and volume of procurements completed or tracking spending trends which can help identify any changes in buying patterns. You can also measure your efficiency through contract awards and analysing the details to see if price or quality was met.

What cost saving KPIs matter the most?

There are a number of cost saving KPIs that procurement teams can focus on which will have a greater impact when it comes to cost savings.

Procurement ROI

Calculating the procurement ROI involves dividing the annual cost savings by the internal procurement cost. This will help you identify the overall profitability, as well as cost saving benefits of your procurement function.

Cost reduction

This KPI measures the savings that have been achieved through cost and procurement management, so you’ll need to compare old and new costs for goods or services.

Cost avoidance

This KPI looks at actions taken to reduce future costs and looks at the savings that don’t appear directly in your organisation’s bottom line.

Spend under management

This is the percentage of procurement spending that is controlled by the management department, and is calculated by dividing the total approved spend by the Maverik spend.