Procurement KPIs are types of performance metrics that can be used specifically to measure, analyse and monitor the performance of procurement and supply activities, both internally (for example, within the function), and externally (for example, across suppliers).
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.
Effective KPIs should always be SMART, to track, monitor, and manage progress effectively. SMART stands for specific, measurable, achievable, relevant, and time-bound.
To create SMART KPIs, you will need to focus on your goals and identify how KPIs can be developed to help support them. You will need to consider what you want to measure, how, and over what time period. Effective KPIs should be simple, relevant, and to the point. Overcomplicated KPIs will be difficult to manage. You will also need to define the parameters of success, i.e., what good looks like, and ensure that although this is a stretched target, it is not unrealistic; if it is, it may never be achieved.
Examples of SMART KPIs could be the number of product lines delivered by a supplier in time, on full to the confirmed delivery date, with no defects per day. Success may be defined as 95% of lines confirmed delivered, with no defects (such as quality issues or short shipments). Alternatively, a procurement function may choose to monitor the efficiency of its employees by measuring the number of lines bought against an MRP by each person per day. Success may be defined as 50 lines, per person per day, or 3000 lines across the whole function per month.
Whichever SMART KPIs are selected, you will need to determine the appropriate measurements required to track progress.
When developing KPIs, you will need to consider the best performance metrics to support both the function and the organisation's overarching objectives and strategies. When developing supplier KPIs, it is also important to develop and measure KPIs that focus on the relationship between the buyer and supplier, as these can add significant value.
The process to manage buyer-supplier metrics can be set out as shown covering the five main stages:
SMART, effective internal KPIs can help organisations identify inefficiencies, improve stakeholder collaboration, reduce costs, mitigate risks, and optimise supplier relationships. In addition to measuring suppliers, it is also beneficial for procurement and supply organisations to measure the efficiency of their internal procurement functions. Internal efficiency could be measured by tracking spending levels, or the volume of procurements made.
You could also measure the effectiveness of your processes, for example, your supplier selection and contract award criteria by analysing expected versus actual results to check if the price or quality requirements for a purchase or project were met. If they were not, this could suggest that either process needs to be tweaked to help identify and select more appropriate suppliers, capable of delivering requirements. Measuring suppliers can help aid delivery efficiency, improve quality and provide access to lower prices, creating overall better value products and services and aiding the security of supply.
One of the most important considerations for any procurement and supply function, irrespective of sector or industry, will be the issue of cost. A key purpose for procurement and supply functions is the efficient and responsible allocation of company funding, in order to deliver goods or services that are fit for purpose, capable of fulfilling business needs, and representative of best value.
There are several cost-saving-related KPIs that you can use to monitor cost and price factors to help produce greater outcomes in the areas of cost savings and efficiencies. These include the following:
Key performance indicators (KPIs) can be used to measure the effectiveness of procurement and supply activities, such as supplier relationships, delivery and quality performance, cost and price metrics and process efficiency. This information can be used to ascertain benchmarking statistics, set targets, drive incentives and manage improvements across many areas. By implementing KPIs, you can monitor, evaluate, and identify areas for improvement.
KPIs can be qualitative or quantitative. Relationship-based KPIs are qualitative measures, whereas traditional KPIs tend to be quantitative measures. KPIs are typically included in supplier contracts to motivate suppliers to achieve and enhance their performance. When developing KPIs for managing suppliers and contracts, the focus should be on critical success factors and key contract elements that align with the organisation’s overall strategy. Effectively using KPIs to manage supplier and contract performance can lead to better communication, improved quality, increased supplier motivation, and early identification of risks.
This model shows how to form KPIs that relate to an organisation’s mission. An organisation’s mission is essentially its purpose: what it exists to do, and is usually supported by a written publicised mission statement, formally acknowledging the purpose of the business. KPIs should be developed to support the goals and objectives of a company, which are created to help achieve the overall mission.
Overall business strategy
What is the organisation's mission?
Goals, objectives and critical success
What are the long- and short-term objectives related to the mission?
Key business objectives
What goals must be achieved to meet the objectives?
Conditions of the contract and key performance indicators
What can be measured to evaluate whether the objectives are met?
Explore KPIs for best-in-class performance across procurement, risk, invoicing, expenses, and payments.
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