In today’s rapidly changing and competitive market, procurement departments are under pressure to deliver value beyond cost savings. Companies are continuously looking for areas where they can improve the efficiency of their procurement process while making it more sustainable.
However, to achieve this, crucial decisions need to be made based on the right data and metrics; tracking essential KPIs for procurement management is vital.
While these metrics can vary from company to company, there are several fundamental procurement KPIs that should be considered, regardless of industry.
The Importance of measuring essential KPIs
KPIs measure how effective a process is in achieving its objective. Procurement KPIs are, therefore, a type of performance measuring tool used to evaluate the efficiency of an organization’s procurement management.
KPIs provide teams with quantifiable metrics that enable them to control aspects of the purchasing process, such as cost, time, quality, and sourcing. Measuring the procurement process also allows organizations to identify areas for improvement to achieve their overall business goals and objectives.
To properly measure your procurement process, here are the key KPIs your team should always measure:
- Number of Suppliers. Having too few suppliers creates a risk of dependency, having too many reduces the possibility of creating relations and getting discounts.
- Compliance Rate. Verify and check the compliance rate of every supplier based on what’s important to your company.
- Supplier Quality rating. Keep an eye on the quality of the goods and services that suppliers deliver.
- Supplier availability. Track the supplier’s response to urgent requirements and determine how reliable the vendors are.
- Supplier defect rate. Evaluating the number of substandard products to the total helps you calculate performance and reliability.
- Purchase order cycle time. How long it takes a supplier to go through order creation, approval, delivery, invoice generation and payment is crucial in case you have to place an urgent order.
- Vendor rejection rates and costs. The cause to an increase to both measures can call for a re-evaluation of the vendor relationship or for a new vendor if necessary.
- Lead time. The total time to fulfill an order from the purchase action to the receiving of the production model. It’s the sum of production and administrative lead time.
- Emergency purchase ratio. Keeping track of how many emergency orders your company places can help you assess the procurement strategy.
- Purchasing time and cost. This helps managers identify resource utilization and the procurement pipeline.
These 10 essential KPIs for procurement management must be measured to ensure the continuous improvement of procurement performance.
But the key thing to remember is the importance for the company as a whole to become engaged in boosting these indicators. Procurement departments must therefore also play an educational role. By focusing solely on procurement techniques, you disregard what may be a very significant area for improvement, depending on the organization.
If purchases are not made following a standardized process, this clearly prevents you from managing the improvement of procurement performance.
Looking for ways to improve the efficiency of your procurement process? Sign up for a demo of Trakti’s software today, and see how effortless it is to track all the procurement metrics that matter.
Do you want to find out how procurement can retrieve all this data without lifting a finger? Have a look at this article! 👈