What are the most crucial KPIs that procurement needs to keep an eye on, and do you believe they have evolved over the years?
The best matrix I've used is the Morris KPI. Measures on the industry standards supported by CIPS. Company detail, Commitment, Communication, Quality, green, Competence, Service desk, Financial, Culture, CSR policy and Consistency. Email me for a copy.
I do not think the most crucial KPI's have changed, and I honestly believe the most important are based around the 5 Rights of Purchasing, the basic foundation of everything else. As with anything built upward, the strength of the foundation determines the result of the finished thing, and Supply Chain is no different.
Procurement needs to be first measured on these basic principles, and as mentioned, these have not changed. What has evolved, however, is the number of KPI's, and which KPI's are important to a business and these are generally affected by Social and Economic happenings... you should see how many big clothing and retail manufacturers suddenly have Sustainability and Ethical KPI's instilled in the Procurement Dept now :-)
With the many KPI's out there these days, we can often see Procurement teams no longer getting the basics right, chasing "fashion" KPI's over the tenents of Purchasing.
In my opinion anyway :-D
As Gary alludes, the trouble with KPIs is that they become the centre of the universe for that employee/function and all else is superfluous. As an example, we visited a leading Aerospace company. Their employees had a KPI for how many reverse auctions they ran. What rapidly occurred was that the employees would split auctions into many, and would start running auctions on lawn mowing the tiny patch of grass in front of the office and on items like toilet paper!! This is not valuable or efficient working practice and it stemmed from a poor use of KPIs.
Maddi Hi, KPI's need to be leading indicators, while the 5 rights are important they are lagging indicators. I agree with the philosophy of KPI's being Measurable, Simple and Few (MSF), but I would like to add to that list MEANINGFUL to both. The KPI's should lead to increased market share for both you the customer and "they" the supplier and if possible you both to increase margin at the same time. The best KPI's will strengthen the entire supply chain not just you the customer. "Industrial cleverness" cannot take place in company isolation, the entire supply chain is the strength of all those companies demonstrating sustainable success. Complacency in the supply chain that is no KPI's ("we can do it alone") will lead to the demise of margin and market share. KPI's drive, enshrine and provide traction for "industrial cleverness"
Determining what the most crucial elements are as they relate to what is being measured can be summed up by the acronym S.M.A.R.T. (Specific / Measurable / Achievable / Realistic / Time bound). I have seen far too many organisations measuring criteria (KPI's) that do not fall within these requirements creating a cottage industry that adds no value to the relationship. As for the KPI's themselves, they could represent anything as criteria for measure however when mutually agreed upon they must represent what is fundamental to achieving a value-based outcome.
In some areas, sets of KPIs are now being consolidated. Certainly when looking at supply chain performance and risk - and KPIs down the tiers - some of the tech now available pulls various analytics on issues like sustainability, financial performance, lots of different risk elements, and then visualises that analysis. What procurement functions are left with is a dashboard and red/amber/green indicators on the key areas that matter - rather than picking individual KPI data to focus on.
Samantha can you send Morris KPI to me please and I will be sure to provide you with my comments.
My email address is [email protected]
An extension to this question would be: How would you go about measuring these KPIs and making sure that employees are not squandering their time trying to hit certain KPIs that might not return any results, yet alone swindle their way to gain better rankings on their KPIs?
Majoi, if ever you are in doubt then I would suggest you look the principles supported by the CIPS foundation. www.cips.org
Best of luck!
Thanks for all who shared their thoughts. Gary, thanks for answering the second half of the question.
Do you believe that this evolvement in KPIs, beyond the 5 rights or consolidated set, are really things that can return quantified results? Gary you labeled them as "fashion" KPIs, giving me a sense that you seem to devalue their importance.