This issue keeps raising it's head and I believe some professionals need to seriously think about the relevance and usefulness of some of these KPI's. For example if you are achieving cost savings month on month, where were you starting from? I would challenge anyone who claims that they meet a savings target on this basis. I also challenge who is it that establishes the KPI in the first place. From experience many come from the top of someone's head and is not based on achievable criteria. Also remember that KPI's are supposed to serve you and not the other way around. I do not want be on the Board of Directors, analysing mindless KPI's that are not relevant to the objectives of the business. If you have more the six you seriously have a KPI addiction. Keep it simple and focus on:
1) Supply Chain Security and Risk,
2) Cost Avoidance,
Remember if your business is competitive and the production line has not stopped due to a supply chain problem - it may be because you are just getting on with your job.
- total amount spent
- % of reduction of the prices
- % of on time delivered purchases - this should be connected with a time frame period, considered as acceptable ( for example within -5 to 0 days from stated on the purchase order delivery day)
- turnover of the stock in the warehouse
Influenceable spend per procurement team member
Contribution to corporate profit
1. Stakeholder Advocacy (as measured by surveying our key internal stakeholders, including the Exec level) - are we delivering value to our organisation, whether that be cost, risk, innovation etc in a timely manner
2. Customer of Choice (as measured by surveying our key suppliers) - are we developing strong commercial and strategic relationships for the benefit of both parties
3. Procurement Team Engagement (as measured by surveying the Procurement function) - do we believe in the organisational purpose and do we understand our role in making the organisaiton successful
I'd say it depends on the ethics of your organisation. In public sector I would expect to see compliance up there along with quality (time) and value for money.
I think we need to be honest - its P&L impact and incremental movements period to period. All other measures are only lead measures into the financials
Procurement contributions to
1. Value Creation as a '$ number'- (Bottom Line impact & Top Line impact to EBITDA)
2. 3rd Party Risk Management as a # of 'events' mitigated or avoided - (Business Continuity, Protection of Brand)
3. Customer Advocacy as a 'score' - (Your stakeholders, your suppliers and most importantly - your customers)
- I.e. How we measure this at Telstra and applying that concept to your suppliers and stakeholders (www.telstra.com.au/aboutus/our-company/future/improving-customer-advocacy)
Pretty hard to pick three!
Savings (actual and cost avoidance)
Speed of activity (selection and contracting)
Risk (material deviations form risk profile)
Total Spend per period (Monthly/Qtrly)
% savings in that period
Average turnover time for order creation
% On Time deliveries for same period
- Saving: In its different approaches [Classical, Avoidance and Contractual Disputes]
- Adhered to Procurement Plan: If only the organization type of works suit the adherence to it.
- Time: Tying the loose ends on time.
1. orders issued based on supplier selections vs orders issued without 2. hands free targets, reflecting price books to reduce procurement resources and operration, 3. supplier base consolidation.
On-Time Delivery to External Customer (they pay the invoice!)
Inventory Levels by $$ and by Slow-Moving/Obsolete inventory
Days of Inventory On Hand (helps push sales team)
Savings in Overall Spend or Price per Piece........make sure the data is accurate and easy to extract or it will become a burden and won't help with any analysis.....Have Fun!
Remember that procurement is evolving and the traditional way of measure procurement performance such as; cost, value for money, delivery etc. is giving way to issues like;
(1) Sustainability e.g. the level of adherence of the supplier to green issue in the production cycle;
(2) Ethics e.g. checks and balances on modern slavery, bribery & corruption in the supply chain;
(3) Agility e.g. the level of flexibility in dealing with an unexpected demand.
In my case, it would be...
* Ensuring levels of hardware stock and server capacity are maintained within acceptable limits.
* Keeping direct purchasing spend within budget (which varies according to a formula based around levels of new business).
* Number of requests for indirect purchases resolved.
KPI are in alignment with the organisational goals and overall objectives.
My views on KPI for Procurement function for purchases goods and services should evaluate
1) Total Cost of Ownership (TCO)
2) Spend/Saving Management
3) Suppliers Management
Hello there! I would select (i) sustainability, (ii) Agility, and (iii) service level agreement (SLA).
Hello there! I will go for metrics such as (i) sustainability, (ii) agility, and (iii) service level agreement (SLA). This can be assessed on monthly and / percentage basis (%).
From the total spend, how much is coveraged by Procurement
Compliance / Contracts adherence
Service Level Agreement (SLA)
OTIF (on time in full delivery)