Delivery improving KPIs

Here you will find essential KPIs that help you to improve your procurement processes. Using some of the KPIs, may help you establish strategies to improve the delivery as well as continuity of your supply.

1

On-time delivery (especially important for strategic supply)

Getting materials at the right time is especially important for strategic supply since late delivery might affect supply chain continuity, and early delivery results in higher inventory and operational costs.

How it’s measured:

It is measured by comparing the frequency of on-time deliveries to early and late deliveries.

Goal: lower the number of errors in an agreed-upon timeframe for deliveries.

On-time delivery helps to:

  • Maintain continuity.
  • Improve inventory management.
  • Save on costs.
  • Lower supply chain risks.

2

Purchase order accuracy – right quantity and right product

Purchase order accuracy indicates whether the suppliers are delivering the right quantity of the right goods.

Low purchase order accuracy might result in:

  • Extra inventory or operational costs.
  • Short quantity can interrupt continuity.

This is especially important in industries where the strategic materials expire quickly, example in food industry.

How it’s measured:
It’s measured by calculating the percentage of purchase orders with line item, pricing, supplier data, quantity or delivery date, and addressing errors over total number of purchase orders per period of time. Purchase order accuracy is usually different for different buying channels or categories.

Goal: improve purchase order accuracy.

Improving the purchase order accuracy helps to:

  • Save on costs.
  • Obtain a higher quality.

3

Out of stock

Running out of stock due to lack of raw materials (strategic supply) is the first thing to avoid for every company since its immediate consequence is interruption of continuity. Your whole factory or unit can’t do their job and it costs you high hourly waiting costs. It may be even worse if the whole company is waiting.

How to prevent out of stock:

Preventing running out of stock is a combination of better inventory management, collaboration with strategic suppliers and procurement planning.
The risks should be minimized as much as possible by optimizing all three areas.
In emergency cases if operations are at risk, it may be necessary to buy something as quickly as possible even at a high cost, because waiting costs usually exceed higher material costs.

Goal: prevent running out of stock. That should be a top priority for procurement department.

Eliminating or minimizing the out of stock risk helps to:

  • Maintain continuity.
  • Save on costs.
  • Lower supply chain risks.
  • Lower operational costs.

4

Percentage of emergency purchases

Emergency orders are non-planned actions used to prevent stock shortages, which is essential for maintaining continuity of production. The percentage of emergency purchases is an indication of the efficiency of your Procurement Planning Process.

How it’s measured:

Percentage of emergency purchases done over a month or specific time period to the total purchases during the same period. It should be measured across strategic items.

Goal: lower the % of emergency purchases

Lowering emergency purchases helps to:

  • Maintain continuity.
  • Save on costs.
  • Better plan procurement.
  • Lower supply risks.

5

Reduction of inventory

Managing your inventory better will improve availability of materials as well as improve continuity of supply. Improving inventory management has multiple benefits for the company: including lowering costs as well as minimizing the indirect material stored in the inventory.
In smaller companies, inventory is usually managed by a supply chain manager and in bigger companies, by an inventory manager. Whichever the case, it should be seamlessly coordinated and controlled.

How to reduce inventory:

  • Strategic supply inventory is reduced by setting minimal and maximal stock resources for each article and following them on a daily basis. (Below the minimal quantity can harm continuity and above the maximum just adds expenses for inventory management and ties up the money.)
  • Indirect material inventory resources should be minimized or eliminated if possible.

Goal: lreduce inventory and improve inventory management.

Reducing and better managing inventory leads to:

  • Lower financing on inventory and improve work capital. The money is tied up in inventory.
  • More free space in the inventory for other products.
  • Improvement of supply continuity.
  • Cost savings.
  • Availability of materials.
  • Lower operational costs.

6

Expiration management

Expiration management is about reducing the number of products that expire before use through Good Procurement and Inventory Practices.
It can be included in the discussion on-time delivery, purchase order accuracy and inventory management, but in some industries, expiration management is significant by itself (makes up a science). Example: industries where the supply expires fast (e.g. food industry).

How to manage expiration:

  • Purchase orders have to be thoroughly calculated. You want to make sure incoming material quantities don’t exceed the delivery order. This should follow established expiration management procedures.

Goal: minimize or eliminate materials expiring in inventory.

Improving expiration management helps to:

  • Lower costs.
  • Lower inventory and operational costs.
  • Increase supply quality.

7

Risk management

Improve your company’s risk management strategies by making sure your suppliers are not too dependent on you. Limit the % of their turnover done with you to 30-50% max.

How to manage expiration:

Calculate the percentage of your spend per supplier based on the turnover rate of each particular supplier. The turnover rate should not be higher than 30-50%.

Goal: minimize the percentage of your spend on the supplier based on the supplier’s turnover rate.

Want to check more Delivery KPIs?

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Also check out Cost-saving KPIs (download here) and Quality-improving KPIs (download here).

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