Procurement KPIs

Procurement KPIs (Key Performance Indicators) are management tools designed to monitor procurement department performance and help meet goals, strategies and objectives.

Procurement KPIs

Sustainability and constant improvement

The primary goal of every procurement organization is keeping the procurement sustainable and constantly looking for ways on how to improve the procurement processes.

The KPIs help point you in a direction – improve performance levels, identify breakdowns in a process and are a driver of continuous improvement for more efficient and sustainable procurement processes.

Characteristics of KPIs

KPIs should be relevant your business or department and simple to use. When developing your first KPIs, five or six is more than enough. You don’t want to become overwhelmed and find yourself serving the KPIs rather than having them serve you.

Following KPIs shouldn’t be about hours of gathering data. If you are establishing your first ones, start with just one or two so that everyone can understand them and their purpose. Later on you can add more.

How should you set up your KPIs?

1
Before starting to establish KPIs, you should figure out what your stakeholders need and what are the company’s strategies and objectives for the future. It starts with meeting the company management as well as other stakeholders (More info here).
2

Look for ways the procurement department can help meet them, and then look for metrics that reveal your progress towards achieving those goals.
There is no one-size-fits-all formula for all companies and the goals as well as the KPIs are most usually custom.
3

Introduce the newly established KPIs to procurement organisation employees as well as all the stakeholders. Everyone should be well aware about the metrics, the reporting as well as the goals of them.
4

The metrics should then be signed off by management in order to maintain accountability, and later on they will be reported on in future business meetings.

The three major groups of KPIs

The goals of KPIs can be divided into three major groups according to their purpose: receive savings, increase quality and improve delivery.
All three groups are tightly bound together and it’s important to understand that these are like a three-legged stool: if you are setting up your KPIs from only one of the groups, you don’t want to harm either of the other two because it might decrease supply sustainability.

The following are KPIs you may want to consider using in your company:

What you want to avoid when setting up new KPIs

Focusing on cost savings can lead to late delivery or low quality – You don’t want to find yourself in a situation where your company or project is waiting for missing strategic products/services and wasting high hourly costs just because you are focusing only on cost savings, and the cheap products/services you bought didn’t arrive on time.

Only set up what you can deliver – It’s smart to keep in mind that you should only set up what you can deliver since you don’t want to find yourself in a situation where you are constantly reporting on not meeting KPIs. If that becomes the case, it means your KPIs weren’t carefully chosen.

The greatest output is achieved by balancing all 3 KPIs – It’s necessary to understand that cost savings, quality and delivery are mutually inclusive and focusing on only one attribute could result in an overall less efficient system. A balance between all three KPIs – cost savings, uninterrupted supply and controlled stocks – is required for greater output.

Misusing KPIs can damage business processes – You have to be careful with all of your KPIs since misusing them can unintentionally create behaviour that the business does not want to encourage. You don’t want to find yourself in a situation where business units and buyers are hanging on to stock that is redundant solely to protect KPIs when it is actually hurting business processes.
Unnecessarily holding on to stock might also lead to depreciation, which further reduces the value of the stock.

Different stakeholders may have conflicting KPIs – When different stakeholders within the same team have conflicting KPIs and there is a KPI alignment issue between you and the organisation, you need to consider initiating a dialogue to solve the problem in a way that’s best for the company.

Free Comprehensive Procurement KPIs Guide
download the guide and learn how to:

Improve Supply Quality

Save on Costs

Improve Delivery

Grab the free guide now, and establish your first Procurement KPIs today!