Quality 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

Issues due to poor quality supply

Low-quality products and services may affect product quality and add additional organizational costs.
Do we procure materials and services that fulfill or exceed the requirement of our clients? This KPI quantifies the purchase quality of the procurement branch.

Metrics to follow:

  • Percentage of rejections. Goal: lower the percentage.
  • Rejection of services from service providers. Lower the disapproval rate.
  • Seller defect percentage. (Lower the defect rate, especially important if it directly affects customers).
  • Identification of metrics such as defects per million (DPM). Measure the progress being made towards quality improvement.
  • Direct supply quality standards. Goal: follow the supply quality standards.

2

Competitiveness among suppliers

Low competition among suppliers or a monopoly of a few suppliers leads to lower quality over the long run. Procurement should focus on increasing competition.
There should be a limited number of suppliers that have a key impact (based on significant dollar spend percent) on the total cost of goods procured.

Metrics to follow:

  • The percentage or suppliers accounting for the 80% of spend. This can be calculated by counting article by article. The goal is to decrease the percentage.
  • Competition among major suppliers for strategic supply. The goal is towards increasing the competition.

The emphasis should be on suppliers that can differentiate you or provide you with a distinct competitive advantage.

3

Are stakeholders satisfied with the quality of their suppliers

Stakeholders, both internal as well as external, are regularly asked to rate their degree of satisfaction with Procurement’s performance and offer recommendations if they so desire.
You should also obtain feedback from suppliers since that might be directed towards quality as well as savings.
The most vital area is obtaining more knowledge of what is critical to the paying customer. This knowledge can be used in many procurement-related activities.

Question to ask: Did we procure materials and services that fulfill or exceed the requirements of our clients?

Metrics to follow:

  • Percentage of key stakeholders satisfied with suppliers . Measure if satisfied or not (explain why) on numerical scale or satisfaction levels. Benchmark the results.
  • Follow the recommendations of stakeholders. Goal: execute if possible.
4

Continuity disruptions due to low quality

If your company faces continuity disruptions due to low quality, you might want to focus on increasing the quality of strategic materials.

Metrics to follow:

  • Setting a lower end quality standard for each article. Goal is to follow the quality standards.
5

Higher quality due to thorough expiration management

By lowering supply expiration, you will see an increase in production quality. This is especially important in the food industry, the chemical industry and IT. Product expiration rates can be improved by using procurement practices.

Metrics to follow:

  • Percentage of supply expiring. Goal: lower the percentage.
6

Purchase Order Accuracy

Low purchase order accuracy leads to higher operational costs and should be minimized. It should be measured across strategic supply articles, categories, buyers etc.
Question to ask: are suppliers delivering exactly what was ordered and at the right time?

Metrics to follow:

  • Percentage of vendor services delivered without agreed service targets. Goal: decrease the %.
  • Percentage delivered compared to what was ordered. Goal towards increasing the ratio.
  • Errors over total number of purchase orders per period of time. Goal is to decrease the % of errors.
7

The trustworthiness of suppliers

Several quality metrics can be used to measure supplier trustworthiness. They are often evaluated to provide extra value to bidding processes.
For low-value requests, trustworthiness is not measured, but for high-value requests (especially strategic products or services), it could play a significant role.
NB: The following are indicators and don’t necessarily guarantee the trustworthiness of a company.

Metrics to follow:

  • Suppliers with tax debts. Goal: lower the percentage of suppliers with debts.
  • Years a supplier has been on the market. Lower the percentage of startup companies.
  • Turnover rate. Aim to increase the % of companies with high turnover rates.
  • Number of employees. Goal: increase the percentage of companies with a high number of employees.
  • The percentage of certified strategic suppliers. These could be internationally approved standards, example: relevant ISO standards. Goal: increase the %.

These metrics should all be weighted and used as a secondary dimension when evaluating bid results.

8

Percentage of standard tender/bid procedures

Improving the percentage of bids following the standard tender/bid procedure can help increase the quality of products or services bought outside following the standard tender procedures.

Metrics to follow:

  • Percentage of procurement events that comply with standing procurement policies and procedures. Goal is to improve the %.
9

The professional development of procurement team members

Your procurement team’s professional development helps gear your department towards excellence in all aspects of procurement, including quality.
Procurement team members should be encouraged to obtain professional certifications, become industry experts and improve their overall knowledge of the business. These efforts should be awarded.

Metrics to follow:

  • Percentage of certified team members. Goal: increase.
  • Percentage of team members with in-depth knowledge of materials. Goal: increase.
  • Percentage of team members with in-depth knowledge of the industry. Goal: increase.
  • Number of trainings per team member. Goal: increase to a minimum of one per year.
10

Transparency-driven quality

Process transparency has multiple positive effects on overall procurement processes, like increasing quality, lowering maverick costs, increasing supplier participation rate.

Metrics to follow:

  • Transparent price information – how transparent are the prices for the executives. Example: do they have access to every bid? The goal is to lower the percentage of blind requests.
  • Are the procurement prices publically available to the stakeholders?
  • Percentage of bidding processes that are documented. Goal towards increasing the percentage.

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