10 Procurement KPI’s, Part I
By Charles Dominick, SPSM
PurchTips - Edition #180
How Do You Compare Procurement Performance?
To know how well your organization is performing, you
need numeric baselines or points of comparison. The
baseline can be your prior years’ performance. But it is
most helpful if you use the same key performance
indicators (KPI’s) as other organizations you benchmark
with or those published by a research firm, such as:
1. Cost Savings. This is the aggregate amount of
money you’ve saved by reducing costs from one
year to the next. This KPI measures the
procurement department’s lump sum contribution to
the financial success of the organization.
2. Managed Spend as a Percentage of Total Spend.
Total Spend is the amount of money your
organization spends externally on products and
services each year. It does not include salaries.
Managed Spend is the amount of spend that the
procurement department controls. This KPI
measures the degree of trust that management places
in the procurement department’s capabilities.
3. Cost Savings as a Percentage of Managed Spend.
This KPI measures how effective the procurement
department is with responsibilities it has been given.
4. Procurement Operating Costs as a Percentage of
Managed Spend. Procurement operating costs
represent the costs the organization incurs for having
a procurement department. The cost components
may include pay, benefits, facilities costs, equipment
and software costs and more. This KPI measures the
procurement department’s cost efficiency.
5. Return on Investment. To calculate return on
investment, you must first calculate your “return.”
In other words, by how much does your cost savings
exceed your operating costs? Then, divide that
number by the operating costs to determine return on
investment. This KPI measures the procurement
department’s cost effectiveness.
June 16, 2009
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 10 Procurement KPI’s, Part II
By Charles Dominick, SPSM
PurchTips - Edition #181
Are Procurement KPI’s Limited To Financial Metrics?
The first five procurement key performance indicators
(KPI’s) discussed in Part I of this article have focused on
financial measures. But focusing only on money can
lead to operational disruptions, which of course leads to
lost money. Here are procurement KPI’s 6 through 10,
which focus more heavily on operational performance:
6. Percent of On-Time Supplier Deliveries. This
KPI measures how well the procurement department
gets what the organization needs when it needs it.
7. Supplier Defect Rate. Supplier defect rate can be
calculated by dividing number of defective items by
the total number of items purchased (or the number
of shipments with defects by the total number of
shipments). This KPI measures the quality of
purchases made by the procurement department.
8. Customer Satisfaction. Asking internal customers
to rate their degree of satisfaction with
Procurement’s performance or to indicate whether or
not they are satisfied can reveal valuable
information. When multiple organizations use the
same question, benchmarking satisfaction levels is
possible. This KPI measures the procurement
department’s ability to satisfy its internal customers.
9. Procurement Cycle Time. The average time it
takes between requisition submission and purchase
order placement is one measure of procurement
cycle time. Another type of procurement cycle time
that can be measured is the time it takes from the
beginning of a sourcing process to the time that a
contract is signed. This KPI measures the
procurement department’s productivity.
10. Value of Supplier Idea Implementation.
Advanced procurement organizations actively solicit
ideas from suppliers for cost savings, revenue
growth, and the like. They track these ideas and
June 30, 2009
Procurement Key Performance Indicators (continued)
measure the contribution to the organization’s bottom
line. This type of collaboration is advanced by today’s
standards but is becoming more common. This KPI
measures how well the procurement department
leverages the intellect in the supply base.
The Latest Purchasing News!
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rock the purchasing certification world! To be
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news, watch for your emailed edition of PurchTips
or follow my blog at:
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.
Spotlight On Professional Development Opportunities
Are you tired of not getting enough opportunities,
respect, and money out of your purchasing career?
Well, guess what? Nothing will change unless you take
action towards becoming a world-class purchasing
professional.
You see, today’s employers refuse to reward
employees for yesterday’s skills. They demand that
purchasing professionals like you use the most modern
skills and achieve unprecedented results. They want you
to save more money, achieve better operational
performance, and reduce risk.
Earning your SPSM® Certification by completing the
Senior Professional in Supply Management® Program
is the action to take if you want to bring the most
modern purchasing practices into your organization
and achieve your career potential. Learn how to earn
your SPSM® Certification (and perhaps get an iPod) at:
www.NextLevelPurchasing.com/spsm.html
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