PurchTips edition #181

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:

• Percent of On-Time Supplier Deliveries. This KPI measures how well the procurement department gets what the organization needs when it needs it.
• 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.
• 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.
• 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.
• 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 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.

To learn more about Procurement KPI’s, considering enrolling the Express Course series Procurement KPI’s & Business Acumen.

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