Purchasing Managers' Worst KPI Mistakes
PurchTips - Edition # 190 November 3, 2009
By Charles Dominick, SPSM
Are Your Purchasing KPI's Truly Strategic?
Purchasing managers often consider measuring purchasing performance to be a way of demonstrating the strategic value of the purchasing function to top management. Unfortunately, there are a couple of mistakes in measuring and reporting purchasing performance that produce the exact opposite effect.
In discussions with other purchasing professionals, I often learn of key performance indicators (or KPI's) they use. Some are good. Some are absolutely horrible!
One common mistake is considering every measurement a key performance indicator. Let me state this in no uncertain terms: Not every purchasing performance indicator is a purchasing KPI!
Another mistake is thinking that just because you can measure something means that you SHOULD measure it. Doing so dilutes your focus on what's truly important, wastes time, and can make you look bad!
Discussing KPI's reveals whether a purchasing manager is truly a strategic thinker or not. When your CEO sees your purchasing KPI's, s/he wants to know:
- How do those KPI's directly reflect contribution to the profitability of this organization?
- How do those KPI's directly reflect contribution to the satisfaction of our customers?
- How do those KPI's directly reflect contribution to the advantage we would have over our competitors?
- How do those KPI's directly reflect contribution to the operational efficiency of this organization?
- How do those KPI's directly reflect contribution to my goals?
If the answers to those questions are clear to your CEO, you're truly using strategic purchasing KPI's. Don't forget that the "K" in KPI stands for "key," meaning "important" - not important just to you, important to your CEO. So, report true KPI's, not mere PI's!
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