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5 Procurement KPI that ROCKS

How do you evaluate the performance of your Procurement function?

on 23 November 2013

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Transcript of 5 Procurement KPI that ROCKS

Procurement Cycle Time
Measures the amount of time it takes to process an order from the time the
Purchase Requisition (PR)
is placed and ends when the
Purchase Order (PO)
is sent out to the vendor.
Total Cost Savings
Measures the amount of money saved by the
Purchasing Department

on an order. If the product cost was U$10.000, and your purchasing agent was able to negotiate the cost down to U$9.000, that’s a U$1.000 or 10% Total Cost Saving for your company.

Also can be expanded to other cost items, such as the amount of money saved on the
Cost of Ownership
of a product over time. For example, if you always buy the same raw materials year over year, your purchasing agent may negotiate the price down for next year.
Managed vs. Total Spend
This KPI takes the amount of money spent by going through a managed purchasing process and compares it to the total amount of money spent by the company over a certain period.

For example, if U$500.000 was spent by the company during a month, and U$495.000 of that money went through the purchasing department, the Managed vs Total spend would be (U$495.000 / U$500.000) x 100 = 99%.

That U$5.000 that was spent outside the
Purchasing Department
, may have been lower if it went through the Purchasing department’s strategic sourcing practices. Basically, the purchasing department’s strategic relationships with vendors may have saved you more money, instead of you spending U$5.000 without any strategic process or relationship in place.
5 Procurement KPI that ROCKS
Contract Compliance
Measures the vendor’s compliance to the agreements that were negotiated:
Terms and conditions
Delivery schedule, etc

Tracking this KPI for every vendor ensures that the right contract terms are in place, so that unnecessary delays do not occur.
Procurement ROI
This KPI takes the total cost savings that the
Purchasing Department
was able to gain from all its strategic techniques, and compares it to the department’s budget.

If the
Purchasing Department
has 12 employees, their total salaries can be the total budget, let’s assume U$900.000 last year, and if they saved the company U$500.000 last year, then your company’s Procurement ROI is ((U$500.000 – U$900.000) / U$900.000) x 100 = -44,4%. This means the department was not able to save enough money to cover its budget last year.

A positive ROI would make it a revenue generator for the company.
How do you evaluate the performance of your Procurement function?

5 Procurement's KPI that ROCKS
Eng. Amintore Confalonieri
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