You will always see improvements behind a KPI. This metric can help you understand if your company is taking the right track to success – and if that is not quite the case, it can show you to where you can best direct your attention. When used to monitor the procurement process, the KPIs, or Key Performance Indicators, help set clear goals for the procurement area.
As concrete data captured by KPIs are based on information such as time, cost, customer satisfaction and productivity, these tools are a must for companies to improve their management, think strategically, and better focus on profit.
In general, procurement professionals haven’t incorporated yet all metrics needed to become experts in the core business management of their areas. If this is your case, don’t be discouraged.
This work can now be easier with devices that track KPIs for you. This is the case with an e-procurement solution, in which all information on transactions and suppliers are gathered in a single place. With the automation of procurement processes, the results are more accurate and are shown in charts that can be easily interpreted by the entire team.
Additionally, the analysis of indicators for corporate procurement is changing the way the area is managed. This is because many of the key issues for a process as complex as procurement could easily go unnoticed. When a procedure is changed, the points that evaluate the general procurement efficiency will be included, along with other important questions for the development of that area.
Here are some examples of KPIs indicated by Mercadoe, to optimize the management of his area:
1- Lead time– This indicator measures the period of time from the ordering of raw material to demand fulfillment. This includes search time, supplier selection and quotation analysis. This KPI is often used to analyze the operational efficiency of the industry.
2- Level of deliveries – Delivery indicators assess the efficiency and reliability of suppliers, as well as the performance of company’s logistics. Basically, it evaluates numbers that are able to compare the expected delivery time with the date the order was actually shipped.
3- Return rate – It’s important to find out the number of returned goods and the quantity of defective products. With this metric, you can check if the right purchases are being made, and therefore find out if the procurement processes are correct.
4- Customer satisfaction – The companies can ask feedback and suggestions from their own customers, regarding the service and product quality. In this way, every company can discover the public satisfaction level and, based on this, develop strategies to improve the service.
5- Productivity – There are different ways to evaluate procurement team productivity. One of the options is to analyze the number of orders and transactions performed within a certain period of time. In addition, it’s worth observing the number of hours per week dedicated to certain processes or the number of tasks performed within a given time period.
6- Saving – A vital indicator for the financial area, it measures the ratio between what was quoted and bought. In other words, its goal is to know what the gain was, how much was saved and what costs were avoided. This KPI evaluates the effectiveness of the department team to make good deals, reduce costs and generate more profits.
7- Price evolution – It compares previous values with the current ones, in order to measure price fluctuations during the buying process. The company can use the results of this indicator to recognize seasonality periods – that is, when certain products are offered more favorably, or when certain materials have higher prices.
8- Cost of supplies – This indicator compares the volume of purchases and sales to find the percentage of sales that is being applied to purchases. The result can indicate the need to invest in improvements and cost reductions, to make the cycle increasingly sustainable.
These KPIs are essential tools to raise the company’s productivity levels. Therefore, it’s worth considering the adoption of a system to evaluate your company – since the more you analyze, the better the chances of improvement.