In recent years, the procurement area has undergone significant transformations. The buyer is no longer just an ‘order taker’ and has evolved into a strategic professional. With these changes, monitoring KPIs (Key Performance Indicators) is now crucial in the procurement routine.

KPIs are indicators that help measuring the performance of any sector with regard to the goals of businesses. In procurement, KPIs allow to manage processes based on facts and data, and not on mere assumptions. With the ongoing advancement of technologies, KPIs can be tracked in real time, thus enabling buyers to be more agile when making decisions.

Procurement KPIs must be chosen carefully, to ensure they are aligned with company goals. It’s important to remind that they must be specific, measurable, achievable, relevant and based on defined deadlines. Tracking these metrics allows the buyers to anticipate problems and make the required adjustments. Moreover, the use of indicators increases transparency, leading to a data-driven culture.

We have selected below the key KPIs to monitor, evaluate and improve the performance of your procurement area:

1. Saving

Saving, an economic indicator, is considered one of the main procurement KPIs. In short, it’s the cost avoided when closing a purchase with less than what was initially quoted.

It helps to evaluate the team’s performance in negotiations with suppliers, with the purpose of decreasing acquisition costs and increasing the sector’s profitability.

Here on ME’s blog we have a post with step-by-step instructions on how to calculate the saving in procurement. Access it here.

2. TCO (Total Cost of Ownership)

TCO compares the actual overall cost of the acquisition with the initial quotation, considering purchase price, transport, freight, storage and taxes.

It goes beyond the simple initial purchase price, and incorporates a range of other costs that may occur over time.

Several kinds of costs can be taken into account by this KPI, such as operational, maintenance, training, disposal and lifetime of products.

3. Delivery level

The delivery level KPI evaluates supplier’s performance and regards the delivery of products – such as, for instance, delays or items that don’t meet quality standards.

One way to measure delivery level is to appraise the return rate with regard to the overall number of purchased products, showing the percentage of defective goods.

As to deadlines, the company can evaluate the latest deliveries from the supplier, to know if they match the agreed period or if delays are constant.

4. Lead time

Lead time is a metric that measures the required time to complete the whole procurement process, from supplier search and selection to product delivery.

This metric is important to assess the length of each stage in a procurement process. Therefore, the buyer can propose adjustments, in order to optimize the deadlines.

Moreover, lead time allows to evaluate the punctuality of suppliers and their history as partners of the company.

5. Price evolution

The price evolution KPI is a vital metric when managing procurement. This indicator measures value fluctuations over a given period, during the procurement process.

Following price oscillations is also vital to plan future purchases, as it recognizes periods of seasonality and the best offers that have been already negotiated.

With the help of this KPI, the company can also anticipate the purchase of a given product and keep it in stock – which can result in higher savings and expense control.

6. Productivity

There are several ways to evaluate the productivity of a procurement team. One of them involves analyzing the number of requests and transactions carried out in a given period.

Additionally, it’s important to observe the hours dedicated to certain weekly processes and the number of tasks performed in a given period.

The productivity KPI is a valuable tool, so the company can identify what adjustments must be made to decrease the operational burden on buyers. Deploying a digital solution to manage procurement, for instance, can be an excellent option.

7. Customer satisfaction

To establish the best procurement strategies, professionals must really understand the customer experience, considering that inputs are a baseline for the end product.

One of the most effective ways to find out if your product or service is pleasing consumers consists in conducting satisfaction surveys on a periodical basis.

The customer satisfaction indicator is a metric that involves the whole organization and must be considered one of the most important KPIs in procurement planning.

8. Cost of supplies

The supply cost indicator compares the volume of material and input purchases to the volume of sales, with the purpose of finding the percentage of costs for the sector.

By monitoring this KPI, the procurement area can identify cost reduction opportunities, optimize inventory management and understand whether it’s achieving a good return on investments.

In addition, the cost of supplies provides data to make strategic decisions regarding suppliers, negotiations and contracts, in order to achieve the best cost effectiveness.

9. Procurement and compliance policies

The KPI of procurement and compliance policies helps to ensure that procurement practices will comply with regulations and standards, thus cutting down legal and financial risks.

There are different indicators to evaluate when it comes to procurement and compliance policies. Each company must select the most important aspects to track.

Here are some examples: percentage of purchase transactions that comply with internal and external policies, participation in compliance-related training and risk assessments

10. Sustainable procurement

The procurement area is connected to the sustainability of businesses. Therefore, it’s more and more important to evaluate the proportion of purchases made from sustainable sources.

In procurement, this involves consideration for environmental, social and ethical factors when selecting suppliers, along with inputs for production, logistics and transport, among others.

This indicator reflects the company’s commitment in aligning its procurement practices with ESG, thus contributing to a more sustainable and ethical supply chain.

Has this content been useful to you? Register your e-mail to receive news from the B2B market!😉