Performance indicators, or KPIs, help converting the procurement area into a leading sector within businesses. Why? Because by showing what is really working and what must be adjusted, they allow conducting the management of such area based on facts and data, and not simply guesswork.
Any information related to KPIs can be now displayed in near real-time, thus allowing buyers to make faster and more assertive decisions.
In this post, we will address the top 7 KPIs in supplies, and how technology can help achieve them. Keep on reading!
What are KPIs?
KPI is an acronym for Key Performance Indicator. KPIs are very important metrics for your company’s management process.
Acquisition time, costs, quality, customer satisfaction and productivity are some indicators that help quantifying how the procurement area contributes to business growth.
See below a list of the key KPIs that enable measuring procurement performance and optimizing the management of that area. Read on to find out more!
Seven KPIs in corporate procurement
A vital indicator for the financial area, Saving involves the savings achieved in acquisitions. In short, it’s the cost avoided when doing purchases with values lower than the quoted ones.
This KPI helps to evaluate team’s performance in negotiations with suppliers, in order to decrease expenses and generate profits. After all, $1 saved always means $1 profit.
2. Delivery level
The Delivery level KPI evaluates supplier’s performance and relates to product delivery: if any delays occurred or if the items didn’t meet quality standards, for instance.
One of the ways to measure delivery level is comparing return rate against all purchased products, to know the percentage of defective goods.
With regard to deadlines, the company can evaluate the last deliveries made by the supplier, to know if he’s delivering within the agreed period or if delays are constant.
3. Lead time
Lead time measures time in all stages of the procurement process, such as search, supplier selection, quotation analysis and product delivery to the consumer.
This KPI allows evaluating the period of each procurement step from request, and proposing the necessary adjustments for best results of the company.
Besides enabling an internal assessment of procurement deadlines, Lead time monitors the fulfillment of deadlines by suppliers and their history as partners of the company.
4. Price evolution
In supplies, the Price evolution KPI measures the fluctuations undergone by values, within a given period, during the procurement process.
It helps to plan future purchases, as it recognizes seasonality periods by showing the best offers already achieved in previous purchases.
It’s an indispensable indicator to earn more savings in procurement and to control expenses – the company can anticipate the purchase of a given product, for instance, and keep it in stock.
There are different ways to evaluate the productivity of a procurement team. One of the options consists in analyzing the number of requests and transactions carried out within a given period.
Additionally, it’s worth noticing the number of hours per week dedicated to certain processes, along with the number of tasks performed within a time period.
The Productivity KPI helps businesses to see any adjustments that must be made to reduce the operational burden on buyers – such as deploying a digital solution for procurement management.
6. Customer satisfaction
To develop the best direct purchase strategies, buyers must know how the customer experience is going on. After all, inputs are the base of end products.
The most usual way to know if your product or service is pleasing consumers is to listen to what they have to say, isn’t it? And this is made possible through a regular satisfaction survey.
The customer satisfaction indicator involves the whole organization and must be considered one of the most important KPIs for procurement planning.
7. Cost of supplies
The Cost of supplies indicator compares the purchase and sale volumes, to find the percentage of cost of items with regard to sales.
The result can indicate the need to invest in improvements and cost reduction, to render this cycle more sustainable.
Calculating the Cost of supplies KPI is relatively simple: it’s only a matter of dividing the purchase volume by the overall sales.
How can technology help measuring KPIs?
With the advancement of technologies for the procurement sector, these KPIs can be measured with the help of some tools, such as Mercado Eletronico’s e-Procurement solution, which consolidates the procurement flow, from request to payment, in a single location. It provides also information and charts that the entire team can easily understand.
Instead of spending time with e-mail exchanges, and manual and decentralized operations, the teams will be able to focus on tasks and numbers that really make a difference for the area and the organization as a whole.
We’ve seen above the importance of KPIs, along with some examples of indicators that can help the procurement area to measure its performance and make the required changes, in order to reach its goals.
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