Procurement teams are under constant pressure to meet the procurement needs along with complying with the corporate strategy.
With multiple internal and external factors at play such as limited budgets and dynamic markets, it gets difficult to achieve the required goals.
To effectively execute and manage procurement processes, key performance indicators are developed. Procurement Key Performance Indicators (KPIs) are used to determine which areas of procurement are performing well and which ones need to be improved to meet organisational goals.
Top three Key Performance Indicators to monitor
Here are the top three procurement KPIs that your team should monitor in order to enhance their procurement function:
- Process efficiency relevant KPIs
To ensure your processes are efficient, try setting KPIs that monitor the time taken to perform procurement-related tasks.
You can monitor Requisition-To-Order Cycle Time, allowing you to evaluate each supplier’s ability to satisfy your organisation’s demands in the shortest time and at the lowest cost.
Similarly, monitoring Electronic PO and Invoice Processing and Invoice Approval Cycle Time will help you monitor the internal efficiency of the organisation and will highlight how manual processes are affecting the timeline of your procurement process.
- Spend optimisation relevant KPIs
These KPIs ultimately help in controlling the spend made by the procurement teams. By measuring indicators such as Percentage of Core Spend Suppliers you can monitor how much you are spending on your core suppliers and whether there is a chance for cost cuttings.
Another effective way to set KPI on Structured Spend: this represents the percentage of purchases and spend which goes through an electronic catalog. You can also set limits to On-contract, and Pre-approved spend to ensure employees are using agreed and approved rates.
- Risk management relevant KPIs
You can also monitor and manage any potential risk by setting certain KPIs.
For example, you can design a First-Time Match Rate KPI that measures the quality of documents such as invoices and purchase orders received and the efficiency with which employees verify them. A low rate indicates discrepancies in the process and more vulnerability to risk.
In addition to this, Contract Management Cycle Time will help you assess how long it takes from creation and approval to negotiation, signing, and onboarding of suppliers. The longer the process, the more likely you are to lose the supplier or be more exposed to supplier-related threats as they are not bound by a contract yet.
The process of creating procurement KPIs for a company isn’t always straightforward. However, when procurement professionals take the time to identify their business needs, it’s simple to choose those that are aligned with the company’s objectives.
Often overlooked, these are some important KPIs that if implemented can help procurement teams in identifying issues, increasing visibility, and enhancing your procurement department’s performance while protecting it from risks.
About the author
Mohammed Kafil is a certified procurement consultant who has been coaching companies to establish resilient digital procurement operating models for over a decade now.
With Kissflow Procurement Cloud, a flexible procurement software that streamlines end-to-end procure-to-pay, invoice management systems, and also eventually the supplier management software, Kafil helps medium and large enterprises with their digital transformation projects. In the recent past, he has also worked with Fortune 500 companies to implement platforms like Coupa, Ariba, Ivalua, and BuyerQuest.