Procurement teams have never had better visibility into supplier relationships or deeper access to spend at a granular level. Thanks to hardworking data analysts everywhere, we have more data-driven insights than ever before. With all this, you’d think Procurement would excel at building and hitting organizational goals – yet we aren’t seeing this happen. Where’s the disconnect?
Metrics vs KPIs
- Metrics are, to be blunt, dumb numbers. They are the simple quantification of a specific set of activities, devoid of any external context or nuance. Metrics are everywhere – anything you can tie to a measurement can be a metric, whether an evaluation is valuable or not.
- Key performance indicators are context-dependent. When we earmark something as a KPI, we’re applying the context of specific business objectives. KPIs are just as objective as any other metric, yet they allow us to draw inferences that speak to the greater whole of our organization through the lens of a specific goal.
Valuable KPIs for Procurement
- If our goal is cost reduction, this decrease could be good. Supplier consolidation provides negotiation leverage when going out to market and streamlines administrative processes.
- If our goal is risk reduction, this decrease could be bad. Supply chain disruption is most damaging when organizations rely on a sole source for mission critical materials or logistics partners to get them where they need to go.
Meaningful KPIs (and a Couple Duds)
- Procurement ROI: Beyond savings achieved (cost reduction or cost avoidance), what is the internal cost of maintaining Procurement initiatives?
- Spend Under Management: How many supplier relationships does Procurement touch directly and actively? How does this track between direct and indirect spend? Between spend categories?
- LPP vs. Contract Price: Do invoices match stated pricing in your agreements? What percentage of spend deviates from contract pricing?
- Average Delivery/Lead Time: How many supplier deliveries are on-time according to SLAs? What is the average number of days late among worst offenders?
Policy & Process Adherence
- On- vs. Off-Contract Purchases: How much spend goes to rogue, off-contract purchases that could be driven to on-contract items? What is the cost differential between these off- and on-contract buys?
- Purchase/PO Cycle Time: How much time elapses between a purchase request and a PO? Until the PO is issued to a supplier?
Avoid Reading Tea Leaves
- How many actually measure progress?
- How many are vanity measurements that say little (but look good)?
- How many are actually unrelated to your goals?
Author: Tom Rogers
Job Title: CEO
Organization: Vendor Centric