Procurement KPIs are a performance tool used by people to assess and control competence. It makes sure that the money, time, and other regulation occurs optimally. It is the procurement team’s duty to garner resources that save time and money.
However, these days companies also want the procurement process to be more sustainable. They wish to make the correct information using data and KPIs. The right data can be an utter game-changer. Key performance indicators are primarily valuable for procurement teams.
They help brands steer in the correct direction; however, KPIs can mean different things in different businesses. Following the metrics is eye-opening during the procurement process. The final decision-making becomes simplified. It also brings to light different procurement strategies that can be instrumental in a work setting.
KPI’S TO CONSIDER
- Quality above everything
A product’s quality indefinitely affects the production purpose and might cost you a client altogether. The contract must be ironclad and assure legal security. You must oversee details like penalties for late shipment or damaged goods. That can significantly enhance the compliance rate.
Also, assess the supplier’s defect rate (it helps determine their product’s quality) to ensure more reliability. The supply costs must be dwindled to ensure the profits are intact.
- The delivery system must be improved.
Sometimes, the clients might demand an emergency delivery which is not a part of the fixed orders. They calculate this metric using the ratio of emergency orders to the fixed order. The company must try their best to reduce the emergency order because they cost more. They also pose severe supply risks and might break the continuity in this cycle.
- Supplier lead time
Supplier lead time refers to the time between an order being received and shipped by the supplier. It entails the beginning and end of the supply chain. Companies assess manufacturing, supply chain, management, and project management to understand the bottlenecks causing disorganizations.
If they dwindle the lead time, companies can enhance productivity and increase profits. Higher lead times can be a detriment to one’s business.
- Purchase order accuracy
It is an essential metric and is directly linked to the relationship between customers and sellers. When a customer places an order, they expect everything to go seamlessly. But, along the way, the company might experience numerous hiccups like late delivery, wrong items being shipped, or damaged goods.
They do not care about different bumps along the road because they want their money’s worth. Having proper systems in place can implement these expectations and add agility to this cycle.
- Compliance rate
In the absence of compliance, the company can face numerous perils. It might compromise the buyer’s power in a competitive atmosphere. A clever compliance program conforms with different ordinances, and the solutions comply with the terms mentioned in the contract.
The answer is reduced maverick spending and increased spending visibility. To ensure that the paperwork is in place, one can do a sit-down with the legal team and oversee any flaws. Doing so will guarantee compliance and evade breaches.
It also helps in controlling regulatory compliance through the supplier onboarding process, thereby diminishing supplier risk. The company must stay on top of details like contact expiry and others to evade unnecessary losses.
These are some of the essential KPIs of procurement.