How do you measure the effectiveness of procurement process?
Today’s businesses want procurement groups to deliver value in addition to cost reductions. As a result, procurement executives are continuously looking for methods to enhance and sustain their Procurement Process. They do not, however, wish to make any judgments without the necessary facts. As a result, they measure a variety of data as key performance indicators.
While KPIs procurement (key performance indicators) are a frequently used buzzword in the procurement community, they are not rigid. Procurement KPIs imply various things to different organizations, nearly to the point where most procurement leaders are unsure of what constitutes a KPI.
However, how do you know that the KPIs being measured are the most critical when it comes to performance and decision-making monitoring? This will be possible only by obtaining a deeper grasp of the measures and examining the procurement KPIs utilized by industry leaders.
What are procurement key performance indicators?
Procurement key performance indicators (KPIs) are performance assessment instruments used to analyze and monitor an organization’s procurement management efficiency. These key performance indicators (KPIs) assist a company in optimizing and controlling expenditure, time, quality, and cost. Additionally, procurement KPIs assist organizations in maintaining alignment with their overall process objectives, business objectives, and procurement strategies.
Here are a few tried-and-true methods for evaluating procurement performance:
Cycle Time of Procurement
The procurement process time refers to the period from the moment a requisition is created and when the products are received. Reduced cycle times for purchasing services and products is an efficient approach to reduce procurement expenses.
By optimizing the procurement process with suppliers, the time required to acquire the desired goods may be considerably reduced. According to APQC’s research, e-commerce/e-procurement software may reduce the cycle time of an organization from seven to two days. Not only does this ensure that critical items are delivered on time for critical projects, but it may also improve procure-to-pay efficiency.
Vendor performance
Vendor performance management is the process of monitoring and assessing your company’s vendors’ reliability, quality, and performance. Monitoring suppliers may assist your business increase efficiency and profits, decrease inventory expenses and stock levels, and increase customers.
Savings on costs
Cost savings continue to be a critical indicator for determining the procurement function’s effectiveness. According to a recent study, world-class procurement organizations spend 21% less and employ 29% fewer full-time equivalents while yielding more than double the acquired cost savings of typical procurement organizations.
Cost reductions may seem straightforward, but how are businesses successfully lowering costs? One direct approach is to lower the cost per order, which may be accomplished via the use of strategies such as:
- Investing in digital technologies and automation of processes
- Integrating self-service for vendors
- Adding features for mobile requisitions and approvals
- Utilization of guided purchasing catalogs
- The proportion of purchase orders that are catalog-based
This statistic is not on everyone’s list, but it gives important insight when utilized as a proxy for contract and pricing compliance. When most frequent purchases are made through approved suppliers with pricing contracts, costs are normally cheaper, service is typically better, and mistakes are rare. Additionally, companies may decentralize the requisition process by utilizing guided purchasing catalogs, allowing individual users to begin the process and freeing up the procurement division to negotiate even better prices. Only when you start tracking the efficiency of your procurement process will you be able to demonstrate the value that the procurement team and its people add to a company.
