Procurement key performance indicators (KPIs) are a common term in procurement discussions, yet they are not universally defined. What constitutes a KPI can vary significantly across businesses, leading to uncertainty among procurement leaders about which metrics truly matter.
To ensure effective decision-making and performance tracking, it’s essential to prioritize purchasing KPIs that are most relevant. This involves gaining a deeper understanding of purchasing metrics and examining the KPIs adopted by industry leaders.
What are procurement KPIs?
Moreover, procurement KPIs enable businesses to align with their overarching process goals, procurement strategies, and broader business objectives.
Why measure the efficiency of your procurement process?
While cost savings are a primary objective of procurement performance, its scope extends beyond that. Through measuring the performance of procurement processes, organizations can address other significant questions, such as:
- What areas require improvement?
- How do we benchmark against other organizations?
- Are we experiencing improvement or decline over time?
11 KPIs every procurement team should measure without fail
Here are eleven procurement KPIs that organizations should monitor:
- Compliance rate
- Supplier defect rate
- Accuracy of purchase orders and invoices
- Rate of emergency purchases
- Supplier lead time
- Purchase order cycle time
- Vendor availability
- Cost per invoice and purchase order
- Spend under management (SUM)
- Procurement ROI and benefits
- Price competitiveness
These procurement KPIs can be categorized into three main groups based on their purpose: ensuring quality, enhancing delivery, and achieving cost savings. It’s crucial to note that all three categories are interconnected, and focusing solely on one may negatively impact the others, ultimately diminishing process sustainability.
1. Quality KPIs: Ensuring Quality
Compliance Rate
Metrics to track:
- Ratio of disputed invoices to total invoices
- Total price variance between paid and quoted prices
Supplier Defect Rate
Supplier defect rate = Number of substandard products / Total number of units tested
Purchase Order (PO) Accuracy
Indicators to monitor:
- Ratio of products/services delivered outside the predefined service target
- Percentage of erroneous deliveries compared to the total number of purchase orders within a specified period of time
2. Delivery KPIs: Improve delivery
Rate of emergency purchases
Reducing the frequency of emergency orders enables organizations to:
- Save expenses
- Enhance procurement strategies
- Mitigate supply risks
- Ensure operational continuity
Supplier lead time
Supplier lead time = Delivery time (Goods and receipts delivery) – Order time (PO acceptance)
Purchase order cycle time
Vendor availability
3. Cost-Saving KPIs: Receive savings
Cost per invoice and purchase order side
According to a recent APQC survey, organizations with limited or no automation typically spend a minimum of $10 per invoice.
Spend under management
SUM = Total approved spend (i.e., direct, indirect, and service-related cost ) – Maverick spend
Procurement ROI
Procurement ROI = Annual cost savings / Annual procurement cost
Price competitiveness
Price competitiveness can be evaluated by comparing the actual price paid with the market prices published on procurement intelligence platforms such as Beroe Inc.
Moreover, this approach empowers procurement leaders to generate tailored reports showcasing key metrics such as purchase order cycle time, emergency purchase rates, and annual procurement savings relative to annual procurement costs.
Using an eProcurement tool is the key to improve procurement performance
Using an E-procurement software offers a number of great benefits like:
- Drastic reduction in process time
- A steep rise in productivity
- Increase in speed and efficiency
- Radical gains in terms of compliance
- Substantial cost savings
- Significant reduction of risk
- Enhanced visibility of the whole process
Visualizing and tracking procurement KPIs using Zapro Procurement
Zapro Procurement provides dedicated tools for essential procurement functions such as purchase order and request management, invoice and contract management, and vendor management. All data from these processes are interconnected and easily accessible with context, ensuring 360-degree visibility for consistency and transparency across the entire process cycle, including core processes like vendor evaluation and performance ratings.
Tracking procurement KPIs is simplified with Zapro’s function-specific tools that efficiently collect, store, and analyze necessary information with minimal human effort. The collected data is then securely shared with all relevant parties with role-based access.
Furthermore, Zapro Procurement can automate reminders for procurement leaders and vendors to ensure processes stay on track.
Additionally, procurement leaders can leverage Zapro to generate custom reports showcasing key metrics such as purchase order cycle time, emergency purchase rates, and annual procurement savings relative to annual procurement costs.