You probably have key performance indicators (KPIs) for many areas of your business. KPIs allow you to look at specific goals, marking progress in an objective manner. But I am curious about how many fleets have established KPIs to gauge the effectiveness of their procurement processes? I would guess the majority of fleets have not, and it could be because they are unsure what to track.
Here are six KPIs that make sense for your procurement efforts.
- Procurement ROI: How does the total internal cost of maintaining the procurement team compare to total savings achieved from cost reductions and/or cost avoidance by the procurement team?
- Spend under management: What portion of your spending is managed directly by your procurement team? How much is direct spend and how much is indirect spend? How do purchases break out by spend categories?
- Percentage of contract price: How many invoice line items are charged at stated contract prices and how many are charged prices above those stated in your agreements? What percentage of your spend does this overage represent?
- Average delivery/lead time: What percentage of deliveries are on time according to your supply agreements? For late deliveries, what is the average number of days beyond the contracted delivery period that products are received?
- On- vs. off-contract purchases: What percentage of spend is made up of purchases that are not governed by contracts (aka rouge spend or dark purchasing) when there is an on-contract option? How much money would have been saved purchasing via an existing contract?
- Purchase/PO cycle time: How long does it take from the time a purchase request is made to the time a purchase order is initiated? And how long from when it is initiated until it is issued to a supplier?
This list is a good starting point for establishing KPIs for your procurement function. Your list will vary based on your company’s goals and objectives. When establishing your own KPIs, ask yourself the following questions:
- How many metrics am I analyzing and reporting on regularly?
- How many actually help me track against my goals?
The ones that help you track against the goals you have are the ones you need to keep and continue tracking. The others are just data for data’s sake and can be eliminated.