Procurement Key Performance Indicators: Your Passport to Success

Every procurement company or organization that aims for excellence should have procurement performance indicators. It is a means to gauge how well the company is doing in providing products and services for the government. Only those that are completely dedicated in bringing forth high levels of quality to what they do are chosen to become contractors for government agencies. Procurement performance indicators help these companies increase their standards so that they may become better servers for certain government agencies.

It isn’t easy to provide for the government. The demands are high because it’s the taxpayer’s money that’s being used to pay for the acquired products and services. This is even bigger reason why there should be procurement performance indicators. Procurement performance indicators are baselines that are represented by numbers as the points of comparison. The baseline referred to here could be the performance level a year ago. But this would be of significant help if you use the procurement performance indicators similar to other companies.

KPIs or key performance indicators for procurement is another term for procurement performance indicators. The performance that both financial and operational should be included in procurement performance indicators.

Financial Performance Indicators in Procurement

Every corporation makes use of figures to make sure that they are moving forward. The following are some public procurement key indicators (financial) commonly used:

1. Savings in cost

It’s important to include the amount of money saved in reducing the cost to produce goods or provide services. Thus measures the procurement team’s contribution to the company’s financial achievements.

2. Managed expenditures

This is one of the procurement performance indicators that allow the company to measure the trust that the overall company gives the procurement team in spending on services and goods outside its walls. This is a small percentage of the company’s total expenditures and doesn’t include the salaries.

3. Operating Cost of Procurement (Part of Managed Expenditures)

This reflects the incurred cost that the company has in maintaining a department devoted to procurement. Cost efficiency is included in this indicator.

4. ROI (Return on Investment)

ROI is interpreted as the amount that goes over the cost of your operations. The company calculates this and considers it as one of the procurement performance indicators that pertain to the procurement team’s cost effectiveness.

5. (On-Time) Supplier Delivery Percentage

Through this indicator, the company is able to measure the procurement department’s ability to get what the company requires and when it requires it.

Operational Performance Indicators in Procurement

Below are the procurement performance indicators (operational):

1. Defect Rate of the Supplier

The company needs to calculate this so that the quality of the purchases that were made by the procurement team could be measured. The number of defective products is divided by the number of products bought. The products are also equivalent to the number of defective shipments divided by the number of shipments made in total.

2. Satisfaction of the customer or client

It is very important to gauge the level of the clients’ satisfaction. This is measurable by asking the same set of questions to clients so as to mark the degree of satisfaction. This is the indicator that internal customers are satisfied.

3. Cycle Time of Procurement

This refers to the time it takes for the entire procurement process to take place—from start of the request to the actual purchase order placed. It could also be measured from the start of the process of sourcing to the signing of the contract. Productivity is the one that’s being measured by this indicator.

4. Supplier’s Idea Implementation Value

Ideas are constantly solicited from suppliers. This is done by the more advanced procurement companies. These ideas are measured and tracked, whether they’ve contributed much to the company’s growth. This indicator measures the amount of knowledge in the part of the suppliers.

The Rationale for Procurement Performance Indicators

It’s known that federal procurement contracts make up a large portion of the public expenditure and the country’s GDP. The amount spent in procurement per se is the reason for measuring the overall performance of procurement contracts. The government procurement system’s overriding goal is to provide “value for money” in using taxpayer’s money and efficiency as it follows all the set regulations and policies. Measuring performance is finding out if the operation and the system itself really delivers while keeping the objectives within sight.

Benefits of Procurement Performance Indicators

Take a look at some of the benefits that procurement performance indicators bring to a company:

a. They bring forth clarity to the organization when it comes to the performance goals that are directly connected to the company’s mission, values, and vision.

b. They effectively keep an eye on the progress made towards achieving the ultimate goal with the workable performance metrics

c. A periodic analysis is consistently done so that the company may know if the milestones or short-term goals are continuously met.

d. These procurement performance indicators facilitate a working environment that has a much more improved level of motivation, strategies, and performance.

e. They also ensure that the company coexists harmoniously with the objectives established with the customer or client. This places visibility and collaboration in all business areas including compliance in contracts.

Considerations in Using Procurement Performance Indicators

Every measurement using the procurement performance indicators should be quantifiable. These quantifiable indicators should be ultimately agreed upon by the stakeholders and the client. Then, once the ball gets completely rolling, frequent communication should always be done. There should always be incentives to those who contribute in achieving the company’s goals. It would also help a lot to break the stern working environment by transforming the workplace into an enjoyable one.

To have desirable results in measuring procurement performance indicators, you have to get your hands on the best procurement strategies. These will enable you to perform better in the field of federal procurement. Improvements in performance will help your company gain a better chance at winning more contracts and even getting more re-contracts in the future.

Federal procurement is definitely a rewarding challenge to procurement companies. To get you started with procurement success, check out our latest offer to boost your business. Take a look at Corporation Procurement Exposed and see how you can speed up success.