Relevant KPIs in procurement
On the way to a more visible Procurement department, one does not overlook the fact that it is important to find good methods to make the results visible. A recommended method is to create a solid Dashboard that is aligned with the company's overall strategy. The dashboard must contain relevant KPIs for the company and the Procurement department.
It is necessary to be critical of which KPIs are measured, as otherwise you could end up in a KPI tyranny that does not make sense or value. The KPIs that are selected and measured must be aligned all the way from the top to the individual department and must be used actively in the daily work. Many times it is better with few good and relevant KPIs than many and perhaps less relevant.
Relevant KPIs can be:
- Savings: Is the most common KPI used in procurement. Here it is important that there is agreement with what and how a saving is calculated, so that the value / savings that are created are visible and credible to both management and department. The savings that are created must be seen in the company's budgets / accounts either as lower cost or higher result.
- Number of suppliers: This KPI is important if the company wants to consolidate more of their costs with fewer suppliers and thus achieve volume discounts and an opportunity to be a larger customer. It may also be relevant to reduce the number of suppliers in relation to easier handling, eg by GDPR, Risk and CSR.
- Compliance on the contracts: This KPI can be difficult to measure, but is extremely relevant, as it does not do much good to make a good agreement with a supplier if no one in the company subsequently uses it.
- Number of completed projects: This KPI is relevant especially internally in the procurement department, to look at how many projects the department is implementing. At the same time, it provides a good picture of the procurement department's capacity opportunities and utilization.
- Cost avoidance: This KPI is also a savings KPI, but a saving that has emerged due to procurement has spotted an opportunity to reduce costs. This may be the case, for example, if the company is not aware of contracts that are auto-extended or procurement has time to terminate a contract that the company no longer needs or uses.
- Spend under control: This KPI can also be difficult to measure, but is extremely relevant. It shows how much of the company's costs are controlled by the procurement department and how much goes around the department. In this there is a great risk that the company will miss out on some great savings, but also other risks can be borne by this, eg CSR, disagreements with the suppliers, etc.
- P2P: This KPI is used in companies with an ERP system as well as a Procure-to-pay setup. Here, it is measured whether a PO order has been made before purchasing a product or service. Hereby the company ensures that there is full visibility and control over their costs.
It is important that KPIs are actively used afterwards both to make results visible and to be able to track opportunities for improvement.