Top Metrics For Procurement Success
Efemini F-Awosika MCIPS CSCP
Leadership Coach for Procurement Managers Aspiring to Become Team Leaders ?? Successfully Managed Tenders and Contracts Worth Billions of Dollars ?? Executive Director, Roducate Ltd ?? Mother
In recent times, procurement leaders are tasked with not only reducing costs but also driving value, ensuring compliance and maintaining sustainability.
However, achieving procurement success is impossible without understanding the metrics that define it.
When tracked correctly, these metrics offer valuable insights into procurement efficiency, cost-effectiveness, and alignment with broader organizational goals.
In this newsletter, we'll explore the top metrics for evaluating procurement success.
Hello and welcome back to another edition of our newsletter.
Let's get straight into it;
?? Cost Savings: Cost savings is one of the most fundamental procurement metrics. It reflects the organization’s ability to minimize expenses without compromising quality. This metric is often tracked by comparing initial supplier quotes with negotiated prices or benchmarking against historical price data.
?? Procurement Cycle Time: This metric measures the time taken from requisition to purchase order issuance. A shorter procurement cycle enhances operational efficiency and reduces project delays.
?? Supplier Performance: Measuring supplier performance ensures that your partners consistently meet quality, delivery and service standards. This metric directly impacts your ability to meet organizational goals and customer demands.
?? Spend Under Management (SUM): SUM tracks the percentage of total organizational spending that is actively managed by procurement. Higher SUM indicates better control over spending and compliance with procurement policies.
?? Contract Compliance: Contract compliance measures whether purchases align with agreed terms, pricing and conditions in supplier contracts. It ensures cost predictability and mitigates risks associated with off-contract purchases.
?? Procurement ROI: Procurement ROI evaluates the financial benefits gained from procurement activities compared to the cost of running the procurement function. A high ROI demonstrates efficient resource utilization and value delivery.
?? Risk Mitigation: Procurement risks, such as supply chain disruptions, non-compliance or financial instability of suppliers, can negatively impact operations. Measuring how effectively risks are managed is critical for procurement success.
?? ESG Considerations: Environmental, social and governance (ESG) considerations are increasingly important in procurement. Tracking sustainability metrics ensures compliance with regulations and alignment with corporate social responsibility goals.
?? Inventory Turnover Rate: For industries reliant on inventory, measuring turnover rate ensures that procurement aligns with actual demand, avoiding excess inventory or shortages.
?? Customer Satisfaction: While not directly linked to procurement, customer satisfaction is the ultimate test of how well procurement supports the organization’s objectives. Satisfied customers indicate that procurement ensures product quality and timely availability.
Certainly, success in procurement leadership is not just about tracking metrics, it’s about taking actionable steps to improve them.
What metrics have you found most valuable in your procurement journey? Let us know, we’d love to hear your thoughts.
PS: If there are any particular procurement leadership topics you'd like me to cover in subsequent editions, do let me know.