The Key KPIs Every Buyer Should Track
In procurement, it is crucial not only to claim one’s performance but to substantiate it with concrete figures. This is also highlighted by the 2024 Buyer Salary Report based on 1,394 participants.
When comprehensive procurement controlling is in place, buyers tend to earn higher salaries on average. A thorough controlling system enhances motivation, professionalism, and the visibility or position of procurement within the company. Key performance indicators (KPIs) that align with the company’s overarching goals are essential for performance measurement. Continuous monitoring of these KPIs enables procurement departments to increase efficiency, achieve cost savings, and clearly demonstrate their value within the organization.
Here are the 15 essential KPIs that every buyer should utilize:
1. Cost Savings
Many CEOs, when meeting with a buyer, first ask: “How much did you save this week?” You should be ready with an answer. Cost savings directly reflect how effective procurement is. For example, negotiating a supplier’s initially announced 10% price increase down to 2% represents a tangible 8% savings.
2. Supplier Performance
It’s important to define clear expectations for suppliers to assess their performance accurately. This KPI measures supplier reliability and quality. For instance, a supplier consistently delivering on time in 98% of cases and meeting quality standards demonstrates good performance. Poor supplier performance, on the other hand, could mean delays or subpar quality and requires corrective actions.
3. Order Cycle Time
Another critical KPI is the order cycle time, which spans from placing an order to receiving goods. Reducing this cycle from 10 days to 5 days, for instance, can lower inventory holding costs and improve process efficiency.
4. Compliance Rate
This KPI tracks the percentage of purchases that adhere to procurement guidelines and contract terms. Ensuring compliance minimizes the risk of non-conformity. For example, if 90% of purchases meet regulations but 10% do not, this highlights areas for improvement.
5. Managed Spend
Procurement-controlled spending typically indicates more efficient processes and better pricing compared to when individual departments handle purchases independently. This KPI is essential for tracking the scope of controlled spending.
6. Supplier Lead Time
An example of supplier lead time might involve a supplier taking three weeks to deliver. By negotiating better terms or selecting a different supplier, this lead time could be reduced to two weeks.
7. Procurement ROI
Procurement incurs costs, including salaries, technology, office expenses, and travel. These investments need to yield returns. For example, implementing a new procurement system may initially cost €100,000 but could generate €150,000 in savings within the first year, resulting in a positive ROI.
8. Contract Compliance
This KPI measures the adherence to contract terms. For instance, if a supplier fulfills 85% of their contracts as agreed while 15% require renegotiation, this KPI helps assess contract management effectiveness.
9. Inventory Turnover
High inventory turnover signals efficient stock management. Increasing turnover from four to eight times annually ties up less capital in inventory, enhancing flexibility in response to market changes.
10. Supplier Risk Management
Companies that proactively assess supplier risks might recognize early that a supplier operates in a politically unstable region. Identifying such risks allows for timely action to find alternative suppliers.
11. Realized Savings
Unlike general cost savings, “realized savings” measure how closely procurement meets its set savings targets. For instance, if a company aims for 5% savings and achieves 6%, this KPI shows goal attainment and overperformance.
12. Procurement Cycle Time
This measures the time from request to delivery, reflecting the efficiency of the procurement process. Reducing cycle time from three weeks to one week can greatly enhance overall agility.
13. Supplier Diversity
An increasing number of companies prioritize supplier diversity. For example, collaborating more with smaller, local suppliers can reduce reliance on large multinational corporations and support the local economy.
14. User Satisfaction
The satisfaction of internal stakeholders (e.g., engineering, production, finance, logistics, sales, marketing) is a crucial indicator of procurement success. Feedback showing that materials consistently arrive on time and meet quality expectations signals high satisfaction.
15. Contract Lifecycle Management
This KPI measures the efficiency of managing contracts throughout their lifecycle. Timely renewals and effective management prevent costly breaches and ensure compliance.
These 15 KPIs represent the most critical metrics. Mastering them positions you as a rising star in your company, strengthening your negotiation position during salary discussions.
@TheProcurementChannel
This article is based on the video “Essential KPIs every Procurement Manager should track” by Marc Kloepfel on YouTube.
For more videos and tips for buyers and supply chain managers, visit: https://www.youtube.com/@TheProcurementChannel
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Contact:
Kloepfel Group
Damir Berberovic
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com