What would be five most important key performance indicators(KPI) of procurement department of an organization?

“KPIs help companies elevate their standards, become better providers to their customers, and improve their own bottom lines”.

In most cases, KPIs go hand-in-hand with business intelligence (BI) to detect business trends and come up with viable courses of action.

Here are five KPIs that used by sucessful procurement organizations.

1. Total cost savings. With company budgets still feeling the strain of a slow economic recovery, total cost savings helps buyers keep costs in check while ensuring product quality and on-time delivery. By definition, total cost savings is the total amount of money saved by reducing the total cost of ownership year-over-year. “Total cost savings is a key reason that procurement departments even exist,” says Hutchinson, who advises buyers to factor both the savings on goods and services purchased and any savings on transaction costs (or, costs per order), when developing KPIs around total cost savings. Organization-wide purchases from contracted vendors, for example, can result in a% to% savings on both products and transaction costs over time.
2. Quality of products and/or services. This critical KPI helps procurement teams gauge whether the goods and services they’re buying meet their company’s standards and those of their customers. Such KPIs should be centered on quality assurance, process control, and the methods employed to achieve those standards. Metrics like “defects per million,” for example, can be used to track supplier quality and, in turn, make improved sourcing decisions.
3. On-time delivery. Customers today want and expect everything to be on their doorsteps yesterday. Working on the front lines with suppliers, procurement departments play a key role in making sure those expectations (unrealistic or not) are met and exceeded. By allowing buyers to take a big-picture view of delivery behaviors over a period of time, these KPIs can quickly detect whether a supplier is living up to expectations in the area of delivery—or not.
4. Inventory availability. This KPI allows buyers to keep close tabs on whether inventory is in the right place, at the right time, and in the proper form.
5. Contract compliance. Depending on the length of the relationship, it can be fairly easy for suppliers to fall into a situation where they are “slacking” on contract terms and conditions. Oversight can come in the form of contract compliance KPIs that allow buyers to capture baseline information regarding service level agreements (SLAs), negotiated prices, and other important measures. Armed with this information, procurement specialists can assess current contracts, seek out new sourcing options, and better negotiate terms and conditions on future agreements.

According to me the Most important KPI of Procurement department of an organization can be divided into

General Procurement KPI based on measurements

Cost KPI's

Quality KPI

Delivery KPI

Inventory KPI

1. Total Cost.

2.  Quality.

3. Availability of materials on time.

4. Inventory Management - Space utilization, maintaining supply considering demand, planning etc.

5. Relationship with stakeholders.   

Given below are the five most important key performance indicators

1) Cost reduction - Cost is consider as the main area of concern when it come to product selling. If the product are purchased at lower cost we get edge over competition as well as we can earn better revenue out of the product. Hence it is very important for procurement department to source product at competitive or at lower cost.

2) Quality product -After cost quality plays an important role, hence getting high quality product is also equally important for order rotations.

3) Timely availability - If we are able to get low cost high quantity product but the timing of getting these product is not right it will be waste and will be stored at our stores and hence it is very important to make sure that demand and supply is maintained.

4) Wide range of product - Many a times customer is looking for options and hence procurement department should be ready to serve the customer with wide range of products.

5) Forecast of market movement - This is also an equally important factor which should be accounted.

eg. if you are a dealer of sanitary product and a importer from Italy, the market is shifting towards chinese product due to price advantage. Hence you have to forecast the shift and accordingly be prepared to cater those customer.

1- Quality

2- Cost Avoidance

3- Procurement Cycle Time

4- Managed Spend as Percentage of total Spend.

5- Delivery