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Purchasing and procurement are more critical functions than ever before. Supply chain difficulties and technological advances have changed how this arm of the business operates. This means that as a procurement manager, you should be tracking key performance indicators (KPIs) that give insights you can take action on to increase margins and improve long-term efficiency.
Why KPIs Matter
KPIs track the performance that leads to your current outcomes. If you want to change your outcome for the better, making changes that affect your KPIs will help you get there. Overall, KPIs help you track performance, keep focused on your current business objectives, offer employees concrete goals to target, help increase employee morale and are good for personal growth.
In reference to employee morale and personal growth, KPIs give managers a direct way to encourage and acknowledge an employee’s work. In turn, employees feel more connected to their work and have a sense of ownership because they have clear-cut goals to achieve.
KPIs You Should Care About
In procurement and purchasing, there are three main areas you can track: supplier KPIs, Staff KPIs, and Organizational KPIs. The KPIs you choose to track might vary from other businesses and is usually dependent on company size and business strategy. That said, you should pick KPIs that are the most relevant to your processes and desired outcomes.
Supplier KPIs you can track include the number of suppliers, delivery time of suppliers, your supplier spend, the supplier’s quality performance rating, current supply chain risk, supplier compliance rate, supplier availability, supplier defect rate, and supplier rejection rate and cost. For each supplier, you can record every aspect of interaction, this might seem like an arduous task, but with the right ERP and document management system in place, you can automatically track and tabulate all these metrics for viewing in a single pane.
These KPIs typically cover the interactions with suppliers or vendors initiated and carried out by your staff. Staff KPIs can include spending per employee, cost savings or avoidance, spending under contract, deal cycle time, training and development time, lead time, emergency purchase ratio, purchases in time and budget, and cost of a purchase order.
Organization KPIs involve the procurement process and inventory received; they include spending under management, inventory accuracy, the ratio of spending to sales revenue, inventory turnover, and procurement ROI.
KPI Analysis Example
If you are working to increase margins by a few points, some vital KPIs to monitor and improve include current supply chain risk and the quality rating of a supplier, supplier rejection rate and cost, employee purchases in time and budget, the cost of a purchase order, spend under management, inventory accuracy, the ratio of spending to sales revenue, and procurement ROI. In addition, setting goals to get lower prices and a more efficient procurement process can help increase margins and revenue.
SEAL Systems Document Management
For those running an SAP-based ERP, SEAL Systems document management can be integrated to automate the tracking of these KPIs. Without SEAL Systems, documents in assorted formats from varied sources can be difficult to gather data from and organize securely. Track and tabulate KPIs the simple way and drive your company to additional revenue with SEAL Systems. Contact Seal Systems today to find out more about our document management systems.