The second KPI displayed on that procurement KPI dashboard focuses on the compliance rate per category: the highest compliance rate goes to the first category, which also has the highest number of suppliers, with a 75% rate of contract compliance for 610 of them. The lowest rate goes to the fourth category with 9% contract compliance for 29 suppliers.
Moving forward onto the final metric on this procurement KPI dashboard, we have an illustration of the average procurement cycle time expressed in days. This cycle time covers the end-to-end ordering process, from placement to the confirmation, order delivery, and finally the invoicing. Here, we see that the overall average is of 7.2 days, with the moment between the confirmation and the delivery of the order for the invoice being the longest (5.2 days).
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Working with an interactive purchase dashboard summarizing the procurement department's activities and relationship with suppliers, or highlighting procurement's actual results (as we will see on our last dashboard) will not only help in managing the department, but also in building its brand. These dashboards are a real help for top management decision-makers and strategy builders. Having an overview and monitoring all your processes from purchase orders management to knowing your different types of suppliers will let you optimize your procurement process and more generally, the profitability of your company.
Our next procurement analysis dashboard focuses on quality related KPIs between the department, and its vendors, and suppliers. Quality, as you probably know, is extremely relevant in procurement, and by monitoring certain metrics, you can optimize your relationships with suppliers, generate better contracts, and maximize business value. A supplier dashboard such as in our visual example can help you on your way.
On the left side, we can see a clear overview of the most important stats, starting with the number of suppliers. You can see that the value ordered has increased by 2% in comparison to the previous months, while the value rejected decreased, along with the vendor rejection rate. This is a good signal that the ordered products have slightly better quality. Return to vendor costs, emergency purchase ratio, and spend under management have all shown a positive improvement in comparison to the previous month which makes your efforts worthwhile, and you should continue improving your established strategy. On the top right side of the vendor management dashboard, you can find the return costs analysis by the top 5 suppliers. The costs and rejection rate are critical indicators of the standard of the procurement department and they should be kept at a minimum. In our example, you can see that some vendors have higher rejection rates and costs, but some have lower. It makes sense to analyze what creates such results and if both can be lowered as much as possible.
Finally, such procurement analytics examples will ensure you have the right data at the right time, without the hassles of manual calculations and endless spreadsheets. Keep in mind that the procurement department continuously changes, hence, your management processes should be optimized constantly in order to generate sustainable business development and growth.
Moving on to the second top KPI, on this procurement dashboard example our focus-supplier has 85.3% of on-time supplies, which is within the range pre-set, and an average of 93.5% availability. The supplier's availability: it evaluates their capacity to respond to demand by measuring the number of times goods were available on their side. It gives you an idea of the reliability you can place in your suppliers, and should ideally stay over 90%. For our specific supplier, the evolution of the availability has also been uneven over the last 12 months, and was recorded three times beneath the minimum of 90% availability. However, since then, it has only been on the increase.
To continue, another key indicator on our procurement dashboard is unfortunately too often overlooked by top management, because it does not directly affect the income statement and does not appear on the bottom line in a tangible, quantifiable way. Still, the cost avoidance has a positive impact as it represents all the potential future costs avoided by certain measures, like replacing parts of an equipment before they fail and damage other parts, or negotiation successes bypassing cost increases on future purchases. These soft savings are thus creating strategic value by targeting strategic spends like new investments or new technologies. Monitoring them alongside the hard ones (of cost reduction) is a best practice to adopt, as we can see with the metrics on the top-left part of the purchasing dashboard, where they are expressed as a percentage. The cost avoidance for this year amounts to 7.3%.
Moving on, the dashboard offers operational KPIs that allow you to monitor the day-to-day business operations. For example, the purchase price variance (PPV) is the difference between the purchasing price of an item or service and the actual cost of it. A positive price variance means the procurement team is effective in getting favorable pricing deals, while a negative variance can mean that the actual cost is higher than the standard one. Paired with this, you get insights into the spend under management, where you can observe the amount of spend that is managed by procurement out of the total company spend.
These KPIs provide a high-level view of the procurement process, giving insight into the overall health and efficiency of the department. They help managers identify areas that may need additional resources or attention. For example, a high number of suppliers may suggest a complex supply chain that could be simplified, while a low compliance rate may point to issues with supplier management. General management KPIs are typically used by department heads and executives who need an overview rather than detailed data.
Delivery management KPIs focus on the supply chain and logistics aspect of procurement. They track the efficiency and reliability of the delivery process from the supplier to the business. By monitoring these KPIs, businesses can identify bottlenecks or inefficiencies in their supply chains and work to resolve them. Improvements in these areas can lead to shorter lead times, more reliable deliveries, and reduced costs.
Risk management KPIs help identify and evaluate potential risks in the procurement process. They consider factors such as supplier reliability, geopolitical issues, contract compliance, and more. These KPIs are essential for businesses that want to minimize their exposure to supply chain disruptions, financial losses, and other procurement-related risks. Monitoring them allows businesses to proactively manage these risks, ensuring the stability and reliability of their supply chain.
Supplier Relationship Management KPIs focus on the strength and efficiency of interactions with suppliers. They assess the quality of these relationships, which can have significant impacts on the procurement process and overall business performance. These KPIs include measurements of supplier satisfaction, dispute resolution effectiveness, and communication efficiency. By keeping a close eye on these metrics, businesses can foster strong, productive relationships with suppliers, leading to better negotiation outcomes, improved product quality, and more reliable delivery schedules.
Effective warehouse management ensures that the organization has a clear understanding of what goods are available and where they are located, which can assist in streamlining procurement activities and reducing costs. Below are some key KPIs for warehouse management:
An effective compliance rate leads to cost savings through better supplier negotiations and efficient procurement processes. It also provides insights into supplier performance, enabling the company to identify areas for improvement and take corrective actions.
Spend Under Management is a critical procurement strategy that aims to optimize expenditures. It encompasses the strategic management of spend that involves established rates with preferred suppliers, spend under contract, and control systems to ensure adherence to negotiated prices.
Maverick Spend refers to the procurement of goods or services from non-contracted or non-preferred suppliers. It presents a considerable challenge for organizations as it can lead to increased costs and damage relationships with preferred suppliers. For instance, an organization may miss out on the benefits of previously negotiated discounts with contracted vendors, leading to inflated expenses.
By tracking contract utilization, companies can identify opportunities to increase their use of contracts, which may lead to better prices, improved service levels, and stronger relationships with suppliers. If contract utilization is low, it may indicate that the procurement team needs to negotiate more contracts or improve adherence to existing ones.
A shorter cycle time can be an indicator of efficient procurement processes and an agile and responsive supplier. It can also be indicative of a strong relationship between the company and its suppliers, where orders are processed and completed in a timely manner. This is particularly critical when there are urgent orders that need to be fulfilled quickly.
To improve Purchase Order Cycle Time, companies can look into streamlining their internal processes, enhancing supplier relationships, or even leveraging technology to automate certain aspects of the procurement process. Monitoring this KPI closely can help companies improve their turnaround times, optimize staff productivity, and ultimately reduce the overall cost of the procurement function.
Lead Time is a crucial KPI in procurement that measures the total time taken to fulfill an order from the initiation of a purchase action to the receipt of the production model into the supply system. This metric helps businesses understand the efficiency of their supply chain and identifies opportunities for improvement. e24fc04721
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