How to measure procurement performance?
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The most effective way to measure the performance of any operation is to look at numerical information. For procurement, this includes establishing and tracking Key Performance Indicators (KPIs).
There are numerous procurement KPIs you can choose from. These include metrics to track the quality [Compliance Rate, Defect Rate], delivery [PO Cycle Time, Supplier Lead Time], and expense management [ROI, SUM].
Given the large number of metrics available, you have to be careful to choose the ones most relevant to your current problem or goal. For example, if you want to see how efficiently and visibly the procurement team is managing expenses, you can track Spend Under Management over time. Similarly, if you’ve been concerned about the performance of your suppliers or one particular vendor, you can track their Defect Rate over time.
For precise calculations, you’ll require an accurate, organized, and accessible record base. This will be hard to ensure if your department is working manually and has no digital records or automated systems. On the other hand, organizations using procurement software can simply select relevant KPIs, and the software will calculate them automatically as it will already have detailed records of procurement activity stored.
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