Procurement KPIs are a valuable tool for measuring the performance of your procurement activities. By setting and tracking KPIs, you can identify areas for improvement and ensure that your procurement activities are contributing to the overall success of your organisation.
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Why Procurement KPIs Matter
Procurement is more than just buying goods and services; it is a strategic function that directly impacts an organisation's efficiency, compliance, and financial performance. Setting and monitoring procurement KPIs ensures that businesses can track success, optimise processes, and align purchasing strategies with broader business objectives.
Here are some examples of procurement KPIs that you may wish to consider:
- Cost savings: This measures the amount of money that you have saved through your procurement activities.
- Spend under management: This measures the percentage of your total spend that is managed by procurement.
- Contract compliance: This measures the percentage of contracts that are compliant with your organisation's policies and procedures.
- Purchase order cycle time: This measures the time it takes to process a purchase order from start to finish.
- Supplier performance: This measures the performance of your suppliers in terms of quality, delivery, and price.
- Number of suppliers: This measures the number of suppliers that you are working with.
- Procurement ROI: This measures the return on investment that you are achieving from your procurement activities.
How to set Procurement KPIs
When setting procurement KPIs, it is important to consider the following:
- Your business goals: What are you trying to achieve as an organisation?
- Your procurement objectives: What are you trying to achieve through your procurement activities?
- Your stakeholders: What are the needs of your stakeholders?
- Your resources: What resources do you have available to you?
Once you have considered these factors, you can start to develop your procurement KPIs. It is important to ensure that your KPIs are specific, measurable, achievable, relevant, and time-bound. You should also ensure that they are aligned to your business goals and objectives.
Key Procurement Metrics to Track
To assess procurement performance effectively, organisations should focus on procurement metrics that drive cost efficiency, compliance, and operational excellence. Below are some of the most important KPIs:
There are a number of common KPIs that are typically set within procurement, and these should align to your business goals. It is important to ensure that the targets you set maximise cost and efficiency. Some of the most common KPIs include:
1. Cost Savings
Total cost reduction: Measures savings achieved through better negotiation, strategic sourcing, or supplier management.
Cost avoidance: Tracks expenses prevented due to proactive procurement decisions.
2. Supplier Performance
On-time delivery rate: The percentage of deliveries received on or before the agreed-upon date.
Supplier defect rate: The proportion of defective products received.
Contract compliance: The percentage of procurement activities that adhere to contract terms.
3. Procurement Efficiency
Purchase order cycle time: The time taken from requisition to order fulfilment.
Spend under management: The percentage of spend actively controlled by procurement teams.
Purchase order accuracy: Measures errors in orders that lead to delays or additional costs.
4. Risk and Compliance
Supplier risk score: Evaluates potential risks associated with vendors.
Regulatory compliance adherence: Tracks procurement activities to ensure they meet industry regulations and legal requirements.
Ethical sourcing percentage: The proportion of purchases made from sustainable and socially responsible suppliers.
For more insights on procurement KPIs, check out CIPS guidance and UK Government KPI standards.
SMART KPIs: Ensuring Effective Meausrement
Not all KPIs are created equal. For KPIs to be genuinely useful, they need to be SMART:
- Specific – Clearly defined and focused
- Measurable – Supported by quantifiable data
- Achievable – Realistic, considering resources and constraints
- Relevant – Aligned to your business goals
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Time-bound – Tracked against a clear deadline
SMART KPIs reduce ambiguity and help teams stay focused on outcomes that matter. They also ensure a clear link between procurement performance and organisational success.
The Role of Stakeholder Collaboration
Stakeholder collaboration is key to ensuring that your procurement KPIs are aligned to your business goals. This includes collaboration with key departments, such as finance and operations. By working together, you can ensure that your KPIs are relevant to the whole business and that they are contributing to the overall success of the organisation.
Effective procurement measurement requires cross-functional collaboration. Finance, operations, and compliance teams must align on key performance indicators to ensure procurement targets:
- Support financial health by tracking cost efficiencies.
- Improve operational processes through better supplier management.
- Maintain compliance with industry and regulatory standards.
Stakeholder collaboration ensures procurement metrics are meaningful and contribute to broader business success.
Keeping KPIs Relevant Through Regular Review
Procurement is dynamic. So, your KPIs shouldn’t be set in stone.
- Review your KPIs regularly: Make sure that your KPIs are still relevant to your business goals and objectives.
- Industry Benchmarking: See how you stack up against others in your sector.
- Use Technology: Invest in tools that automate tracking and provide real-time insights.
- Get feedback from stakeholders: Ask your stakeholders for their feedback on your procurement activities.
- Identify areas for improvement: Use your data to identify areas where you can improve your procurement processes.
- Implement changes: Make changes to your procurement processes to improve your KPIs.
This kind of review process ensures KPIs continue to reflect your strategic goals and operational reality.
Aligning with the Procurement Act 2023
Under the UK Procurement Act 2023, contracting authorities are required to set and publish at least three Key Performance Indicators (KPIs) for each contract valued above £5 million, unless specific exemptions apply. This reinforces the importance of transparency and performance monitoring in public procurement.
According to the Government guidance:
- KPIs should be aligned with the contract’s objectives and measure relevant outcomes such as delivery, quality, and sustainability.
- These KPIs must be monitored and reported on at least once every 12 months.
- Contracting authorities must also publish information on supplier performance against these KPIs on a central digital platform, fostering public accountability.
These requirements support the strategic use of procurement to drive better value and promote high standards across public service delivery. Organisations are encouraged to ensure their KPIs are not only SMART but also compliant with these new statutory requirements where applicable.
Procurement is a dynamic function. Regularly reviewing and refining KPIs ensures they remain relevant as business needs evolve.
Find out more about the recent changes by listening to our Procurement Act Podcast.
How Procurement Hub Can Help
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