Last week I suggested that a procurement cockpit is an essential tool to manage your business in 2019.
Today I will focus on KPIs that can provide deep insight into the efficiency and effectiveness of your operations, strategic sourcing efforts and how procurement systems are viewed internally.
In determining what data your team needs, perhaps it makes sense to start with the essential dozen for your business.
In my experience, what you track will change over time.
Statistics that matter in a slow economy may not be as relevant in boom times.
These are indicators and should be treated as such.
I like to approach all indicators with a bit of skepticism. Things that look too good to be true usually are and things that look awful need to be vetted before making changes.
Early in my career, I was able to forecast the profitability of one division based on the price trends of four key raw materials. These materials represented almost 70% of the cost of goods manufactured.
If it was always this easy.
Each KPI should have a benchmark or reference point of comparison. This may be last month, last year or the best performance for example.
Here is a list of indicators to consider for your cockpit:
- Percent of spend under management
- Percent of purchases using your standard RFP process
- Percent of payables without POs
- Contract price vs invoiced price
- Negotiated savings vs current price based on volume
- Suppliers per bid and/or tender – maximum, minimum, average and mean
- RFPs with less than the required number of suppliers
- Percent of spend from sole source
- Categories with less than a specific number of suppliers providing 80% or more of the spend
- New suppliers vetted in the last 12 months
- Contracts expiring in the next 90 days
- Contracts renewed within the last 12 months
There are many more operational KPIs that you may want to consider including on-time delivery/service, rejects and quality and/or service incidents.
There is one other indicator that I wish I had a way to measure easily.
At a conference late last year I heard a presentation by an international service organization. The presenters detailed the extensive internal campaign they utilized to increase stakeholder utilization of procurement resources.
Their approach was a combination of better tools, training and communication.
The savings in time and money were impressive.
They said that procurement was now respected and relied upon as a key resource.
The change in how procurement was perceived was the most gratifying part of the process for them.
Ease of use and responsiveness are two key aspects of increasing stakeholder utilization and satisfaction.
If you make it challenging for people to do their job, they will find an easier way to do it.
Ask better questions, make changes and 2019 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Commit to taking the next step.
Until Next Time, I Wish You Great Success in Your Business and in Your Life