7 Key Metrics Every Procurement Manager Should Track

Last week on Procurement Leaders Playbook, we discussed 7 Red Flags of a Struggling Procurement Team.

This week, we’re discussing the core metrics that every procurement manager should track to ensure their team is performing at its best. 

By consistently monitoring these metrics, you will identify areas for improvement and optimize your procurement processes to achieve better results and drive organizational success.

Here are 7 key metrics every procurement should track:  

Check Out: 7 Best Procurement Practices Blueprint for Procurement Leaders!

Metric 1. Cost Savings

Cost savings is a fundamental metric that every procurement manager should be obsessed with. It’s not just about negotiating the lowest price but also about finding the best value. 

Here are some practical trackable items for cost savings:

• Baseline Spend Analysis: Identify and document your baseline spend across all categories.
• Negotiated Savings: Track the savings achieved through supplier negotiations, including discounts and reduced prices.
• Annual Savings Report: Maintain an annual report summarizing all cost-saving initiatives and their financial impact.

Metric 2. Supplier Performance

Maintaining strong supplier relationships is crucial for smooth procurement operations. Tracking supplier performance helps ensure that suppliers meet your standards and deliver on their promises. 

Key aspects to monitor include:

• On-Time Delivery Rate: Measure the percentage of orders delivered on time. Set a target rate and track performance against it.
• Quality of Goods: Track the defect rate of products received. Implement a quality scorecard for each supplier.
• Compliance Rate: Monitor supplier adherence to your company's standards and regulatory requirements.

Metric 3. Procurement Cycle Time

Procurement cycle time is the total time taken from the initiation of a purchase request to the final delivery of the product or service. Reducing this time can lead to increased efficiency and cost savings. 

To effectively manage procurement cycle time, track these items:

• Purchase Request Approval Time: Measure the time taken for purchase requests to get approved.
• Supplier Lead Time: Track the lead time from suppliers, from order placement to delivery.
• Order Processing Time: Measure the time taken to process and place an order.
• Delivery Time: Track the time from order placement to delivery completion.

Metric 4. Spend Under Management

Spend under management refers to the portion of total spend that is actively managed by the procurement team. Increasing this percentage can lead to better control over expenses and improved procurement outcomes. 

Here’s how to enhance and track spend under management:

• Total Spend Analysis: Calculate the total spend and the percentage that is managed by the procurement team.
• Category Spend Reports: Track spending by category and identify unmanaged spend.
• Preferred Supplier Agreements: Document and track spending through preferred supplier agreements.

Metric 5. Procurement ROI

Procurement Return on Investment (ROI) measures the financial return of the procurement function relative to its costs. It’s a comprehensive metric that considers both cost savings and the efficiency of the procurement process. 

To calculate and improve procurement ROI, track these items:

• Total Cost Savings: Document all cost savings achieved through procurement activities.
• Operational Costs: Track the total cost of the procurement function, including salaries, technology, and overheads.
• Efficiency Gains: Calculate the financial value of efficiency gains from process improvements and automation.

Metric 6. Contract Compliance

Contract compliance ensures that your procurement team is adhering to agreed-upon terms with suppliers. Monitoring compliance reduces risks, enforces accountability, and helps maximize value from contracts.

To track and improve contract compliance, focus on:

• Contract Utilization Rate: Measure the percentage of spend that aligns with contracted suppliers.
• Price Variance: Track any deviations from agreed-upon pricing in contracts.
• Milestone Compliance: Monitor supplier adherence to delivery milestones and other contractual commitments.

Check Out: Download 16 Category Management KPIs

Metric 7. Risk Management

Effective risk management is essential for maintaining a resilient procurement function. Tracking risks helps you anticipate potential disruptions and take proactive measures to mitigate them.

Key risk management metrics include:

• Supplier Risk Score: Evaluate and score suppliers based on financial health, reliability, and regulatory compliance.
• Disruption Rate: Measure the frequency of supply chain disruptions and identify the root causes.
• Mitigation Plans: Track the implementation and effectiveness of risk mitigation strategies for identified risks.

Become a Certified Procurement Expert! 

In today’s competitive business environment, procurement managers need to be strategic, data-driven, and proactive to be a “strategic buyer” instead of just a “getter”.  

Interested in becoming a certified procurement expert? Learn more details regarding the Certified International Procurement Manager (CIPM).

Hurry Up: The upcoming session starts on 8th February and has a limited number of seats up for grabs. Register Your Interest Here! 

P.S: To be eligible to enrol into the CIPM program, you will need to have 10+ years of experience in management/leadership. 

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For more details call us at +1-3112-300-8968 or email artin@procurementcenter.org