Procurement KPIs: Benefits, Tracking Tips, and Best Metrics

It’s easy to assume your current procurement practices are delivering results, but how do you know? As with many business process improvements, the proof is in the data. Tracking the progress of your procurement efforts with data and benchmarking is the best way to ensure you deliver on promises like lower procurement cost, better contract performance, and reduced risk.

Establishing procurement KPIs (key performance indicators) can help procurement teams understand their current performance and identify baseline information for measuring future improvements. The right KPIs can provide teams with at-a-glance findings about their most important procurement initiatives and create insights into needed changes to promote better results.

This article shares key information on making procurement KPIs work for your team. Learn the benefits of tracking KPIs, get tips on selecting and implementing relevant metrics, and discover what to avoid when building a tracking program.

Download the free tool: Procurement KPI Tracker Template

What are procurement KPIs?

Procurement key performance indicators (KPIs) are metrics used to evaluate an activity or track progress toward an outcome. In procurement, KPIs measure the efficiency, effectiveness, and overall performance of an organization's procurement process. These indicators help assess how well the procurement function supports business objectives, manages costs, maintains quality, ensures timely delivery, and optimizes supplier relationships.

What are the benefits of tracking procurement KPIs?

Tracking procurement KPIs helps organizations discover critical insights that enable them to make data-driven decisions, leading to improved operations and more strategic planning. By monitoring these metrics, companies can identify inefficiencies, optimize supply chain processes, forecast future needs more accurately, and enhance supplier negotiations. These benefits ultimately contribute to reduced costs and better resource allocation.

Improved cost management: Tracking essential procurement KPIs enables organizations to identify spending patterns, uncover cost-saving opportunities, perform effective category management, and reduce unnecessary expenditures.

Better strategic sourcing insights: Procurement KPIs provide valuable insights into procurement strategies, helping organizations identify the most cost-effective suppliers, products, and services.

Enhanced supplier performance: By monitoring supplier-related KPIs, businesses can evaluate supplier defect rate, reliability, and adherence to delivery timelines, leading to stronger supplier relationships.

Increased operational efficiency: Analyzing procurement metrics helps streamline processes, reduce purchase order (PO) cycle time, and eliminate bottlenecks within the procurement cycle.

Risk mitigation: Identifying trends through KPIs can help predict potential risks in the supply chain, allowing companies to take proactive measures before issues escalate.

Compliance monitoring: Keeping track of compliance-related KPIs ensures that procurement activities adhere to relevant laws and regulations, minimizing legal risks.

Tool

Procurement KPI Tracker Template

Download our free Procurement KPI Tracker Template today to monitor essential procurement numbers and demonstrate value in your procurement strategy.

Download the tool

15 Key procurement KPIs to include in analysis

Choosing the right procurement KPIs is crucial for gaining value from tracking metrics, as they provide clear indicators of performance across various aspects of the procurement process. By selecting relevant KPIs, organizations can focus on areas that directly impact procurement efficiency, risk management, and compliance, ensuring a strategic approach to improving procurement operations.

Cost savings and cost avoidance measure cost reductions achieved through procurement activities or the avoidance of operating costs through proactive investment—for instance, committing to a maintenance contract to prevent unplanned repair costs for capital equipment.
Supplier lead time tracks how long it takes suppliers to deliver goods or services from the point of order. Longer lead times may indicate the need for better sourcing or contract compliance efforts.
PO cycle time is the duration of time between creating a purchase order and receiving goods or services.
Product quality index evaluates the quality of purchased goods and services against predefined standards. Evaluating quality can help inform sourcing and budget allocation.
Supplier compliance rate assesses how well suppliers adhere to contractual terms, including delivery times and product specifications.
Rate of emergency purchases indicates the frequency of unplanned purchases and reflects supply chain stability and forecasting accuracy.
Contract utilization rate shows the percentage of contracted goods or services in use. It provides insights into contract effectiveness and negotiation success.
Spend under management (SUM) outlines the proportion of total spend managed through the procurement department, reflecting that team's influence over spend analysis as well as control of negative impacts like shadow spending and contract redundancy.
Procurement ROI (return on investment) calculates the financial return on procurement investments and activities. Auditing procurement investments may reveal opportunities to streamline the number of suppliers, consolidate SKUs, or realign technology to make procurement management more cost-effective.
Total cost of ownership (TCO) assesses all costs related to acquiring, using, and maintaining purchased goods or services over their lifecycle. Examining TCO may reveal better ways to manage contracts or indicate the need for changes to supplier contracts to bring down ancillary costs.
Supplier risk score evaluates suppliers based on various risk factors, such as financial stability, contract compliance, cybersecurity, and geopolitical considerations. More than half of respondents to a recent survey report experiencing a third-party data breach that impacted the business within the last year. Third-party risk can be costly, opening the business to unforeseen expenses and bad actors.
Percentage of sustainable purchases reflects the portion of buying made with sustainability criteria in mind and in alignment with corporate social responsibility goals.
Maverick spend rate identifies spending outside of agreed procurement policies or contracts. Maverick spend negatively affects budget performance, spend efficiency, and even profitability, making this a vital metric for every procurement team.
On-time delivery rate measures how often suppliers deliver goods or services within agreed-upon timelines. Disruptions in delivery metrics may signal a need for better communication with the supplier, stricter contract language, or alternative sourcing options.
Procurement cycle efficiency evaluates the efficiency of procurement processes over time, including activities like sourcing, order placement and tracking, contact negotiation timelines, AP management processes, and timely payment.

How to measure procurement KPIs

Consistency is key when tracking procurement metrics to improve performance. Regular monitoring helps procurement leaders maintain control of purchasing and planning, aiding the business in achieving strategic goals that benefit the bottom line. By treating monitoring as routine and maintaining consistent updates, you can uncover savings and performance opportunities that help procurement continue to improve.

Identify business objectives

The first step in setting up relevant KPIs is understanding your organization’s strategic goals. With clear objectives in place, you can see how procurement contributes to business initiatives. Select a roster of relevant KPIs that align with your goals for the purchasing department and the overall organization.

Assess procurement functions

Review relevant aspects of your procurement process—including supplier selection, contract management, purchase order processing, and payment procedures—to identify essential areas for measurement. Select a few areas most needing improvement and explore which metrics within those activities will provide the best insights.

Select relevant KPIs

Based on the assessment, choose the KPIs most relevant to the procurement function's short-term goals and operations. These could include metrics like annual cost savings, supplier performance, contract compliance, and purchase order cycle time.

Set business targets

Establish realistic and achievable targets for each selected KPI by analyzing past performance data and comparing it to industry benchmarks. Consider factors such as market trends, company resources, and growth potential to ensure the targets are both challenging and attainable.

Monitor performance

Track and monitor selected KPIs to understand progress toward targets. Regular procurement analysis helps companies course-correct procurement activities, make better contract and supplier decisions, and identify areas requiring additional focus or resources.

Analyze results

Regularly analyze data collected through monitoring to identify trends, patterns, and areas for improvement. Analysis allows you to spot inefficiencies, uncover potential issues before they escalate, and gain valuable insights to make informed decisions. By addressing these findings proactively, you can enhance overall performance, optimize processes, and ensure smoother operations.

Track and communicate findings

Share the results of the KPI analysis with all relevant stakeholders in the organization to ensure transparency and alignment. This includes procurement team members who can use the insights to refine their processes, suppliers needing to adjust their performance, and senior management who can benefit from understanding progress toward strategic goals. Providing detailed updates can drive informed decision-making and foster collaboration across departments.

Tool

Procurement KPI Tracker Template

Download our free Procurement KPI Tracker Template today to monitor essential procurement numbers and demonstrate value in your procurement strategy.

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Avoid these 7 common procurement KPI pitfalls

Taking the wrong approach to tracking KPIs can obscure performance and skew strategic decisions. Avoiding the following common issues enables more accurate insights and better results:

Focusing on too many metrics: Too much information is as ineffective as too little. Instead of monitoring an extensive set of metrics, aim to track several highly relevant ones and use them to guide short-term decision-making. As the business needs or goals evolve, you can adjust which metrics you track to reflect the new direction for procurement activities.

Lack of clear objectives: Without well-defined goals, it becomes challenging to select appropriate KPIs. This can result in tracking metrics that do not align with the organization's strategic objectives, leading to misdirected efforts and resources.

Ignoring supplier performance metrics: Neglecting to monitor and evaluate supplier performance through KPIs can result in missed opportunities for improvement and optimization in the supply chain. It's crucial to include supplier-related KPIs to maintain strong partnerships and ensure quality.

Relying solely on lagging indicators: While lagging indicators are useful for understanding outcomes, they don't provide insight into how goals are achieved or what impact activities will have on future performance. Including leading indicators in your KPI mix offers predictive insights that can drive proactive decision-making.

Poor data quality: The accuracy of KPI analysis heavily relies on the quality of data evaluated. Inaccurate or incomplete data collection methods can lead to misguided conclusions and decisions. If data is trapped in multiple systems or siloed away from the procurement department, it’s more difficult to set accurate goals and track progress.

Overlooking the importance of benchmarking: Without comparing KPIs against industry standards or past performance, it's difficult to gauge whether current results represent success or areas for improvement. Benchmarking against an industry-wide perspective and the company’s historical performance provides context for meaningful evaluation.

Insufficient communication around metrics: Even if an organization tracks the right KPIs, the insights are only useful if stakeholders are aware of them and act accordingly. Regular updates and transparent reporting are integral to ensuring alignment and driving action based on KPI insights. Clear expectation-setting and communication inform everyone on which actions will most benefit the organization and its objectives.

Make tracking procurement KPIs easier with Order.co

Centralizing information using procurement software solutions makes reporting and analysis easier, enabling more effective tracking of your organization's most important metrics. Software can help you monitor the impacts of change, quantify savings and performance improvements that come from enhanced procurement strategies, and achieve key business goals.

Order.co gives procurement professionals practical tools to centralize procurement management and improve its results. The platform offers features and automation workflows that allow planners to consolidate procurement data, ensure high-quality information management, and control every aspect of the purchasing and payment process.

To get started tracking your most important KPIs, download our free