Measuring the performance of a procurement department
I’ve recently put together a list of measurable procurement team activities and a suggested metric for each activity. It’s by no means revolutionary but you may find it useful in your organisation.
Listed below are the activities and metrics. Note that your team’s metrics will differ from those listed below based on the behaviour you are attempting to drive within your team, your organisation, and your supply base.
- Spend analysis: Enriched addressable spend mapped to the organisational hierarchy (as a percentage of total addressable spend)
- Sourcing: Savings, total and savings divided by the sum of procurement staff salaries.
- Ordering: Spend through Procurement-controlled channels (e.g. e-catalogues) divided by the sum of P2P staff salaries
- Deliveries: Metric: Average elapsed time from supplier dispatch to end user receipt
- Invoicing and payment: Metric: Percentage of invoices paid on the date due (or before with negotiated discount)
- Contract administration: Metric: Percentage of total addressable spend under contract
- Supplier management: Metric: Spend covered by suppliers providing simple cost and SLA reporting back to the procurement department divided by the sum of supplier management staff salaries.
You’ll have noticed that some of the metrics are ratios between the objective and the cost of staff. I find this useful in focusing staff not on the limitations of our resourcing but on the efficiency of the resources we do have, and to constantly search for ways to make themselves more efficient.
These are good thoughts
Please send me the templates
Thanks
Austine
April 15, 2007 at 1:52 pm
Hi Austine,
Sent.
Cheers,
Doug
hudgeon
April 16, 2007 at 7:22 am
Hello Doug, I agree most of your metrics, but I miss quality. Btw, contract mgmt is especially in ANZ important based from our reaerch. Please send me the templates
http://aconris.wordpress.com
aconris
May 21, 2007 at 11:42 pm
True, quality is missing as a measure, primarily because of the cost of measuring it to a useful significance level. Instead, I tend to track quality as a satisfied/dissatisfied measure used to guide our behaviour rather than describe our performance.
hudgeon
May 22, 2007 at 7:19 pm
Good insight. Can you please send me the templates. Thanks!
ykrause
July 12, 2007 at 8:00 am
Doug,
I’m interested that you include prompt payment, isn’t this an A/C payable function?
Ian
ps. If you get a moment, I’d appreciate a copy of the templates too.
I. Makgill
August 7, 2007 at 12:11 am
In my opinion, the line between Procurement and AP will over the coming years blur to the point of disappearing. Are there any reasons, other than maintaining the status quo, for separating the two functions?
hudgeon
September 3, 2007 at 8:50 pm
Please send me the templates I am intrigued by your thoughts
jakymec
October 19, 2007 at 6:51 am
nice real thoughts, can you please send me the templates for this id – avin.nair@gmail.com
avinnair
November 27, 2007 at 10:49 pm
Interesting thoughts, and I’d be intrigued to se your templates if possible.
However, there is one thing: Logistics. You include lead time which is a good measure but should not logistics quality, service level, and per cent logistics cost per unit. Logistics quality is basically % order lines delivered on time- not before not after-, in correct quantity etc.
Martin Beh
December 9, 2007 at 8:41 pm
interesting…pls send me the template
suraya
January 7, 2008 at 2:31 pm
Good to see the metrics which are very usefull. Keep up the good work!! Thanks … please mail me the templates to my id….
manju_x@yahoo.co.uk
Manjunath Kumar
January 15, 2008 at 8:55 pm
Pl. send all PDF litratures related to Procurement / SCM
Ritesh Kapadia
January 29, 2008 at 5:22 pm
Good point for performance measures.
please send me the templates.
thnks
Pallavi
February 23, 2008 at 4:33 pm
These metrics sound quite interesting. I fully agree partuclularly with regard to cost benefit analysis b/t cost of procurement staff and the savings derived from SMO.
Please send me the templates.
Loselo
March 11, 2008 at 8:31 pm
Doug:
I have to agree with aconris – and in fact, your own About paragraph on this page suggests that contract terms are important: “At the heart of my work is my belief… continuously improving contractual relationships.” Are you only focused on the spend portion of the relationship?
Perhaps, as you’ve said in a more recent post, you’ve become quite focused in your expertise. This would typically have the effect of encouraging you to discount things other than spend. But I urge you not to ignore the value of the contract terms themselves.
My reasoning for this is that without assessing that value, you are forever dividing Purchasing from Contracting. And to become a true “Vendor Management” organization, those functions probably need to come together (I can’t say that they must, as I’ve never seen it successfully work).
[I’m interested in whether they have at most places, so I’ve started a survey on my own blog to find out: http://www.licensinghandbook.com.
In the meantime, please rethink the lack of metrics on the contracting piece.
~Jeff
Jeff Gordon
March 15, 2008 at 11:47 pm
Dear Doug,
Would you be so kind to send me a copy of your templates? I;m currently involved in the restructuring of the procurement department and your templates could be very helpful.
Ruud Altena
March 20, 2008 at 11:08 pm
Dear Doug,
Would you be so kind to send me a copy of your templates? I’m currently involved in the restructuring of the procurement department of my company. I am of the opinion that your templates could be very helpful.
Thanks in advance.
Ruud Altena
March 20, 2008 at 11:09 pm
Doug,
I am in the process of creating and adjusting a variety of segmentation codes to identify addressable vs. non-addressable spend. I feel that your templates may be helpful in our spend analysis. Please send me the templates, as they could be very useful.
Thank you & kind regards!
Salil
June 4, 2008 at 12:15 am
These are great ideas – I am working on indirect spend management and overall contract coverage. Your templates would be of great use to me.
Please send them along, and thanks.
Pat Piscatelli
July 9, 2008 at 6:07 am
Hi Doug,
I am new to Procurement and would be grateful if you could share the templates with me.
Best,
Shubha
Shubha
August 4, 2008 at 11:05 pm
Practical and realistic steps we can use in our company. Kindly email me templates.
Thanks.
Kishore Jethmal
August 16, 2008 at 2:35 pm
Would you please send me the templates? I’m developing strategy for a procurement team, and metrics are very important. Thank you.
Greg Ross
August 22, 2008 at 7:04 am
As a new procurement manager I found your thoughts very helpful. Can you send me your templates? They would be most helpful.
wtnick
August 29, 2008 at 2:21 am
As a new procurement manager I found your thoughts very helpful. Can you send me your templates? They would be most helpful.
Thanks,
Adam
adam
September 22, 2008 at 10:56 pm
I would be interested in seeing the templates. Thanks.
Jennifer Smith
October 1, 2008 at 12:55 pm
Would you send me the templates please.
Ron
October 13, 2008 at 11:16 pm
Hi Doug,
Could you send me the templates? Thanks
Nicky
October 25, 2008 at 7:42 am