Procurement professionals rely on tools to maximize their performance. One of the most essential additions to the strategic sourcing toolkit is procurement KPIs or key performance indicators. KPIs provide the targets that the procurement team needs to hit, and they provide status indicators that make it possible to gauge whether the team’s performance is on track. After the fact, KPIs are essential to evaluating the team’s performance and can provide valuable insights to ensure the organization does better next time.
In short, KPIs are one of the best ways to facilitate and motivate procurement process excellence.
Every procurement team has many potential KPIs they might be tracking. Total spend by supplier is a classic, a metric that helps an organization weed out infrequently used suppliers to consolidate spending for cost savings. Some procurement teams need to track maverick spend to get a handle on employees who authorize purchases outside of standard approval channels. Every company has its own list. However, there are always key KPIs that are at the top of the list for every procurement organization. That list changes every year. Here are the 10 procurement KPIs that will matter most for 2022.
Top Procurement KPIs of 2022
1. Cost Savings Tracking
This key procurement KPI is on the list every year. Organizations are constantly under pressure to save money, and for the procurement team, cost savings is always one of the top priorities. With a spotlight on cost savings, you don’t want to take any risk of falling short on the target. That makes the cost savings tracking KPI one of the most critical.
2. Cost Avoidance Tracking
Cost avoidance can be an essential part of the overall cost savings equation. This is especially true for organizations in sectors like manufacturing, retail, and healthcare. The cost avoidance tracking KPI shows how much money is being saved through avoiding preventable spending such as having to trash expired materials or paying extra for warehouse space due to overstocked inventory.
3. Purchase Price Variance (PPV)
Purchase Price Variance (PPV) can seriously derail any budget. PPV occurs when you end up spending more on a product or material than you had planned to. Obviously, it’s better to pay less than expected. Companies can achieve this through methods like consolidation of suppliers for bulk purchases and improved procurement processes. Tracking this KPI shows how effective the procurement process is.
4. Purchase Request Cycle Time
Over the past year and a half, speed has become more critical than ever. With supply chain shortages and logistics challenges, procurement teams must move quickly to secure materials and transportation. Speed is going to be just as important in 2022. Procurement teams will have to watch their purchase request cycle time KPI carefully, keeping it as low as possible.
5. Supplier Diversity
In 2020, Harvard Business Review published an article highlighting the importance of supplier diversity in procurement. Consumers and customers are increasingly looking for socially conscious companies, rewarding organizations that pursue a supplier diversity strategy. In addition, the pandemic and related disruptions proved that supplier diversity is also important in terms of business continuity—if shipments from one supplier are tied up in a port, having a local option can save the day. The supplier diversity KPI has been an important one for procurement teams over the past two years. Expect it to be one of those that matter most in 2022 as well.
6. Supplier Performance
For a procurement organization to meet its goals, it needs to be able to count on its suppliers. One of the important procurement KPIs to monitor is supplier performance. Put simply, if a supplier is not delivering the goods and services they agreed upon in the time frame agreed upon, the procurement team needs to know it. That becomes a key consideration when deciding whether to award that supplier further contracts.
7. Supplier Risk
Supplier risk is another key KPI that needs to be tracked. With ongoing supply chain challenges, organizations will continue to be pressed to adapt quickly to shortages again in 2022. This can mean pivoting from regular suppliers to alternatives. However, before making such a decision, supplier risk needs to be assessed. There are many factors here, such as the supplier’s credit rating and their history of regulatory violations. Knowing of any potential risks before entering into a contract minimizes the risk of a bad outcome.
8. Supplier Geography
Part of risk management for procurement is knowing where your suppliers are located. Over the past several years, we’ve seen large regions affected by issues ranging from COVID-19 rates to wildfires and flooding. The supplier geography KPI helps to manage risk by providing a warning if your suppliers are concentrated in an area that has become unstable.
9. Procurement NPS
Net Promoter Score, or NPS, is a valuable metric for procurement. It identifies customer-centric companies based on a ratio of customers who would recommend it versus those who would not. A supplier with a high KPI for NPS provides value; one that falls behind is a red flag for the procurement team.
10. Take the Next Step to Real-Time KPI Tracking
The thing about KPI reports is that they are often backwards-looking and manually generated. That’s useful for analyzing what went right or wrong, but there’s a superior approach. Arkestro predictive procurement software provides KPI dashboards with real-time data and exception alerts. Instead of relying solely on historical data gathered manually by your team, with Arkestros KPI dashboards, procurement teams can make necessary adjustments as needed in real-time, ensuring the best possible outcome.
Book an Arkestro demo to see how real-time KPI dashboards will strengthen your procurement toolkit.