Examples of Procurement Metrics
Procurement Metrics Examples: Procurement performance metrics helps an organization determine accurately how its procurement sector is performing. These metrics help in measuring and benchmarking the effectiveness and efficiency of supply management. Establishing performance metrics and gathering information is an important step in making improvements.
To identify a systems strengths and weaknesses, the gathered information should be used in monitoring and evaluations. Then a plan is developed to strengthen identified weaknesses.
The following are examples of Procurement Performance Metrics
1. Product price variance
This metrics focuses on the competitiveness of the prices paid for a product. It measures the variance in percentage of contract unit price and international reference unit price over annual spend time.
It takes into account the aggregate amount of money procurement saves through reducing total cost of ownership.
2. Effective contract utilization
Effective contract utilization measures the contract compliance according to service level agreements (SLAs). It also measure contract terms and conditions and pricing agreements.
The three categories measured by percentage value are, the purchase order, annual contract and multi-year contract. Multi-year and annual contracts have shown to provide cost saving procurement entities. This is due to better pricing from suppliers, economies of scale and having fewer contracts and suppliers to manage.
3. Expiration management of procured products
This measures annual value of expenditure for products procured and expired before use. You can also brake down by category – for example – in cases where a program receives donations, this metrics measures percentage of donated products that expired before use. At this point the calculations are limited to the donated products and not to all procured products.
4. The performance of suppliers
The metric establishes if suppliers are delivering the right type of goods at the right time. It measures suppliers compliance according to the criteria set for the product and performance. If the suppliers are not in compliance the procurement team will have to make necessary corrective actions. The history from suppliers contract assist in allocation of tenders.
5. Procurement cycle time
This metrics measures the average time taken in procurement cycle. It also measures percentage of procurements completed in a standard procurement cycle.
The procurement cycle time for contracts and purchase orders is measured using historical data. The metric takes into account the amount of time required to complete a procurement cycle starting from the requisition submission date to the date of issuing purchase order.
6. The time taken for processing payment
The payment processing time metrics tries to establish if there are any delays during processing of payments. The metrics measures payment to suppliers made within contract period in percentage. Through making payments on time, procurement units can plan and control spending by negotiating for better prices and better payment terms.
7. Emergency procurement
The emergency procurement metrics measures the percentage of purchases or order during emergency in a defined period of time. The metrics is expressed in percentage of value of orders or number of orders.
8. The procurement cost
Procurement cost metrics establishes whether the procurement unit is operating efficiently. The metrics measures average cost associated with goods procurement against their value in designated time. The cost can also be measured against all orders during designated time as an average cost to processing order.