In today’s fast-paced business environment, we are constantly on the hunt for ways to improve our processes and remain competitive. This makes tracking performance an essential driver of growth.

In procurement, we achieve this through the use of Procurement KPIs (Key Performance Indicators).

These vital benchmarks provide insights into various aspects of procurement, from cost savings to supplier management. Procurement KPIs allow us to measure the success of our team’s efforts.

Thus, this article explores 8 procurement KPIs every organisation should measure in 2024. It offers a comprehensive guide to help procurement teams refine their practices and deliver better results.

What are Procurement KPIs?

Procurement KPIs are tools that help organisations define and measure progress towards their organisational mission and objectives.

These KPIs provide insights into the compliance, efficiency, competitiveness, and transparency of the procurement process.

According to the Oxford College of Procurement and Supply, a good KPI should meet the SMART standard (Specific, Measureable, Achievable, Relevant, Timely). A KPI that fulfils all five elements will provide vital data to the organisation.

In procurement, KPIs can cover a wide range of areas, including:

• Cost savings
• Supplier performance
• Quality control
• Inventory management

By tracking these metrics, businesses can identify areas for improvement, make informed decisions, and achieve better outcomes in their procurement activities.

Why Do We Need Procurement KPIs?

Here are several reasons why procurement KPIs are important:

• Align Practices to Business Goals: Measuring relevant KPIs allows procurement teams to focus on efforts which bring the organisation closer to its objectives. For example, in terms of efficiency, sustainability, etc.
• Provide Early Warning of Potential Issues: Tracking KPIs allow procurement teams to detect problems such as reduced performance among suppliers and maverick spending – and promptly address the issue.
• Evaluate Performance: Tracking KPIs help procurement teams measure and quantify the progress and efficiency of their activities. It also helps them evaluate the ability of third parties (the supplier) to meet contractual agreements.
• Motivate Suppliers: Setting KPIs informs suppliers of the benchmark they need to achieve / expectations they need to meet, in order to bring in new business or ensure a contract renewal. This builds a better relationship with suppliers.

8 KPIs Your Procurement Team Should Be Tracking

Procurement KPIs can be divided into four distinct categories: cost-saving, quality, and delivery.

Cost Saving KPIs

1. Spend Under management

This KPI is the percentage of total procurement spend that is managed or regulated by the procurement team.

It measures how effective the procurement team has been in controlling and overseeing spending.

A procurement team performing at an exceptional level can achieve 75% to 85% of spend under management.

How to Measure
Spend under management = Total approved spend – Maverick Spend

2. Procurement ROI

This KPI is the return of investment for the procurement function, calculated as the total savings divided by the department costs.

It evaluates the financial effectiveness of the procurement team, justifying the resources allocated to procurement activities.

Experts state that procurement ROI can be determined by looking at the following areas: spend analysis, approval workflows, time spent on manual tasks, spend visibility, and cloud-accessibility of tech.

How to Measure
Procurement ROI = Annual cost savings / Annual procurement cost

Improve Procurement ROI with Doxa Connex

The key to tracking procurement ROI is having access to real-time spending data.

The best way to do this: using specialised tools / software for procurement.

Reach the full potential of your procurement team with Doxa Connex’s project cost tracking.

This feature helps your team monitor project costs in real-time and provides auto-updates for committed costs VS forecasts.

By providing a clear view of your current financial standing, it enables your team to identify and address potential issues early on.

Quality KPIs

3. Supplier Compliance Rate

This KPI is the percentage of suppliers adhering to contractual terms and compliance requirements.

It measures how well suppliers follow agreed terms, standards, and regulations, which impacts overall procurement effectiveness, and risk management.

A reduction in compliance rates can cause increases in indirect and maverick spend.

4. PO and Invoice Accuracy

This KPI is the percentage of purchase orders (POs) and invoices that match exactly in terms of terms, quantities, and pricing.

It assesses the accuracy and efficiency of the procurement and accounts payable processes, aiming to reduce errors and discrepancies.

5. Supplier Defect Rate

Supplier Defect Rate is the percentage of products or services from suppliers that do not meet quality standards.

It identifies quality issues with suppliers and helps in managing and improving supplier performance.

How to Measure
Supplier defect rate = (Number of defective products / Total number of units delivered) X 1,000,000

Delivery KPIs

6. Rate of Emergency Purchases

Rate of emergency purchases is the frequency of purchases made on an urgent basis, often outside standard processes, to prevent a shortage of supply or fulfil an increase in demand.

It indicates how often procurement is needed in emergency situations, which may highlight issues in planning or forecasting.

How to Measure
Rate of Emergency Purchases = Number of emergency purchases / Total number of purchases

Avoid Emergency Purchases with Doxa Connex

The best solution to prevent emergency purchases is creating a vast network of suppliers and products. This enables procurement teams to fill the sudden need as fast as possible.

Not sure how to get started? Gain access to alternative suppliers, materials, or services with Doxa Connex’s trusty sourcing portal!

It allows you to request quotations from multiple suppliers or issue a quote to a specific supplier – ensuring you stay on top of supply chain management and keep emergency purchases to a minimum.

7. Purchase Order Cycle Time

Purchase Order Cycle Time is the average time taken (hours or days) from the creation of a purchase order to its approval

It measures the efficiency of the procurement processes in terms of time, aiming to reduce delays and improve operational efficiency.

8. Supplier Lead Time

Supplier lead time is the time required from placing an order with a supplier to receiving the goods or services.

It assesses the responsiveness and reliability of suppliers and the overall efficiency of the procurement and supply chain process.

How to Measure
Supplier lead time = Delivery time – Order time

Related Articles:

• Procurement Process Flow: How to Make It Better in 2024
• The 6 Best Construction Procurement Software In 2024 

How Can Doxa Connex Help You?

Doxa Connex is a collaborative trade platform that provides an end-to-end solution for procurement, payment, and financing.

This platform automates and digitalises your processes – helping you save costs, increase efficiency, and free up time for higher value work such as innovation and expansion.

Doxa Connex can smoothly integrate with most ERP and accounting systems, like SAP, Oracle, SAGE, Autocount and more via API, SFTP, or other methods. Doxa’s experienced team also handles the supplier onboarding, providing training and support to bring suppliers to the platform for collaboration.

“With Doxa Connex, industry practitioners will be freed from tedious paper-based processes, enabling them to focus on higher-value work.”

 

– Dr. John Keung, Chairman, Tiong Seng Contractors

Here are the primary solutions Doxa Connex offers:

• Cost Reduction: Our clients have experienced an up to 49.2% reduction in manual hours spent on workflow.Doxa Connex helps you automate processes (e.g., payments from main contractors to suppliers), reducing manual work, increasing accuracy, and letting you focus on what matters.
• One System For All Your Process: Doxa Connex is an end-to-end system that manages documentation such as Request for Quotes, Purchase Requests, Purchase Orders, Invoices, and Payment Tracking. We remove the need for paper-based documents and endless back-and-forths.
• A Single Source of Information With a Cloud Platform: Doxa Connex acts as a single source of truth for all your projects, providing easy access to all your data and simplifying collaboration between stakeholders. Our dedicated mobile app further enhances on-site productivity.
• Specially for the Built Environment: Doxa Connex is designed for contractors, sub-contractors, and suppliers in the Singapore built environment. We are modelled towards the Building and Construction Authority’s (BCA) recommendations.

Track Your Procurement KPIs With Doxa Connex

Ensure your procurement team is operating at an optimum level with procurement KPIs.

By effectively measuring these metrics, organisations can enhance their procurement strategies, optimise spending, and achieve their business goals.

Searching for a solution?

Look no further than Doxa Connex – a premier platform connecting buyers, suppliers, and financiers effortlessly.

Built on a strong enterprise-grade foundation, our highly flexible platform allows us to constantly add, improve and enhance features and workflows, especially for the construction industry.

To provide the best value for buyers, we’ve partnered with leading financial institutions including Maybank, UOB, OCBC, and more.

Our platform is trusted by prominent players in the construction industry such as Tiong Seng Group, Kimly Construction, and Sim Lian, creating a thriving ecosystem for growth.

Want to see how Doxa Connex helps your team visualise and track procurement KPIs?

Book a Demo Today