When a business is small, the procurement process is relatively straightforward. There aren’t too many people involved because only a small team approves each purchase.
However, for larger businesses, this workflow is much more complex.
When more people are involved in purchasing, it can be difficult to contain and control expenses. Maintaining oversight and visibility requires teamwork and coordination; otherwise, operating costs become unsustainable.
With modern enterprise software, companies can set and track procurement KPIs to ensure they’re on the right track. Today, we’re looking at why the right software can be instrumental in improving your procurement processes.
What are Some KPIs for Procurement?
There are many kinds of procurement KPIs that a company can set. Most of them fall into one of the following categories:
- Quality KPIs: Compliance rate, supplier defect rate, supplier quality rating, on-time/on-budget purchases
- Cost-saving KPIs: Purchase order costs, procurement ROI, procurement cost avoidance, procurement cost reduction
- Delivery KPIs: Supplier availability, number of suppliers, vendor rejection rates/costs, lead time, emergency purchase ratio
- Process efficiency KPIs: Number of purchase orders per day, average time to complete a purchase order, number of errors on purchase orders
- Sustainability KPIs: Percentage of suppliers that are certified sustainable, percentage of spend on sustainable products and services
The 2024 Top 10 ERP Systems Report
What vendors are considering for your ERP implementation? This list is a helpful starting point.
Deciding What KPIs to Track
It’s unrealistic to expect your teams to wade through every single data point and decide what to track. Most analysts agree that tracking the wrong metrics is worse than failing to track any metrics at all.
Your project team needs to clarify the company’s procurement strategy and goals – even before you select software. What outcomes do you want your procurement process to achieve?
Also, consider your employees’ needs regarding your procurement workflow. What are they trying to accomplish?
- Making more data-driven decisions?
- Uncovering cost-saving opportunities to optimize spend?
- Streamlining procurement schedules and timelines?
- Ensuring goods and services are produced in the correct quantity and quality?
As you review potential procurement KPIs, consider whether each one aligns with your overall business objectives. This will help you narrow down the long list of potential KPIs to just those that you need to monitor to reach your procurement goals.
Using Enterprise Software to Measure Performance
It isn’t enough to simply set procurement KPIs. Once they’re in place, you need tools that can help your company measure and track them.
That’s why many companies use an enterprise system, like an SCM system or manufacturing ERP system, to analyze large stores of data and synthesize what’s important.
For instance, a bioscience manufacturer might use ERP software to track the quality of its biologics suppliers. The platform would collect and analyze data on relevant data points, such as defect rates and on-time delivery. The software would then assign a supplier quality rating to each supplier.
Most enterprise software includes customizable user dashboards and workbooks that help employees visualize performance with just a few clicks. With such tools in place, companies can keep an eye on their procurement processes without having to export data or leverage any third-party analysis tools.
Benefits of Tracking KPIs This Way
1. Data Reliability
When everything is stored in a centralized system, you don’t have to worry about users accessing inaccurate or outdated information.
Enterprise software can provide a centralized, accurate view of all procurement data, making it easier to identify trends and patterns. With real-time data at their fingertips, employees can make more informed decisions about supplier selection, pricing, inventory management, and more.
In addition, you can create a baseline of performance that can be used to identify areas for improvement and automate tasks such as purchase order generation and supplier onboarding.
2. Increased Efficiency
Once procurement data is accessible and in machine-readable format, you can automate the full procurement process.
For example, a company could use an ERP system to proactively identify potential procurement issues. The system would generate an alert whenever it identifies an anomaly or exception in an order.
Another task that could be automated is purchasing negotiations. In fact, as more ERP vendors innovate their offerings, AI-based purchasing negotiations may soon become commonplace.
In terms of generative AI, many of the top ERP software vendors are already integrating this technology into their software to automate a variety of procurement tasks, such as:
- Reading and summarizing documents and emails
- Generating requisitions for products and services
What are Your Procurement KPIs?
Setting and tracking procurement KPIs can help your organization make data-driven decisions around purchasing and procurement. As a result, you can avoid unnecessary costs, improve financial visibility, and more.
From supplier quality to PO costs and lead times, enterprise software can track, measure, and analyze almost any procurement metric.
Our team can help you select and implement a solution that aligns with your company’s long-term goals. Contact us below for a free ERP consultation.
