This document outlines key performance indicators (KPIs) for measuring the procurement function. It discusses measuring: 1) the value added by procurement through cost savings and cash flow improvements, 2) stakeholder satisfaction including customers, employees, and suppliers, and 3) operational excellence through metrics like procurement cycle time. The document also covers strategic sourcing approaches like expenditure analysis, category management, and supply base consolidation to further optimize procurement. The goal is to establish KPIs that holistically measure procurement's contributions and identify opportunities for continuous improvement.

1. July 2017
Procurement KPI´s ©
Procurement Director
Paco Rodríguez de Molina
1

2. 1 Objectives
2 Why to measure
3 What to measure
4 Procurement KPI’s
Contents
2
5 Maturity of Procurement
Organization
6
Strategic Sourcing:
• Expend analysis
• Category Management
• Supply Base consolidation

3. 1
Objectives
3

4. Scorecards
4
• Managers use Balanced Scorecards to manage the organization and to set up plans to drive day to
day operations towards long term goals and objectives
• Balanced Scorecards are made up of a set of Key Performance Indicators (KPI’s)
• Objective is to define a set of KPI’s applicable to Procurement Function that allow to know de status,
progress, improvements of the organizations

5. 2
Why to measure
5

6. 6
“What is not defined can not be measured
What is not measured can not be improved
What is not improved, always gets worse”
William Thomson, Lord Kelvin
1824 – 1907
0º K = -273,15º C (absolute zero)
Define, measure, improve

7. 7
KPI’s are simple and results based tools needed to:
• Align day to day behaviors towards defined objectives
• Determine what is working right
• Identify what to improve and adjust based in the results
• Report status of activities inside the Procurement Organization,
report to the rest of the organization and report to the Management
• Set objectives
• Benchmark: Comparison with other organizations by comparing
KPI’s

8. 3
What to measure
8

9. 9
A good set of KPI’s should comprehend holistically and globally
all activities developed by the Procurement Function
A Procurement Balanced Scorecard should measure three core
areas of the Procurement Function:
1. Value added by the Procurement Function to the
Organization
2. Stakeholders:
a. Supply Base Portfolio performance
b. Procurement Personnel performance
c. Internal Customer feedback
3.Operational Excellence of the Procurement Processes

10. 4
Procurement KPI’s
10

11. 11
Core Area KPI Calculated KPI Remarks Formula Units Where
How
Often
1.1.1. Cost Savings Recurrent spend
One off spend
(P2 - P1)*V2 Annual
Budget - PO price
€
€
KPI report
KPI report
Monthly
Monthly
1.1.2. Cost Avoidance Price Increase delay
Opportunistic Buy
Annual Impact
(Budget - PO price)*V
€
€
KPI report
KPI report
Monthly
Monthly
1.1.3. Cash Generation Term improvements
Inventory Sale
@ Oficial Interest rate € KPI report Monthly
1.1.4. Transactional Savings Simplify Backoffice
Proccesses
Avoid / reduce / simplify
workflows, redundancies
€ KPI report Monthly
1.2 Procurement ROI Savings / Procurement Budget Salaries, Gen Exp., Travel
From ERP system
Savings / Procurement
Budget
% Anual
Report
Annually
1.3 Spend per employee
Transactions per employee
Total Spend / No. of
Employees No. Transactions /
No. of Employees
From ERP system Total Spend / Number of
Employees
€ /
Employee
Anual
Report
Annually
1.4 Savings per employee Savings / No. of Employees Salaries, Gen Exp., Travel
From ERP system
Savings / Number of
Employees
€ /
Employee
Anual
Report
Annually
1.5 Managed Spend
% Spend that Procurement
% of Spend competitively
sourced
From ERP system Total Spend/ Sourced
Spend
% Anual
Report
Annually
1.6 Commodity Strategy Maturity Assesment Assesment n. a. Report Anual
Report
Annually
Core Area KPI Calculated KPI Remarks Formula Units Where
How
Often
2.1 Customers Perception Internal Customer
Satisfaction Survey
Group Focus Free text
input Short, simple
n.a. Report Anual
Report
Biannually
(6m)
2.2 Employees Performance Track skills and competencies Training Plan n.a. Anual
Report
Annually
2.3.1. Supplier Quality
Right product / Service
ppm if volume big enough
Quality Incidents tracking
Deffects per Million
n.a.
ppm
No.
SQ Report
SQ Report
Monthly
Monthly
2.3.2. On Time Delivery
Right timing
OTD to promised date
OTD to reschedule date
No. Shipments
ontime / not on time
%
%
SQ Report
SQ Report
Monthly
Monthly
2.3.3. Supplier Rating Score
Stakeholder Feedback
Supplier Survey n.a. Rating SQ Report Biannually
(6m)
Core Area KPI Calculated KPI Remarks Formula Units Where
How
Often
3. Operational
Excellence Process /
Policy / Controls
3.1 Procurement Cycle Time
Measure Effectiveness of
Procurement processes
3.1 Procurement Cycle Time
From ERP system
Average time from PR to
PO
n.a. Days Monthly
Report
Monthly
1.Value Added by
Procurement Function
1.1 Savings
Based on TCO
(Total cost of ownership)
Verified by Finance
Globally agreed and Applied
2. Stakeholders
Customers
Employees
Suppliers
2.3 Suppliers Performance

12. 12
4.1 Value added by Procurement Function : Savings and FCF Improvement
Amount of money procurement saves by reducing the total cost of ownership (TCO)
And
Free cash flow generated from negotiating Terms with the supply base.
Measures the purchasing departments contribution to the financial success of the organization.
• Recurrent expenses: Price decreases yoy (without change in volumes)
• Spot buys / services: One off supplies and services compared to budgeted cost
• Cost Avoidances: i.e. Repair vs replace, Spare pools, Opportunistic Buy…
• Cash flow improvements (Calculated at real interest rate)
These actions should be tracked as P&L (Hard savings)
• Transactional cost savings: Measured as estimated savings when an initiative avoid /
reduce / simplify workflows, redundancies or administrative tasks.
These ‘soft savings or costs improvements’ turn into hard costs over time
• Avoid RFQ (Frame agreements), Bundle PO´s, Optimize (Reduce) Supply Base

13. 13
4.1 (Cont.) Value added by Procurement Function : Savings and FCF Improvement:
• ROI (Return of Investment) of the Procurement Function
Measured in terms of Savings generated / Operational Budget
To benchmark and set goals in terms of ROI and compliance with the approved Operational Budget
• Spend per Employee
Total Spend / Number of Employees
To benchmark the right size the organization
• Savings per Employee
Total Savings / Number of Employees
To benchmark the organization inside and outside the enterprise
• Managed Spend
% Spend that Procurement manages vs. Total Spend
Measures how effective the function controls and manage the spend
• Commodity Strategy Maturity Assesment. See Chapter 6

14. 14
4.2 Stakeholders: Customers, Employees, Suppliers
• Customers Perception
Internal customer satisfaction survey
Group Focus . Weighted by users. Free text input. Short, simple questions
Cons: Perceptions are never measurable. Need to support by data
• Employees Performance
Track skills and competencies via Training Plan
• Suppliers Performance
• Supplier Quality: Right product / Service measured ppm if volume big
enough. Quality Incidents tracking
• On Time Delivery : Right timing. OTD to promised date/OTD to reschedule
date. Measured as % of on time of total shipments
Services: Project management: Measured as % of execution to plan /
milestones. Suitable to Turn key projects
• Supplier Rating Score: Stakeholder Feedback. Supplier Rating

15. 15
4.3 Operational Excellence:
Procurement Cycle Time
Measure Effectiveness of Procurement processes
Average time between requisition submission and purchase order placement
Average time from the beginning of a sourcing process to signing of contract
From ERP systems:
Procurement Cycle Time = PR approval avg time + PO issuing avg time + PO approval avg time
PR: Purchase Requisition
PO: Purchase Order
Calculation may differs among different Procurement Organizations
Useful: Plot histograms and analyze out of trend plot causes

16. 5Maturity of Procurement
Organization
16

17. 17
(-)ValueCapture(+)
(-) Maturity of the Organization (+)
Reck and Long, ISM, 1988
1.- Pasive
Every body purchases
Ad – hoc Chaothic
Savings
3% - 5%
2.- Purchasing
Processes. Procedures. Main
Suppliers Evaluation
Cost Improvements 8%
-12%
3.- Sourcing
Expend Analysis, SRM,
Category Management
Capture Productivity
4.- Resources
Supplier integration in Value
Generation
Top Line Impact
Capture Innovation
5.- Value Chain
Overlapping Value Chains
Extended Enterprise
Maturity of the Procurement Organization
Maturity
Sofistication
Professionalism
Multifunctional
Contribution to
results

18. 18
Opportunities Identification
In less mature organizations: “Bigger potential
savings”…
• Procurement function not clear “every body purchase”
• High number of suppliers and families per buyer
• Buyers do other things (logistics, meetings, proyect managent
, chase approvals, suppliers audits). Back-office tasks. No
time to save money
• High level of purchases through distributors instead of from
OEM
• Low level of international purchases
• Low influence of Procurement in Supplier selection

19. 19
Available time distribution
Buyers must be free from day to day tasks
Little portion of avilable time dedicated to Cost Improvement Projects
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Buyer time
Cost Improvemnt Projects 4%
Price Negotiation 7%
Contract Management 4%
Logistic Issues 4%
Payment Terms 7%
Suppliers Audit 4%
Department Meetings 7%
Proyect meetings 14%
Delays 21%
Order follow up 29%
%availabletime
ISM, 2015

20. 6Strategic Sourcing:
Expend analysis
20

21. 21
6.1 Strategic Sourcing: Expend Analysis
7 (Seven) Steps
1.Identify
2. Gather
3. Cleanse
4. Group
5. Categorize
6. Analyze
7.Repeat

22. 22
6.1 Strategic Sourcing: Expend Analysis 7 Steps
1.- Identify all possible
sources of information about
expend:
ERP PO´s, BI Analysis,
Control and Reporting,
Invoicing vs Order, From
different departments and
OU´s, Warehouse outputs
($)…
2.- Gather and
consolidate all data (Core
file) Challenging task:
Data may come from
different sources,
languages, currencies…
3.- Cleanse the data:
Find and Fix
Examples: Fees, Intra
company Costs, Wrong
Names, Construction Costs,
Standardize data for and
easy to use access (Pivot
Tables) Core File
4.- Group Suppliers,
Mothers, Sisters
companies, find Name
changes , M&A’s …
5.- Categorize: Classify
expend by family, category,
subcategory, purchasing
group, etc.
Need to be able to see
where the money goes to:
Office supplies, travel,
marketing, direct and
indirect expenses, Opex
and Capex...
6.- Analyze the
expend:
Make sure that all
negotiated contracts are
best in nclass and
performing.
Buy from preferred
suppliers
Optimize (reduce) number
of suppliers per family…
7.- Repeat:
Running an Expend Analysis
means also to start identifying
saving opportunities.
It is absolutely needed
constantly to update the data,
check that contracts are in
place and performing, preferred
suppliers are used and identify
new saving opportunities

23. 23
6.2 Strategic Sourcing: Category Management
• Kraljic Matrix (Boston CG):
BottomlineImpactprofit-
highexpend(€)
(Costusmoney)
Supply Chain Risk
(Can stop our business)
Strategic
Selling Power
Bottlenecks
Bottle necks
Leverages
Purchasing power
Non Criticals
Commodities
Few
Suppliers
Many
Suppliers
Segmentation of Suppliers / Categories

24. 24
6.2 Strategic Sourcing: Category Management
Supply Chain Risk
Strategic
Selling Power
Bottlenecks
Bottle necks
Leverages
Purchasing power
Non Criticals
Commoditie
1.- Keep
Alliances
2.- Accept
Alliances
3.- Break
Relationship
4.- Accept
Dependence
5.- Reduce
Dependence
Reduce
Risks
Change
Spec. Or
Supplier
6.- Leverage
Purchasing Power
7.- Develop
Long Term
Alliance
8.- Group
Suppliers
9.- Optimize
Back-office
BottomlineImpactprofit-
highexpend(€)
Many
Suppliers
Few
Suppliers
• Kraljic Matrix (Boston CG):
Segmentation of Suppliers / Categories

25. 25
6.3 Strategic Sourcing: Supply Base Consolidation
Pareto Principle: “Trivial Many, Cruzial Few”
Percent of active suppliers accounting for 80%* of total spend.
This KPI measures the current state of supplier consolidation
and activity within supply base from the previous year.
New product introductions and M&A may impact this metric.
Changes in sales within the product portfolio may have an effect
as well
This KPI drives efficiencies within the procurement organization
and drives down costs/PO
*: 80% is just an example, but it generally accepted the 80/20 rule

26. 26
6.3 Strategic Sourcing: Supply Base Consolidation
• Pareto Analysis combined supply of different divisions
11% de los Prov.
84 Prov.
2.003 PC
56,1 M€
32% de los Prov.
155 Prov.
1.523 PC
10,7M€
57% de los Prov.
511 Prov.
1.516 PC
3,9 M€
Here goes the
Money
Here goes the
non value added
effort
• PRdM: I don´t know how many suppliers you have but I am sure they are too many…