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Measuring the performance of a procurement department
Posted on December 8, 2006 by hudgeon in VendorManagementI’ve recently put together a list of measurable procurement team activities and a suggested metric for each activity. It’s by no means revolutionary but you may find it useful in your organisation.
Listed below are the activities and metrics. Note that your team’s metrics will differ from those listed below based on the behaviour you are attempting to drive within your team, your organisation, and your supply base.
- Spend analysis: Enriched addressable spend mapped to the organisational hierarchy (as a percentage of total addressable spend)
- Sourcing: Savings, total and savings divided by the sum of procurement staff salaries.
- Ordering: Spend through Procurement-controlled channels (e.g. e-catalogues) divided by the sum of P2P staff salaries
- Deliveries: Metric: Average elapsed time from supplier dispatch to end user receipt
- Invoicing and payment: Metric: Percentage of invoices paid on the date due (or before with negotiated discount)
- Contract administration: Metric: Percentage of total addressable spend under contract
- Supplier management: Metric: Spend covered by suppliers providing simple cost and SLA reporting back to the procurement department divided by the sum of supplier management staff salaries.
You’ll have noticed that some of the metrics are ratios between the objective and the cost of staff. I find this useful in focusing staff not on the limitations of our resourcing but on the efficiency of the resources we do have, and to constantly search for ways to make themselves more efficient.
These are good thoughts
Please send me the templates
Thanks
Hi Austine,
Sent.
Cheers,
Doug
Hello Doug, I agree most of your metrics, but I miss quality. Btw, contract mgmt is especially in ANZ important based from our reaerch. Please send me the templates
http://aconris.wordpress.com
True, quality is missing as a measure, primarily because of the cost of measuring it to a useful significance level. Instead, I tend to track quality as a satisfied/dissatisfied measure used to guide our behaviour rather than describe our performance.
Good insight. Can you please send me the templates. Thanks!
Doug,
I’m interested that you include prompt payment, isn’t this an A/C payable function?
Ian
ps. If you get a moment, I’d appreciate a copy of the templates too.
In my opinion, the line between Procurement and AP will over the coming years blur to the point of disappearing. Are there any reasons, other than maintaining the status quo, for separating the two functions?
Please send me the templates I am intrigued by your thoughts
nice real thoughts, can you please send me the templates for this id – avin.nair@gmail.com
Interesting thoughts, and I’d be intrigued to se your templates if possible.
However, there is one thing: Logistics. You include lead time which is a good measure but should not logistics quality, service level, and per cent logistics cost per unit. Logistics quality is basically % order lines delivered on time- not before not after-, in correct quantity etc.
interesting…pls send me the template
Good to see the metrics which are very usefull. Keep up the good work!! Thanks … please mail me the templates to my id….
manju_x@yahoo.co.uk
Pl. send all PDF litratures related to Procurement / SCM
Good point for performance measures.
please send me the templates.
thnks
These metrics sound quite interesting. I fully agree partuclularly with regard to cost benefit analysis b/t cost of procurement staff and the savings derived from SMO.
Please send me the templates.
Doug:
I have to agree with aconris – and in fact, your own About paragraph on this page suggests that contract terms are important: “At the heart of my work is my belief… continuously improving contractual relationships.” Are you only focused on the spend portion of the relationship?
Perhaps, as you’ve said in a more recent post, you’ve become quite focused in your expertise. This would typically have the effect of encouraging you to discount things other than spend. But I urge you not to ignore the value of the contract terms themselves.
My reasoning for this is that without assessing that value, you are forever dividing Purchasing from Contracting. And to become a true “Vendor Management” organization, those functions probably need to come together (I can’t say that they must, as I’ve never seen it successfully work).
[I’m interested in whether they have at most places, so I’ve started a survey on my own blog to find out: http://www.licensinghandbook.com.
In the meantime, please rethink the lack of metrics on the contracting piece.
~Jeff
Dear Doug,
Would you be so kind to send me a copy of your templates? I;m currently involved in the restructuring of the procurement department and your templates could be very helpful.
Dear Doug,
Would you be so kind to send me a copy of your templates? I’m currently involved in the restructuring of the procurement department of my company. I am of the opinion that your templates could be very helpful.
Thanks in advance.
Doug,
I am in the process of creating and adjusting a variety of segmentation codes to identify addressable vs. non-addressable spend. I feel that your templates may be helpful in our spend analysis. Please send me the templates, as they could be very useful.
Thank you & kind regards!
These are great ideas – I am working on indirect spend management and overall contract coverage. Your templates would be of great use to me.
Please send them along, and thanks.
Hi Doug,
I am new to Procurement and would be grateful if you could share the templates with me.
Best,
Shubha
Practical and realistic steps we can use in our company. Kindly email me templates.
Thanks.
Would you please send me the templates? I’m developing strategy for a procurement team, and metrics are very important. Thank you.
As a new procurement manager I found your thoughts very helpful. Can you send me your templates? They would be most helpful.
As a new procurement manager I found your thoughts very helpful. Can you send me your templates? They would be most helpful.
Thanks,
Adam
I would be interested in seeing the templates. Thanks.
Would you send me the templates please.
Hi Doug,
Could you send me the templates? Thanks