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Total Cost
The aggregate amount of money procurement
saves by reducing the total cost of ownership
(TCO) from one year to the next excluding
changes in volume. This measures the
purchasing departments contribution to the
financial success of the organization.
These are actions that can be directly traced
back to the P&L (Hard savings)
Quality
Supply base has demonstrated continuous
improvement in defect rates. This can be
achieved by identifying metrics such as
defects per million (DPM) that effectively
measure the progress being made towards
betterment of quality.
Delivery
This KPI measures how well the procurement
department gets what the organization needs
when it needs it.
Delivery to promise date
Delivery to (original) schedule date
Delivery to rescheduled dates
Measured as % of on time total shipments when
volume is large enough.
Cost Avoidance
Cost avoidance is a cost reduction that results
from a spend that is lower than the spend that
would have otherwise been required if the
cost avoidance exercise had not been
undertaken.
Examples: delaying a suppliers price increase,
additional services such as training at no cost or
long term price protection provisions.
These soft costs turn into hard costs over time.
Procurement ROI
This KPI measures the procurement
departments cost effectiveness. This is
measured by comparing implemented cost
savings to the procurement departments
operating budget.
Contract Compliance
This KPI measures compliance to contract
service level agreements (SLAs), contract
terms and conditions, and pricing agreements.
This metric is used to benchmark suppliers
compliance to the standards they have
negotiated.
Summary
Capturing baseline KPI information within the
supply base promotes ongoing supplier
compliance and identifies areas of
opportunity
Actively measuring these top 10 KPIs is the
key to continuous improvement across an
organizations supply base.
Benchmarking KPIs against other best in class
procurement organizations creates
procurement goals and targets.