Key performance indicators (KPIs) are a positive means of illustrating that the value of your procurement operations is beyond “just” cost reduction and administration of orders.
I will take it for granted that the trinity of delivery, quality and cost will already be included. Right? RIGHT!? :)
Measurement of parameters in a vacuum can be misleading. Procurement should also track performance in comparison to others – benchmarking internally, by each country’s operation in a multinational organisation for example, or externally with other organisations through an “honest broker”.
Four inter-related areas form the basis of procurement performance indicators:
- Strategy – implementation against agreed milestones, for example the amount of expenditure influenced by procurement, usage and linkage to IT strategy (including different forms of e-procurement) and the broader business strategy.
- People – this facet can take many forms, such as service quality or stakeholder satisfaction through questionnaire surveys and an objective assessment of procurement competencies. An example would be public-sector staff having a thorough understanding of the implications of the Alcatel judgement.
- Procedures – clarity on procurement and supply chain management procedures such as for outsourcing key services, major projects or low-value purchasing.
- Governance – there are regulatory requirements and best-practice aspirations that procurement should consider when developing KPIs. The acronym PESTLE (Political, Economic, Social, Technological, Legal and Environmental) is helpful when considering governance issues.
The overarching aims of your “Procurement Performance KPIs” are to demonstrate effective management of third-party spending and to provide a framework for monitoring performance and continuous improvement. The challenge is to obtain access to relevant information, avoiding potential data overload, and engendering commitment from stakeholders to a continuous improvement process.
In grappling with developing your own KPIs, what have you found particularly helpful?
If you’d like some ideas that have proven useful for other people seeking the value of procurement operations, get in touch – I’d love to help.
-Ray
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