The Six Most Common KPIs for Procurement

by Lourdes Coss, MPA, CPPO

An important aspect of transformation is setting and achieving goals. Whenever an organization establishes a goal, it should also implement a process to manage it.  That means that you need to measure progress towards the target.  Transformation is not a pre-requisite to establishing and achieving goals.  Organizations do this as a matter of practice, particularly those that want to continue to improve.  

Goals should be supported by a process that informs leadership of the progress towards goal achievement.  It is necessary to establish a way to measure the gap between the current situation and the desired state for a specific objective.  Keeping track of the progress is essential because it is hard to achieve what you don’t track or don’t measure.  

To track progress towards goals, organizations establish Key Performance Indicators (KPIs).  KPIs are quantifiable measurements that help procurement leaders determine how well their organization achieves strategic and operational goals. These measurements are specific to areas relevant to the overall quality of a procurement’s operation.  Each KPI requires the collection of appropriate data pertinent to the KPI that supports the goal.  In some organizations, KPIs’ reporting has been institutionalized across the entity to measure the overall performance and determine alignment with its operational and the strategic objectives established by the governing body or top executive.

When establishing KPIs, the leader must take into consideration the availability of data.  If data is not available, the leader should delineate the method or process for making the data available in the future.  When information is not accessible to establish clear targets, the leader’s experience can help him, or her make educated guesses.  As data becomes available, the leader can adjust the goals.

The KPIs’ objective is to track the progress made by the organization towards the achievement of established goals.  KPIs are also an essential aspect of managing change. Developing indicators that help identify the gap between the current and desired states helps provide a clear picture of any strategic efforts.  

In procurement, there are some KPIs that are most common across many organizations.  These consist of speed, cost, quality, competition, compliance, and customer service.  Some organizations may consider compliance, competition, and customer service as part of quality.  But all of these are relevant in one way or another to each procurement organization. If you are embarking on a journey to measuring performance, here are some key performance indicators that I found worthwhile capturing.  

1. Speed.  Speed generally refers to the cycle times for the different procurement methods.  Cycle time is an important one because it is the one about which most end users complain.  If we look objectively at speed, we can understand why it is one of the most common end-users’ complaints.  When procurement can provide more predictability on the cycle time of the procurement process, the conversation changes.  Predictability implies that there is some consistency, and consistency inspires a level of trust.  For planning purposes, it is vital to understand how much time the procurement process will take.  This term needs to be built into the project’s timeline so that the end-user can manage expectations and implementation.  Part of the end-users frustration is the inability to anticipate the timeframe that it must allow for the procurement process.  I acknowledge that sometimes the issue is a break in communication.  One thing to also consider under this KPI is whether the procurement was planned or unplanned.  It would be hard to meet a goal when you react to procurements that you didn’t know were coming.  It helps to have a procurement plan and have open lines of communication with your end-users.
2. Cost.  Cost savings and cost avoidance is a measure that procurement generally track.  In entities where the procurement department reports up to finance, keeping track of cost savings and cost avoidance becomes necessary.  Some organizations keep track of savings to determine the return on the investment of having a procurement team.  This KPI is a good one to use when seeking funding for training, personnel, technology, and other resources.  When the story is favorable, it provides for great marketing.
3. Quality.  I associate quality with the solicitation document and the process.  The data collected seems more indirect.  There may not be a piece of data that will indicate quality.  Instead, there are a couple of factors that have an impact on quality.  Personnel professional development and training is one of them.  The better-trained personnel is, the higher the quality of the documents should be.  The quality of solicitation documents can be valuable data.  The number of addenda issued to correct a solicitation document after it is made available to the public indicates poorly constructed solicitation documents. There are exceptions to every rule, and there are projects that present unique circumstances.  If there is an excessive number of addenda, it is a sign of a quality issue.
4. Competition.  The level of competition may indicate a quality issue, but it is also an indicator of other problems.  If your agency’s goal is to receive at least three bids, proposals, or responses on average and your KPI shows a lower number, it might be an indication of some issues that need to be analyzed.  
5. Compliance.  Compliance may relate to individual policies specific to the agency.  If your agency wants to measure compliance with specific regional goals, you can establish KPIs under this category.
6. Customer Service.  This one is generally measured based on customer service surveys.  It may not be a monthly KPI.  Instead, reports can be quarterly, semi-annually, or annually.  The regular KPI report may not include this particular one. 

Whenever the organization goes through the exercise of establishing KPIs, collecting data, and reporting on it periodically, it is crucial not to lose sight of these KPIs’ purpose.  You should review and analyze the information so that you can adjust the strategies and tactics if necessary.  The goal is to help you achieve operational or strategic objectives.

To conclude, KPIs are a helpful tool to help manage change and achieve goals.  Being disciplined about interpreting the KPIs will also help you stay on track and determine the effectiveness of strategies and tactics. If your procurement organization is new to establishing KPIs, the ones provided in this article are an excellent place to start.