Procurement & KPIs

Cheatsheet Content

1. Procurement Overview Definition: The process of acquiring goods, services, or works from an external source. Goal: To obtain goods/services at the best possible price and quality, delivered on time, to meet organizational needs. Key Stages: Needs Recognition Specification Development Supplier Sourcing Quotation/Proposal Collection Negotiation & Selection Contract Management Order Placement Expediting & Receiving Invoice Approval & Payment 2. Types of Procurement Direct Procurement: Raw materials and components directly used in production. Indirect Procurement: Goods and services supporting operations but not directly part of the end product (e.g., office supplies, IT services, marketing). Services Procurement: Acquisition of professional services (e.g., consulting, legal, maintenance). Strategic Sourcing: A systematic approach to optimizing the value of procurement activities. 3. Key Principles of Procurement Value for Money: Balancing cost, quality, and sustainability. Transparency: Clear and open processes. Accountability: Responsibility for decisions and outcomes. Fairness & Equity: Equal opportunity for all qualified suppliers. Integrity: Ethical conduct throughout the process. 4. Contract Management Definition: The process of managing contract creation, execution, and analysis to maximize operational and financial performance. Key Phases: Pre-award (Sourcing, Negotiation) Award (Contract Signing) Post-award (Performance Monitoring, Payment, Close-out) Importance: Ensures compliance, mitigates risk, and drives supplier performance. 5. Procurement Key Performance Indicators (KPIs) Metrics used to evaluate the efficiency and effectiveness of procurement processes. 5.1. Cost-Related KPIs Cost Savings: $(\frac{\text{Baseline Cost} - \text{Actual Cost}}{\text{Baseline Cost}}) \times 100\%$ Measures reduction in spend compared to a benchmark. Spend Under Management (SUM): Percentage of total organizational spend managed by the procurement department. Higher is better. Purchase Price Variance (PPV): $(\text{Actual Price} - \text{Standard Price}) \times \text{Quantity}$ Compares actual purchase price to a standard or budgeted price. Payment Term Compliance: Percentage of invoices paid within agreed terms. Cost Avoidance: Quantifies costs that were prevented through procurement actions (e.g., negotiations, alternative sourcing). 5.2. Efficiency & Process KPIs Purchase Order (PO) Cycle Time: Average time from requisition approval to PO issuance. Lower is better. Invoice Processing Cycle Time: Average time from invoice receipt to payment. Lower is better. Requisition-to-Order Cycle Time: Total time from initial request to supplier order. Emergency Purchases %: Percentage of purchases made outside standard process. Lower is better. Automation Rate: Percentage of procurement tasks (e.g., PO generation, invoice matching) automated. Higher is better. 5.3. Supplier Performance KPIs On-Time Delivery Rate: Percentage of orders delivered on or before the promised date. Higher is better. Order Accuracy Rate: Percentage of orders received without discrepancies (e.g., correct quantity, quality). Higher is better. Defect Rate: Percentage of delivered goods/services that are non-conforming. Lower is better. Supplier Lead Time: Average time from PO issuance to delivery. Lower is better. Supplier Consolidation: Reduction in the number of active suppliers while maintaining or improving service. 5.4. Risk & Compliance KPIs Contract Compliance Rate: Percentage of purchases made under existing contracts. Higher is better. Supplier Risk Score: Aggregate score based on financial stability, ethical practices, performance history. Audit Findings: Number of non-compliance issues identified in procurement audits. Lower is better. 5.5. Strategic & Value KPIs Innovation from Suppliers: Number or value of new ideas/solutions introduced by suppliers. Stakeholder Satisfaction: Internal customer satisfaction with procurement services. Diversity Spend: Percentage of spend with diverse suppliers (e.g., small businesses, minority-owned). Sustainability Impact: Metrics related to environmental and social impact of procured goods/services.