10 Procurement KPIs That You Must Measure

Measuring procurement performance is key to understanding how well your team is doing, and procurement KPIs (Key Performance Indicators) help you track that. These KPIs show if your team is meeting your expectations and achieving your goals.

For example, to see if suppliers are meeting your requirements, you can track the compliance rate. This tells you if they are delivering as expected, helping you quickly spot and fix any problems.

You can also measure vendor diversity by counting the number of vendors. This shows if you're relying too much on a few suppliers or if you have a good mix.

Many procurement KPIs can help you understand your procurement performance. Let’s take a look at some important ones to improve your procurement strategy and achieve success.

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1. What Are Procurement KPIs?

Procurement KPIs act as checkpoints that evaluate and monitor your business's purchasing activities. They provide specific metrics to measure performance, optimize buying processes, and ensure alignment with goals for effective decision-making and improved efficiency in procurement operations.

For example, one KPI could measure how much money you save when buying things. Another might be to check if your suppliers are delivering goods on time. Likewise, various categories of KPIs provide insights into your procurement performance.

These metrics are not just numbers; they're tools for improvement. They give clues on where you're doing well and where you need to step up your game.

By monitoring these Procurement KPIs, you can spot growth areas, make smart decisions, and increase your bottom line.‍‍

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2. What Is the Importance of Measuring Procurement KPIs?

Procurement KPIs are essential for businesses for many reasons. Here are five of them:

A. Cost Savings

Firstly, cost savings are very vital. Benjamin Franklin once said, “Beware of little expenses; a small leak will sink a great ship.”

Tracking KPIs enables you to identify areas of excessive spending. Whether overspending on supplies, overlooking discounts, or neglecting automation opportunities, this insight empowers you to tighten budgetary constraints and achieve hard savings.

B. Risk Management

33% of organizations do not have a designated chief risk officer. This shows a gap in risk management focus that could lead to costly mistakes and potential disasters.

Procurement KPIs act as your early warning system for potential risks. Whether it's supplier reliability or market changes, these metrics help you stay ahead. If you spot risks early, you can dodge them like a pro.

C. Supplier Performance Evaluation

Then, there's vendor performance evaluation. KPIs let you see which suppliers are hitting the mark and which are lagging.

Are they delivering on time? Providing quality goods? With this information, you can nurture strong partnerships and weed out underperformers.

D. Strategic Decision-Making

Procurement KPIs also lend a hand in strategic decision-making for the procurement department. Armed with data on cost, quality, and delivery times, you can make informed choices.

Whether it is time to switch suppliers or negotiate better deals, whatever the move, KPIs will help procurement leaders play the right cards.

E. Improved Overall Procurement Performance

Last but not least, improves overall procurement performance. Procurement KPIs are like your personal coach for procurement success.

They highlight areas where you're acing it and need to level up. With continuous monitoring and adjustments, you will fine-tune your procurement function for maximum efficiency.

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4. 10 Procurement KPIs That You Must Measure

KPIs are metrics that track and evaluate the efficiency of procurement processes within an organization.

They help your business identify improvement areas, assess its market competitiveness, and optimize organizational spending and time. They also help minimize maverick spend and enhance the sourcing of products. Here are 10 procurement KPIs that you must measure:

A. Vendor Compliance Rate

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Vendor compliance rate measures how well your vendors stick to the terms and conditions of your contracts. It reflects the percentage of orders fulfilled according to agreed-upon specifications and timelines.

To calculate this procurement KPI, divide the number of orders fulfilled correctly by the total number of orders placed. After that, multiply by 100 to get the compliance rate.

A high vendor compliance rate indicates reliable suppliers and smooth procurement processes. However, a low rate signals quality control problems or communication gaps.

B. Purchase Order Cycle Time

This KPI tracks the time it takes for a purchase order to be processed, from creation to receipt of goods or services. It measures procurement efficiency and responsiveness.

Calculate the average time elapsed between creating a purchase order and receiving the corresponding goods or services to measure this purchasing KPI.

A shorter purchase order cycle time equates to faster procurement processes, reduced supplier lead time, and better responsiveness to business needs.

C. Purchase Order Cost

Purchase order cost helps you evaluate the total expenses associated with creating and processing purchase orders.

This includes administrative expenses, labor costs, and any fees. To measure this KPI, add up all costs related to creating and managing purchase orders over a specific period.

Monitoring purchase order costs helps identify opportunities for annual cost savings and efficiency improvements, such as streamlining processes or contract term negotiations with suppliers.

D. Subscription Cost per Use

This KPI measures the cost-effectiveness of subscription-based services by calculating the cost per actual usage or utilization rate.

To measure, divide the total subscription cost by the number of times the service was used or accessed.

A lower subscription cost per use indicates a better value for money. It also ensures that resources are allocated efficiently based on actual usage patterns.

E. Vendor Availability and Defect Rate

Vendor availability and defect rate KPI assesses the reliability of vendors by measuring their product availability and defect rate. It reflects the percentage of orders fulfilled without shortages or defects.

You can calculate supplier defect rates by dividing the number of defect-free orders by the total number of orders received. From there, you multiply the result by 100 to get the defect-free rate.

A high supplier availability and defect-free rate show there are dependable suppliers. That is, you have a reduced disruption rate or quality rating issues in the supply chain.

F. License Utilization Rate

This KPI evaluates the efficiency of software license usage by measuring the percentage of licenses that are actively used versus those that remain idle or underutilized.

To calculate this, divide the number of active licenses by the total number of licenses purchased. After that, multiply the result by 100 to get the utilization rate.

Maximizing license utilization helps optimize software investments and avoid unnecessary costs associated with unused licenses.

G. Price Competitiveness

This is the most important KPI, as it compares the purchase price variance for similar products or services to assess competitiveness and identify cost-saving opportunities.

To ascertain this, compare prices from multiple vendors for identical or comparable items. Do not forget to consider factors such as supplier quality, quantity, and delivery terms.

Analyzing price competitiveness helps ensure you get the best value for your money. It also encourages suppliers to offer competitive pricing.

You can use vendor research tools like CloudEagle.ai to compare vendor prices against the benchmark. It can also provide you with complete visibility over vendors and help you streamline your procurement process using workflows.

H. Emergency Purchase Ratio

The emergency purchase ratio measures the proportion of unplanned or emergency purchases compared to total purchases. It reflects the effectiveness of procurement planning and risk management.

To measure this purchasing KPI, divide the number of emergency purchases by the total number of purchases made, then multiply by 100 to get the emergency purchase ratio.

A high emergency purchase ratio indicates inadequate planning or supplier performance issues, influencing your vendor rejection rate. On the other hand, a low ratio suggests effective procurement strategies and risk mitigation measures.

H. Procurement Return on Investment (ROI)

This KPI evaluates the return on investment generated from procurement activities. It compares the benefits or savings achieved to the costs incurred.

Calculate the net savings or benefits realized from procurement initiatives to measure this purchasing KPI. After that, divide by the total procurement costs, then multiply by 100 to get the ROI percentage.

Monitoring procurement ROI helps assess the effectiveness of procurement strategies. Also, it justifies investments in process improvements or resource allocations.

I. User Adoption Rate

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This KPI measures the percentage of users or stakeholders actively engaging with new procurement processes, systems, or tools introduced in the organization.

To measure this procurement KPI, divide the number of users adopting new procurement practices by the total number of users targeted for adoption. After that, multiply by 100 to get the adoption rate.

A high user adoption rate indicates successful implementation and acceptance of new procurement initiatives. This leads to improved efficiency and effectiveness.

Discover modern procurement strategies and tips for managing vendor relationships from Nayive Martinez, Global Procurement Manager at Bolt. She provides insights into negotiating effectively, organizing spending, and developing trust with vendors to strengthen partnerships.

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5. How Does CloudEagle.ai Help with Procurement Automation?

CloudEagle.ai offers features that make procurement automation easy, efficient, and streamlined. Here's how it helps with procurement automation:

1. Workflows for Intake-to-Procure

CloudEagle.ai automates the entire procurement process, starting from intake to procurement. This means that all steps, from identifying the need for software to placing the purchase order, are structured and automated in a seamless workflow.

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The platform eliminates manual data entry, ensuring that each step in the procurement process is executed correctly, efficiently, and on time. By defining clear workflows, businesses can reduce errors and speed up the purchasing cycle.

Read the inspiring success story of how RingCentral simplified SaaS procurement with CloudEagle.ai.

2. Custom Procurement Request Forms

CloudEagle.ai allows organizations to create custom procurement request forms tailored to their specific needs. These forms help streamline the intake process, enabling employees to request software and other resources with the necessary information right from the start.

With predefined fields and templates, CloudEagle.ai ensures that all required information is captured upfront, eliminating delays and preventing incomplete or inaccurate requests.

3. Automated Purchase Requests

Once procurement requests are submitted, CloudEagle.ai automatically generates purchase requests, reducing the need for manual intervention. This automation ensures that requests are processed quickly and accurately.

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The platform can also route purchase requests to the appropriate stakeholders or departments for review, saving time and minimizing the risk of oversight. Automated requests help keep the procurement process moving smoothly with fewer delays and bottlenecks.

4. Automated Approval Workflows with Slack

CloudEagle.ai enhances approval processes by integrating with collaboration tools like Slack. When a procurement request requires approval, the system automatically sends notifications and approval requests to the designated stakeholders via Slack.

This streamlined communication process speeds up decision-making and reduces delays, as approvers can easily review and approve requests directly from their Slack channels. It keeps everyone involved in the loop and ensures that approvals happen quickly without the need for back-and-forth emails or meetings.

5. Centralized Procurement Dashboard

CloudEagle.ai offers a centralized procurement dashboard that provides a clear overview of all procurement activities. This dashboard allows procurement managers to track the status of all requests, purchases, and approvals in real time.

With one centralized location for all procurement data, managers can easily oversee the entire process, identify bottlenecks, and ensure that purchases are being made according to the company’s needs and budget.

6. Visibility for All Stakeholders

With CloudEagle.ai, all stakeholders in procurement, finance, or IT can see the entire procurement process. This transparency keeps everyone aligned, reduces misunderstandings, and boosts collaboration.

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Stakeholders can track requests, monitor the status of purchases, and access important procurement data, leading to better coordination and faster decision-making. This visibility also ensures that procurement decisions are made based on accurate, up-to-date information.

7. Outsourced Procurement

CloudEagle.ai simplifies outsourced procurement by letting organizations manage third-party services directly within the platform. It integrates with trusted providers to automate and streamline the entire procurement process, eliminating the need for manual coordination.

Know how Nowports secures 34% savings with CloudEagle.ai’s effective negotiation.

This ensures that businesses can obtain the best pricing and quality while reducing the administrative burden of managing multiple procurement channels.

8. Negotiating Smarter with Vendor Price Benchmarks

CloudEagle.ai provides businesses with vendor price benchmarks, helping them negotiate smarter and get the best deals. The platform tracks historical pricing trends, vendor performance, and market comparisons, offering insights into pricing structures and potential discounts.

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This data allows procurement teams to make more informed decisions and negotiate better deals with software vendors, ensuring that businesses get the best possible value for their purchases.

9. Seamless Integrations

CloudEagle.ai seamlessly integrates with over 500 apps, like finance, procurement, and inventory management tools. This keeps the procurement process in sync with other departments, reducing manual data entry and errors.

Whether it's syncing purchase order data with finance systems for budgeting or automatically updating inventory records, CloudEagle.ai keeps everything connected and running smoothly across your organization.

10. Scalable for Growing Needs

As organizations grow, so do their procurement needs. CloudEagle.ai scales with your business, handling more procurement requests and purchases as you expand. Whether managing a few or many activities, the platform ensures your procurement process stays efficient and organized, even as your company grows.

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Eric Silver, Head of Procurement at RingCentral, shared that CloudEagle.ai played a key role in managing tail spend at RingCentral by identifying underused software and optimizing license renewals. The result was a leaner, more cost-effective approach to managing their entire software portfolio.

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6. Conclusion

To sum up, we've covered several important things about Procurement KPIs. These procurement metrics are your trusted partners when buying for your business.

They help you accurately monitor costs, assist in cost reduction, manage risks, and make smarter decisions. From tracking vendor performance to measuring cost savings, Procurement KPIs offer a clear track to success.

Now is the right time to take action; don't just sit back. Start implementing these KPIs in your organization today. By doing so, you'll unlock opportunities to enhance your procurement processes. You will also be able to drive savings and boost efficiency.

If you're ready to streamline your process, schedule a demo with CloudEagle.ai and start your journey to procurement excellence today.

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7. Frequently Asked Questions

1. What is the KPI for procurement?

The KPI for procurement is like a compass guiding your buying decisions. It helps measure how well you're doing in purchasing goods and services.

2. What are the 4 mandatory key performance indicators?

Vendor compliance rate, purchase order cycle time, purchase order cost, and subscription cost per use.

3. How do you write a good KPI?

Start by defining what you want to measure. Use specific and measurable terms. Make sure it's relevant to your business objectives. Set achievable targets and establish a timeframe. Regularly review and adjust as needed to stay on track.

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