5 KPI's to monitor for your Procurement Business

It’s not always easy to keep things smooth sailing in the procurement business. You need to have a 360 understanding of your own operations to then tackle the challenges of your competition. To do this you need to understand the functions of your procurement department and the results it gets out of everything it does, which is why you need to monitor their key performance indicators.

KPIs help you to monitor how your organization is achieving its goals and make improvements where needed. Essentially KPIs act as benchmarks that help you track the functional metrics of your organization and reveal how effectively it’s meeting targets. It also enables the organization to make future projections based on the progress it is currently making.

Here are the 5 KPIs you should be monitoring:

• Perfect Order Metric: This is easily the most important metric for monitoring the effectiveness of a procurement business as it gives an insight into several areas of the order fulfillment process.
  A perfect order metric includes:
  • On time delivery: product/service deliveries made on time.
  • In-full delivery: product/service deliveries made to the right person with the right package.
  • Damage free delivery: product/service deliveries that arrived in perfect condition.
  • Accurate documentation: product/service deliveries made to the customer with the right documentation i.e., invoices, labels, packing lists etc.

• Cash to cash cycle: The cash-to-cash cycle is not just a financial ratio but also a key factor in revealing the time it takes for a business to pay its suppliers for materials and the time it takes for it to receive payments from customers. The shorter this cycle, the better it is for a business.
• Fill rate: Fill rate helps a business get a better sense of its customer satisfaction levels and gain an insight into its delivery services.
  A fill rate is measured by the following:
  • Order fill: Number of orders completed successfully on the first shipment.
  • Line fill: Number of order lines delivered successfully on the first shipment.
  • Unit fill: Number of items delivered successfully on the first shipment.

• Inventory days of supply: This KPI helps a business track the amount of inventory in its warehouse so that it can be replenished just in time or in a stock-related disaster. It represents the number of days a business can go on without restocking. Reducing this number helps a business minimize the risk of outdated and surplus inventory.
• Gross margin return on investment: This KPI gives information regarding the profitability of a business. It helps a business point out the problem areas in its inventory and in turn improve the planning, production and warehouse operations.

Procurement KPIs are important to understand the financial hold of a business and they reveal useful insights about various operations that help you make faster, smarter and safer decisions in the future.