Procurement KPIs and procurement metrics are crucial to measure the success of streamlined procurement process.
However, many KPIs in procurement have become outdated. We need to move with the times. With AI and new generations of procurement tech, an alternative set of procurement metrics are necessary. Measuring our performance and the effectiveness of how we deliver wider value to the business requires a rethink.
Human capital is crucial, as is good, affordable tech, to enable us to have more progressive metrics.
Procurement KPIs for Efficient, Customer-Centric and Digital Teams
A digitally enabled procurement team must track more relevant procurement KPIs, which provide insights into spending, supplier performance and process efficiency. By focusing on these, digital procurement teams can make data-driven decisions, enhance collaboration with suppliers, and optimise resource allocation.
While traditional metrics such as cost savings, procurement cycle time, and supplier lead times are vital, they don’t touch on the softer metrics of a successful procurement team.
With this in mind, this blog post outlines nine innovative, alternative procurement KPIs and metrics for digitally-minded, customer-centric procurement teams. These indicators will guide your team in achieving operational excellence and driving continuous improvement.
1. Effective Hourly Rate
Effective hourly rate (EHR) is a benchmark or a measuring system that I like to use to help teams to critically think about how they spend – or maybe waste(!) – their human capital. If you want to calculate your or your team members’ effective hourly rate, follow these simple steps:
- Let’s take an average Category Manager salary of $100,000. Some countries and positions pay higher, some pay lower. There are employer social contributions, etc. I get it. This is just for illustrative purposes.
- Now, let’s assume you work a 40 hour week, with 5 weeks of paid leave. And finally, let’s assume 10 public holidays a year.
- That leaves us with 225 working days a year.
- So, take that $100,000 and divide it by 225 days. And now divide that by 8 hours worked per day.
Your effective hourly rate (EHR) is $55.55.
Now, how much of your team’s work really requires someone on this hourly rate? Let’s be honest, it’s probably barely half of it, right? The rest is administrative or operational busywork which could be delegated to a more junior team member. Or, even better, it could be automated or assisted with AI applications.
That’s our golden opportunity in Procurement. If you’re leading a team and complaining about lack of resources, get rid of the grunt work.
Your Category Managers are lavishly paid admin assistants for around half their working day, if you look at it in purely EHR terms.
User-friendly, affordable procurement tech is the enabler. It’s not a cost, it’s an investment. It will pay you dividends by eliminating the waste in your team. But only if you think differently and have the vision to be bold.
Don’t keep paying your team $55.55 an hour to do admin tasks and operational work. Think like an entrepreneur!
2. % of Sourcing Events Run Digitally
E-auctions and e-sourcing can be incredibly efficient, transparent practices for running tenders and proposals in procurement. The challenge is that they are often not used properly or effectively.
They have the ability to streamline the procurement process, enhance transparency, and foster competitive pricing. Best-in-class tools which have appeared over the past 5 or so years can provide a structured and easily accessible platform for suppliers to submit bids.
The opportunity these platforms offer can lead to significant cost savings and more favourable contract terms. Just as important, e-sourcing allows for better data management and analytics, aiding procurement teams in making informed decisions quickly.
Despite these advantages, procurement teams often resist adopting e-auctions and e-sourcing tools. Often, this is due to poor experiences in the past which have haunted users. Other common reasons include concerns about the complexity of the systems, potential disruptions to established processes, and the fear of diminished control over negotiations.
Advancements in technology have addressed many of these issues. The latest generation of e-auction and e-sourcing tools is designed to be more user-friendly and intuitive, reducing the learning curve and increasing adoption rates.
Even if it’s a simple e-RFQ, sourcing events should now be run through digital platforms. Email and Excel have no place in modern procurement.
As technology continues to evolve, the adoption of e-auctions and e-sourcing is expected to increase, driving further efficiencies in procurement.
3. Team Members with active L&D Plan
What’s the easiest way to hold on to your best talent? Develop, nurture and improve them.
Procurement leaders often complain about the war for talent and retention, and yet they lack procurement KPIs around measuring the effectiveness of learning & development (L&D).
An effective L&D plan is crucial for all team members in corporate procurement organisations to ensure continuous improvement, maintain competitive advantage, and adapt to market changes. It enhances skills and knowledge, leading to better decision-making and improvements to job satisfaction.
This is especially relevant in strategic procurement roles. The opportunity to move up from e.g. Category Manager or Strategic Sourcing Manager into a people management role is tough. It’s not the same as progression into managing of a team of junior level, operational team members. Many procurement pros – myself included – got stuck in this rut, with no real onward progression plan.
When properly done, L&D plans can contribute towards significant cost avoidance of recruitment fees, thanks to lower attrition. They can also enable better business performance through matching team members with the necessary skills roadmaps.
A robust L&D plan aligns team capabilities with organisational goals, driving success, sustainability and continuity in procurement operations.
4. Percentage of Contracts Approved and Signed Digitally
Digital approval workflows and e-signatures enhance procurement processes by streamlining contract signing and approval. They expedite approval times and minimise human errors, as well as ensuring a secure and transparent transaction trail. This helps to foster accountability and compliance.
It’s an important procurement metric because it:
- Makes contracts visible enterprise-wide, reducing the risk of important contracts being stored offline.
- Reduces the time spent on day-to-day contract workflow administration for the approval and signature process.
Additionally, e-signatures and digital workflows support remote collaboration, enabling timely approvals regardless of location. This enhances overall operational productivity and agility in procurement management, and enables remote-first teams.
5. Percentage of Tail Spend ordered using Self-Serve
How many Chief Procurement Officers say that their teams are well-resourced and operating under capacity?
Not many!
And yet, how many also invest the necessary time and money to truly understand and deal with the transactional merry-go-round of managing tail spend?
Also not many.
Measuring transactional efficiency in procurement is not just about the source-to-settle cycle time. Nor is it about the time taken from requisition to PO. These are both important metrics, but both of them kind of miss the point.
Enabling stakeholders to buy their own stuff both improves their experience of the buying process, as well as freeing up procurement’s time to perform more added value activities. As long as the suppliers, pricing and commercial terms have been approved by a Buyer, let the requisitioner serve their own needs.
It’s a win-win.
And there’s plenty of affordable technology out there that can help you do it. It’s easy to use, and well within the reach of even relatively small businesses.
6. Percentage of Invoices Processed without Manual Intervention
The percentage of invoices processed without manual intervention is a crucial KPI. It directly impacts productivity and operational efficiency.
High rates of automated invoice processing reduce administrative busywork, freeing up experienced procurement category managers to focus on strategic activities rather than repetitive tasks. The opportunity cost of dragging procurement team members into payment issues is missed opportunities to deliver more bottom line savings or top line value.
This metric also minimizes errors, speeds up processing times, and ensures timely payments, which improves supplier relationships and financial accuracy.
Leveraging Artificial Intelligence (AI) and Robotic Process Automation (RPA) can significantly enhance this KPI. Accounts payable automation is one of the quickest and most impactful gains from implementing technology in the procure-to-pay process. Algorithms can intelligently categorise and validate invoices, while RPA can automate repetitive data entry and processing tasks.
Together, these technologies streamline workflows, reduce human intervention, and ensure consistent and accurate invoice handling.
7. Time to Onboard a New Vendor
No need to dwell on this one. We’ve all been frustrated by internal bureaucracy or clunky, internal systems that make the simplest of tasks overly complex.
If it takes more than a couple of days to onboard a new vendor, you have an inefficient process.
Yes, due diligence is necessary. But for 95% of new vendor additions, it shouldn’t take weeks to complete. Most new suppliers are for low value, non-complex goods or services.
Taking weeks to complete a new vendor addition irritates the supplier, stakeholders and front line Category Managers alike.
It’s such an easy win to deploy an intake tool or a vendor management system to improve the end user experience. We need to do better.
8. Net Promoter Score
Let’s be honest with ourselves. Stakeholders – and suppliers – often don’t like dealing with Procurement.
One of the most common reasons is because “it slows everything down”. We may become defensive here and say that it’s their fault because they involve us so late in the process.
In other words, we have to rush through everything at the last minute that we should have done – and would have built into the project timeline – if we were included in the process right from the beginning.
It’s a fair counterargument.
But, we must also acknowledge that we often don’t do ourselves any favours.
- Too much focus on short-term objectives i.e. prioritising cost over total value.
- Overly bureaucratic processes and approval workflows, especially for non-core spend.
- Clunky software to send out RFPs, onboard suppliers or submit purchase requisitions.
I always shy away from the term “internal customer”. It implies to me that procurement teams are in servitude to stakeholders, rather than being equal partners.
However, a partnership of equals can only be fostered if we meet them half way and offer our internal business partners – and suppliers – the tools to make their lives easier.
We can’t get around certain necessary evils. There will always be corporate governance requirements to do competitive tenders above a certain threshold of spend, or to perform risk assessments on critical new suppliers.
What we can do is leverage technology to make these processes tolerable. Net promoter scores are results from internal surveys which can help to assess procurement’s customer centricity. When done correctly, these can focus everyone’s mind on the north star of providing a great service.
Likewise, Procurement should also be active and vocal in their feedback if certain stakeholders are being unreasonable. I’ve certainly experienced Plant Managers blaming suppliers for their own team’s poor planing, and demanding that Procurement steps in to fix otherwise avoidable crises.
9. Spend Under Trust
This one is a modification of the most common KPI of spend under management. Spend under trust could be used in conjunction with, for example, metrics #2 and #5 in here.
The key difference is whether this spend is being actively – rather than passively – managed.
“Spend under management” is often inferred to be the amount of spend being managed by Procurement. However, it usually doesn’t consider the high probability that not every dollar of the spend is being actively managed.
Is this Category Manager really managing the 500 tail spend vendors within that spend? Almost definitely not. But, on paper at least, it’s showing as spend under management.
This is where AI tools could be deployed to really bring all of this spend under trust i.e. active management.
Implementing autonomous sourcing and negotiating software, as well as having advanced spend analytics tools, can identify more opportunities for procurement to drive greater value.
