Competitive Benchmarking

World class procurement organizations use metrics  to continually evaluate their performance.

There are three categories to consider if you looking to succeed in your benchmarking project and avoid costly mistakes:

1. Benchmark what is comparable in procurement.

2. Create strong change management plans.

3. Ensure that those plans are in strict compliance with anti-trust rules and other commitments.

Many procurement organizations will also continually use benchmarking to measure their performance internally, and increase visibility of their KPI’s.

The Purchasing and Procurement Center put together a group of KPIs by category below. Their organization provides procurement training for individuals and teams.

Examples of KPI’s used in procurement benchmarking include: ​

1. General Measurement’s Used In Procurement KPI’s

  • Number of suppliers.

  • Percentage of service related categories that are purchased through the procurement organization.

  • Percentage of purchase transactions procured through e-commerce.

  • Purchase order (PO) cycle lead time (in days).

  • Purchase dollars spent per active supplier.

  • Sales dollars per purchasing employee.

  • Procurement employees as a percentage of total number of employees.

  • Purchasing dollars in by percentage of sales dollars.

2. Cost Benchmarks

  • Cost of purchase order (PO).

  • Cost avoidance = Actual purchasing price – lowest price quoted.

  • Cost reduction = Actual purchasing price – last price paid.

  • Procurement ROI = (Cost reduction + cost avoidance)/Cost of procurement operation.

3. Quality KPIs

  • Supplier Quality Rating = (Lots inspected/lots accepted) X (Samples inspected/samples accepted) X 100.

  • Rework and scrap value in dollars.

  • Return to vendor costs.

  • Ratio of rejection = $ value of goods rejected/$ value of goods received.

  • Percentage of suppliers certified.

4. Delivery KPIs

  • Lead time index

  • Supplier expediting summary

  • Availability = Number of times the supplier’s goods were available/number of orders that were made with that supplier.

5. Inventory KPIs

  • Inventory turn-over ratio = Forecasted cost of goods sold over the next 12 months/Current inventory value.

  • Inventory carrying costs.

  • Inventory activity = average monthly inventory relieved/total on hand inventory.

6. Employee Learning and Growth KPIs

  • Number of procurement staff with certifications.

  • Formal classroom training.

  • Training investment per employee.

  • Employee participation in professional bodies.

Source: Council Perspectives™, Purchasing and Procurement Center


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