Procurement Metrics and KPIs for Tech Companies: What to Measure and Why

Procurement is an essential process for any business, and tech companies are no exception. With the constant evolution and development of new technologies, tech companies must keep their procurement processes efficient and effective to maintain their competitiveness. However, measuring the success of procurement is not always straightforward. Procurement metrics and KPIs provide a way for tech companies to measure their procurement processes’ effectiveness and identify areas for improvement.

In this article, we will discuss the procurement metrics and KPIs that tech companies should measure and why they are essential. By understanding and measuring these metrics and KPIs, tech companies can optimize their procurement processes, reduce costs, and maximize profitability.

Procurement Metrics

Procurement metrics are quantitative measures used to assess the procurement process’s effectiveness. Here are some of the procurement metrics that tech companies should measure:

• Cost Savings:

Cost savings measure the amount of money saved through procurement efforts. This includes negotiating better prices, finding alternative suppliers, and reducing waste. Cost savings are a crucial metric for tech companies as they can directly impact the company’s profitability. By measuring cost savings, tech companies can identify areas for improvement and optimize their procurement

• Cost Avoidance:

Cost avoidance is another essential procurement metric. It measures the amount of money that a company saves by avoiding unnecessary costs, such as late fees, rush orders, or penalties, identifying and eliminating redundant suppliers, and optimizing procurement processes to reduce waste. Cost avoidance is an important metric for tech companies as it can prevent unnecessary spending and ensure that procurement efforts are focused on the most valuable purchases.

• Cycle Time:

Cycle time measures the time it takes to complete a procurement process, from the initial request to the final purchase. This includes time spent on vendor selection, negotiation, and contract management. Cycle time is an important metric for tech companies as it can impact the company’s agility and ability to respond to market demands. By measuring cycle time, tech companies can identify areas for improvement and optimize their procurement processes to reduce the time it takes to make purchases.

• Supplier Performance:

Supplier performance measures how well suppliers are meeting the company’s expectations. This includes factors such as on-time delivery, quality of goods and services, and responsiveness to requests. Supplier performance is an important metric for tech companies as it can directly impact the company’s ability to deliver products and services to customers. By measuring supplier performance, tech companies can identify underperforming suppliers and work to improve their performance or replace them with more reliable suppliers.

• Compliance:

Compliance measures how well procurement processes are adhering to established policies, regulations, and ethical standards. This includes compliance with internal policies, industry regulations, and government regulations. Compliance is an essential metric for tech companies as it can prevent legal and reputational risks. By measuring compliance, tech companies can identify areas of non-compliance and take corrective actions to ensure that procurement processes are conducted ethically and in accordance with regulations.

• Risk Management:

Risk management measures how well procurement processes are managing and mitigating risks. This includes risks related to supplier performance, supply chain disruptions, and other external factors that can impact procurement processes. Risk management is a crucial metric for tech companies as it can prevent potential supply chain disruptions and ensure the continuity of business operations. By measuring risk management, tech companies can identify potential risks and take preventive measures to reduce their impact.

Procurement KPIs

Procurement KPIs are specific, measurable goals that the procurement team should aim to achieve. Here are some of the procurement KPIs that tech companies should measure:

• Purchase Order Cycle Time:

Purchase order cycle time measures the time it takes to complete a purchase order from the time it is submitted to the time it is approved. This KPI is important for tech companies as it can help identify bottlenecks in the procurement process and optimize workflow. By reducing purchase order cycle time, tech companies can improve agility and respond more quickly to changing market demands.

• Supplier Performance Scorecard:

A supplier performance scorecard is a tool used to evaluate a supplier’s performance. It includes metrics such as on-time delivery, quality, pricing and responsiveness. This KPI is vital for tech companies as it helps identify underperforming suppliers and improve supplier relationships. By using supplier performance scorecards, tech companies can ensure that suppliers meet their expectations, and collaborate with them to improve performance.

• Spend Under Management:

Spend under management measures the percentage of a company’s spending that is being actively managed by the procurement team. This includes spend on goods and services that are being procured using established procurement processes and guidelines. This KPI is crucial for tech companies as it can help identify unmanaged spending and ensure that procurement processes are optimized. By increasing spend under management, tech companies can identify areas for cost savings and improve procurement processes.

• Contract Compliance:

Contract compliance measures how well suppliers are complying with their contractual obligations. This includes meeting delivery dates, quality standards, and payment terms. This KPI is crucial for tech companies as it helps ensure that suppliers deliver goods and services as agreed upon, and reduce legal and reputational risks. By monitoring contract compliance, tech companies can identify areas of non-compliance and take corrective actions.

• Cost Savings Percentage:

Cost savings percentage measures the percentage of money saved through procurement efforts compared to the total spend. This KPI is essential for tech companies as it helps identify areas for cost savings and optimize procurement processes. By increasing the cost savings percentage, tech companies can improve profitability and increase their competitive edge.

• Procurement ROI:

Procurement ROI measures the return on investment of procurement efforts. It compares the total savings achieved through procurement efforts to the total cost of the procurement process. This KPI is important for tech companies as it helps identify the effectiveness of procurement processes in achieving business goals. By measuring procurement ROI, tech companies can identify areas for improvement and optimize procurement processes to achieve better ROI.

Procurement metrics and KPIs are essential for measuring the success of procurement processes in tech companies. By measuring metrics such as cost savings, cycle time, and supplier performance, tech companies can identify areas for improvement and optimize their procurement processes. By setting KPIs such as purchase order cycle time, spend under management, and procurement ROI, tech companies can set specific goals for their procurement teams and ensure that they are adding value to the business. By measuring and optimizing these metrics and KPIs, tech companies can reduce costs, improve profitability, and maintain their competitive edge.

FAQS:

Q: Why are procurement metrics and KPIs important for tech companies?

A: Procurement metrics and KPIs provide a way for tech companies to measure and improve the effectiveness of their procurement processes. By measuring these metrics and KPIs, tech companies can identify areas for improvement, reduce costs, and improve profitability.

Q: What are some of the procurement metrics that tech companies should measure?

A: Cost savings, cost avoidance, cycle time, supplier performance, compliance, and risk management are some of the procurement metrics that tech companies should measure.

Q: What are some of the procurement KPIs that tech companies should aim to achieve?

A: Purchase order cycle time, supplier performance scorecard, spend under management, contract compliance, cost savings percentage, and procurement ROI are some of the procurement KPIs that tech companies should aim to achieve.

Q: How can procurement metrics and KPIs help tech companies maintain their competitive edge?

A: By measuring and optimizing procurement metrics and KPIs, tech companies can reduce costs, improve profitability, and maintain their competitive edge. They can identify areas for improvement, optimize procurement processes, and ensure that suppliers meet their expectations, which ultimately helps them deliver products and services to customers more effectively. Conclusion

Author Bio:

Marijn Overvest is the founder of Procurement Tactics, a company that provides procurement solutions to businesses.. He has over 20 years of experience in procurement & negotiations: including 10+ years within the commercial department of a large global retailer and over five years in online start-ups & business funding.

He has negotiated deals up to 500 million euros and has dealt with 1500 different products delivered by 70 suppliers every year. Additionally, he created over 300+ negotiation plans,  being a sparring partner for procurement managers in their process of creating negotiation plans.