SCMDOJO · Transcript · · Updated
Top 10 Procurement KPIs You Should Know – Transcript
Video by SCMDOJO · Watch the original on YouTube
Summary
AI-generated from the transcript. Verify details against the source video.
- Cost reduction is considered the most highly sought-after key performance indicator for the procurement community.
- Defective parts per million serves as a hard quality measure within procurement businesses.
- Days payable outstanding measures how long a procurement team takes to pay its creditors and suppliers.
Use this video with Pro
Reading, copying and transcript downloads are free. Create saved AI results for this video with a signed-in Pro account ($9/month).
Transcript
Search ignores accents. All transcript text stays visible.
kpis are the right drivers the cost reduction is the most and probably the highly sought after kpis for the peur community the cost the time the quality and the technology and we're trying to focus around all four when we're trying to reflect on the gpis I would also like to mention the uh procurement kpi dashboard which uh I
have developed for the procurement Community this video is brought to you by us SC duo we provide awesome courses guides best practices for supply chain Community hi folks welcome to one more episode of St lusion knowledge today I'm going to talk about 10 procurement kpis which you should use or pay attention if you have not done so far so before I go into the the 10 kpis let's reflect into
the importance of procurement so procurement as a function is is super important to any business because this is where the large amount of money has been spent to the supplier the part supplies by the suppliers are very important to run the manufacturing to run the business so on so forth so the four factors which is very important in terms of Supply management is the cost the time the quality and the technology
and we're trying to focus around all four when we're trying to reflect on the gpis as the famous saying goes what gets measured get done so if you want to improve something if you want to improve your performance of your procurement from the previous years right or versus the target whatever the Strategic Target your business has set up for you so the kpis are the right drivers the kpis are
the right indicators right and uh for you to identify the gaps and to improve your business so essentially procurement kpis are the measures which helps you manage your procurement processes and do it better to deliver value to your customer to your organization so before we look into the the top 10 apis I would also like to mention the procurement kpi dashboard which uh I
have developed for the procurement community so there is instruction video as well which you can see at the top uh which you can have a look and you will learn how to use the kpi dashboard there's also a Blog on the top 16 kpis which you can see the link below and can have a more thorough read on this if you like so kpi dashboard which I've developed is a rade dashboard with the targets and the trends and you can compare your current performance from
the previous years or as many years you have a data to uh show for so go and have a look and give me the feedback and you find it useful or not and there's a link below as well if you want to download the first and the most important procurement kpis which is used extensively across corporations regarding Le what is the size is cost reduction and cost reduction is the heart saving procurement folks Drive uh
and probably if you ask me in my experience they spend 80 to 90% of the time in identifying cost reduction opportunities and I'm talking about hard dollars you know hard savings um there's a lot of effort goes into it there's a huge amount of negotiation generally by the being counters or the financial guys as we say they count something as a cost reduction that if that means if you're
buying at the lower price than you previously you were buying for so if you manufactur at for example $5 in house if you're buying from $3 outside ready made and delivered then your $2 is your per product cost out simply said right and there's also there's a lot of things going around for example you forecast cost out there's not the volume when you come to reality and there's a debate but regardless of that the cost reduction is
the most and and probably the highly sought after kpis for the pck community the second one is cost aordance which is different from cost reduction the cost avoidance means that there is a potential cost which is supposed to be incurred and then we find a way to avoid it for example there's a breakdown is supposed to happen because the part is about to fail that mean it's going to cost a lot more money to the business so
if if the procurement folks try to find a way to uh bring the Parts in to avoid the machine breakdown therefore they have avoided the cost and cost avoidance is important measure but sometimes it's very difficult to calculate but it's all down to how you present your business case your formula cost out I believe uh we should track as a procurement community and we should measure as well in line with the let's call it a
business policy whatever the policy is and also should report it as well because I not seen many organization reporting cost avoidance as a kpi the third is purchase price variance to Simply put so purchase price variance is the cost you have paid to buy a certain widget or a part minus the standard cost uh and the difference of that so again the actual price you paid minus the standard cost and divided by the number of units so you come up with the total
value uh purchase price variance is very important because if you put a standard cost in your uh budget which calculate the standard cost of the product so over the period of time what's happening is maybe there's an increase of commodity in you know supplier is increasing the pricing and then invoicing the higher value then you would like to track it what is the variance versus the standard cost right so purchase price VAR again the third most important kpi in my books
and every procurement Community should track it the fourth one is the quality kpis uh it measured in differently in different businesses but the one which I work with is the uh Supply quality people D PPM or dppm that means defective parts per million is simply calculated as if you find a one defective parts from a million you purchase that means is a 1D PPM right so it's a hard quality measure is a good
measure and everybody should report it number fifth for me is a supply lead time and the supply lead time plays a huge role in actually the overall supply chain planning and so I'm a hardore supply chain guy and I work with a lot of procurement folks as well and I've worked as a buyer as well for some reason there is a negligence of the importance of Supply lead time in the procurement community and I know I will get quite a bit of reaction to that
statement but but stay with me so how many times actually the procurement guys are trying to reduce Supply leak time effectively right so here's the question so answer me in the comment as well in my opinion not many very much time right so not many times I've seen procurement folks is driving Supply leate time reduction butly lead time is a very important gpis because the inventory we are going to order as are directly this
directly proportional to the supply lead time higher Supply lead time me more inventory so what I keep recommending to my procurement folks and procurement Community is when you're negotiating contract and find new suppliers or or or whenever negotiating anything make sure we also negotiate Supply lead time because the lower Supply lead time means more agile supply chain more responsive supply chain less inventory better better customer service overall better
for the business so Supply lead time top five in my list please track it number six is the purchase order cycle time that means how much time uh we have taken as a as a procurement team into place and orders to A supplier right so when the the need was arrived and the and the purchase order was placed how long it takes it is instantaneous it is taking 6 hours one day to day so measure it especially it's very important from the engineer to order and to order
businesses where the cycle times of placing purchase orders is very long so it's important to measure that as well so number seven is a slightly controversial kpi which is spend under management right so that definition if you you know search Google or see the books is varied in like very many ways so my simple definition of the spend and management is that whatever hard dollars you are spending to the contract
supplies divided by The Total Money you are spending to run your businesses as well so that means you know spend money spent to the contracted suppliers minus any Maverick spend because there's a m Maverick spend divided by The Total Money you're spending right so again if you look into the block the definition has been provided also in the kpi dashboard as well so if you disagree with this definition by all means feel free to send me your definition put it
into the comment welcome to see that as well number eight number of suppliers again when I was working in this in as a buyer one of my gpis was a number of suppliers are reduced number of suppliers right the reason it is very important is because the more suppliers that me more admin time you are spending to deal with those suppliers sending rfqs whatever right so that it's important to track the number of suppliers as set a goal to reduce it have a 8020 rule it's better for overall
management of the supply chain especially your procurement spent number nine the famous of DPO or days payable outstanding that means how long you are taking to pay your creditors which is your suppliers your vendors or financiers or whoever they are generally uh the theory is or what I've learned from my procurement gurus is you should try to prolong that number as long as possible to the extent that you do not upset your suppliers or basically your
suppliers don't run out of the money right so you need to pay them on time therefore they have the you know money to basically start supplying you right what other the thing I think the KP a good use of this kpi use is following so for example if you negotiated 60 days of payment terms that mean you pay them 60 days that means that's your DPO uh Target then you can say okay I can pay you earlier if you give me uh a 2 to 3% discount so you can drive some cost out
by basically paying your supply early so it's important to negotiate set a target with the suppliers and have a good DPO metric number 10 last but not least is a tail spend tail tail spend is the amount of spend you have with the non-contract suppliers or the Maverick suppliers which you do not track right uh so that is also important you're buying bits and Bops your gloves are sanitizers uh should count go maybe into
your tail spin so the idea is to track it and to minimize it and the more manage spend you're going to have the better it is to leverage it to drive cost out and save money for the business right so hopefully you like this video hopefully the 10kp as I mentioned I'll do you the dashboard I've given giv you feedback uh hopefully you like it to download as well do that and uh give me a feedback about the work we are doing at Simo I appreciate that and uh as we
as always keep it simple and keep it real be safe and ciao bye