Elevate Your Use Cases With Top 15 Procurement Key Performance Indicators

Editor’s Note- While procurement key performance indicators (KPIs) can help manage the moving complexities, if they’re not aligned with your overall procurement analytics strategy and functional needs, they will do more harm than good. And that’s why we’ve teamed up with industry experts to craft a Procurement Periodic Table, and special frameworks to help you understand the correct process of using these metrics, ensuring that you, as procurement leaders stay on track.

The Path to Measuring Procurement Success With Analytics

"Procurement is like a game of chess; it requires strategy, planning, and a deep understanding of the market”

Reducing spends, improving payment cycles, fostering synergy across teams, keeping a close eye on supplier performance, the list goes on and on..., all of these falls under the purview of measurement and success for procurement leaders like you. This puts you at the crossroads of multiple departments, not to mention managing the complexity across verticals. Un-obviously, this would need you to make analytics your best buddy!

According to McKinsey, the use of analytics in procurement can boost the value delivery by 10-40%. Some of the benefits that procurement analytics provide are:

1. Boost Bottom Lines: Procurement analytics drives an average of 3-8% cost savings according to McKinsey. It also improves working capital by optimizing payment terms and reducing the cash-to-cycle times.

2. Improve Supplier Management: A study by ASCM found that 93% of procurement professionals have faced challenges due to poor supplier data. By measuring metrics like on-time delivery and product quality (KPIs spoiler alert) you can identify and collaborate with high performing suppliers.

3. Enhance Service Delivery: From streamlining the request process to precise demand forecasting to reduce guesswork. It is useful to enhance agility and visibility – for a more efficient procurement workflow.

Though the article is about KPIs, as we’ve expressed before, tying it to the analytics strategy is important – then we’ll see where KPIs stand in this whole process. For this, we suggest having a:

5-step Approach to Procurement Analytics

These 5 steps will guide you through the process of establishing the right procurement analytics practice.

1. Identify & Prioritize Analytics Use Cases

We’ve identified 75+ Procurement use cases ranging across domains – Governance, Contract Management, Category Management, Supplier Management, Order Management, and Invoice Management that address financial, operational, and strategic objectives. Of these some might be relevant for you, and the others might not.

So, now prioritize the ones across different categories that are relevant for you. For example, for a manufacturing company supplier risk management might be important, while for the retail Industry, price compliance and demand forecasting might be their top priority. Contract compliance and supplier qualification are must-haves for pharmaceutical companies. Though these are common trends that we have seen throughout these industries, the priority order will depend on your business goals, requirements, and capabilities.

2. Perform a Maturity Assessment for the identified use cases

Once you’ve prioritized your procurement analytics use cases using our ‘Periodic Table’, the next question is, "What now?". And yes, prioritization is just the beginning. To drive value, we need to follow a structured approach. For that, we suggest you use the following 5 parameters- Data sources, Data estate, Reporting Framework, Decision Framework, and Advanced analytics.

We will focus on the third parameter- Reporting Framework a little later- because this is where your KPIs, dashboards, and other reporting tools come to life.

3. Build a Reliable Data Estate to extract information from the data

You know what use cases you want and the maturity of these use cases – the next lies in improving the maturity! But to do this, you need to identify the right data estate for the sources. Between the internal and 3rd party sources. Though this step sounds very small, the process involves extensive ETL, ELT, Data ingestion, MDM, and transformation capabilities.

4. Identify the Right Use Cases and extract information from the data

You have your use cases mapped to their maturity and identified the data sources – across them, you might find them looking this way:

Improve each of the parameters with these four steps- Discovering, accelerating, performing, and transforming

What are the use cases you should start prioritizing is the next question. For example, in the case above Invoice cycle time is still in the discovery phase which means there is a lot of scope for improvement i.e. establish the use cases which would have the maximum impact on the entire process.

5. Construct a Continuous Value Roadmap

Finally, procurement analytics isn’t a one-and-done project. The final step involves constructing a roadmap that will derive value, and guide future improvements to make sure it stays up to date with industry standards. It can be structured using a 4-point maturity scale (which was seen above), allowing the tracking of each use case's progression from its initial stage to a transformative stage. And tracking the KPIs associated with the use cases.

Enter Procurement KPIs: the Key for the Procurement Lock

We’ve previously discussed Category management KPIs in-depth, but a lot of you have asked for more KPIs in detail to tie in with the overall procurement practice. 

1. The Reporting Framework where you create dashboards and reports that help procurement leaders make informed decisions quickly.

2. Understanding the maturity of the use cases

3. Governance during procurement transformation

In short: KPIs are omnipresent! Some of the Key metrics include:

15 Most Crucial KPIs to Track in Procurement

Procurement Governance

a. Financial

Spend under management reporting (SUM) - Percentage of total organizational spend actively managed by procurement department. Why it matters- Indicates the control procurement over spending, helping drive saving and contract compliance.

b. Strategic

Sustainable spending- Percentage of environment friendly and socially responsible procurement compared to total. Sustainable Spending = (Value of Sustainable Procurements / Total Procurement Spend) * 100 Why it matters- Reflects with corporate social responsibility (CSR) goals and sustainability initiatives.

c. Operational

Process compliance rate (% of Transactions Following Standard Process) - Percentage of procurement transactions that follow set procedures. Why it matters- It helps enforce best practices and reduce risk.

Category Management

a. Financial

Item price forecast accuracy- Measures procurement professionals’ future prediction efficiency using historical data, market trends, and supplier insights. Why it matters- Give more control over financial decisions and improve budget planning.

b. Strategic

Tail spend managed – It involves controlling and optimizing the procurement of low-value, non-strategic purchases. Tail Spend Management = (Tail Spend Under Control) / Total Tail Spend Why it matters- Reduces maverick spending by improving cost control in small-value purchases, which eventually adds up over time.

c. Operational

Sourcing cycle time- Measures the time it takes to complete the entire sourcing process, from request to contract. Formula- Total Sourcing Time / Number of Sourcing Events Why it matters- Faster time means quicker contract execution and better execution.

Supplier Management

a. Strategic

Supplier performance scorecard (Weighted Score)- Ranks suppliers based on their performance- delivery, quality, and cost. Why it matters- Helps analyze supplier performance and make decisions accordingly.

b. Operational

Supplier Order-to-Billing (OB) cycle time- Order, fulfilment, and invoicing time taken by suppliers. Formula: OB Cycle Time = Order Placement Time + Order Fulfilment Time + Invoice Generation Time Why it matters- shorter cycle times mean better performance and help with inventory management.

Contract Management

a. Financial

Financial commitments- Monitors the monetary commitments suppliers need to fulfil. Why it matters- Improves cash flow management and financial risk mitigation.

b. Strategic

Contract compliance- Measures contract fulfilment in terms of meeting the terms and conditions. Formula- Actual Performance / Contractually Agreed Performance x 100 Why it matters- Risk reduction and better supplier relationships.

c. Operational

Contracting cycle time- Total time taken to complete the entire contract lifecycle. Formula: Contracting Cycle Time = Date of Contract Execution - Date of Contract Initiation Why it matters- shorter cycles mean quicker implementation.

Order Management

a. Strategic

Price compliance- Measures the variance between actual purchase prices and contractually agreed prices. Formula: (Sum of Price Variances / Total Contract Value) Why it matters- This helps ensure adherence to negotiated contracts and improves vendor relationships.

b. Operational

Req to order cycle-

It is the average time required to convert a purchase requisition into a purchase order. Why it matters- shorter time means agility in procurement and quickness in acquiring necessary goods and services.

Invoice Management

a. Financial

Working Capital Management- The average number of days a company takes to pay its invoices. Formula: (Accounts Payable / Cost of Goods Sold) x Number of Days Why it matters- Determines efficiency and aligns procurement decisions with overall financial health.

b. Strategic

E-Invoicing Efficiency- It gives the measures reduction in invoicing errors, manual touchpoints, and processing time due to the adaptation of E-Invoicing. Formula: (Reduction in Errors + Reduction in Processing Time) / Number of Invoices Processed Why it matters- Encourages process efficiency and time saving.

c. Operational

Invoicing Cycle time- It's the average time it takes from invoice receipt to payment. Why it matters- Improved supplier relationship and financial management.

Monitoring Procurement Key Performance Indicators Using Dashboards

We’ve discussed the Why (Need for procurement KPIs with analytics), and What (The actual KPIs) – now let’s discuss the How – you need them presented in a digestible format (Who wants more tables!). This will enable you to:

• Spot inefficiencies and bottlenecks the moment they occur
• Ensure compliance and reduce risk on an ongoing basis
• Track financial performance, like working capital or cost savings

With such dashboards, real-time procurement KPI tracking can turn your decision-making from reactive to proactive. As the maturity grows (the 4 stages discussed above) the nuances and the data with the KPIs are measured can be re-assessed.

Conclusion- Path Towards Procurement Analytics Expertise

Understanding the KPIs – Check ✔

Aligning the KPIs with your procurement strategy – Check ✔ 

Creating dashboards for it – Check ✔

The idea behind this article or the 5-step framework or even our Procurement Periodic Table is to offer a structured way to prioritize and track the use cases that truly matter. So, if you ready to elevate your procurement game - it all starts with the right use cases and the correct use of KPIs! If you are struggling at any point of this, let us know – our procurement analytics experts are here to help you!