Measuring the performance of a procurement department

I’ve recently put together a list of measurable procurement team activities and a suggested metric for each activity. It’s by no means revolutionary but you may find it useful in your organisation.

Listed below are the activities and metrics. Note that your team’s metrics will differ from those listed below based on the behaviour you are attempting to drive within your team, your organisation, and your supply base.

1. Spend analysis: Enriched addressable spend mapped to the organisational hierarchy (as a percentage of total addressable spend)
2. Sourcing: Savings, total and savings divided by the sum of procurement staff salaries.
3. Ordering: Spend through Procurement-controlled channels (e.g. e-catalogues) divided by the sum of P2P staff salaries
4. Deliveries: Metric: Average elapsed time from supplier dispatch to end user receipt
5. Invoicing and payment: Metric: Percentage of invoices paid on the date due (or before with negotiated discount)
6. Contract administration: Metric: Percentage of total addressable spend under contract
7. Supplier management: Metric: Spend covered by suppliers providing simple cost and SLA reporting back to the procurement department divided by the sum of supplier management staff salaries.

You’ll have noticed that some of the metrics are ratios between the objective and the cost of staff. I find this useful in focusing staff not on the limitations of our resourcing but on the efficiency of the resources we do have, and to constantly search for ways to make themselves more efficient.