Key performance indicators. We all have them. When you go for your annual physical, personal KPIs include your weight, blood pressure, cholesterol and other important health related data points. These are not one-off measurements, but ones that you can track over time to analyze your own health trends.

There are KPIs in sports as well. In baseball, traditional KPIs include batting average, a pitcher’s earned run average (ERA) and even attendance at the ballpark. Football has yards per carry and a whole bevy of passing KPIs.

Key performance indicators are measurements considered critical to the performance of a business or process, usually calculated and reviewed on a regular basis. They help with decision making and can track a number of internal and external indicators.

Data exists in most organizations and reports are readily available through ERP systems. But sometimes important measurements are lost in the fog of easy to accumulate data, generated in a whole array of statistical abstracts and pretty pie charts.

Selecting a series of baseline KPIs that will help to analyze procurement performance over time is the place to begin. When it comes to KPIs for procurement, they need to be realistic, relevant and useful in managing supplier, staff and organizational performance. Once those are identified, additional KPIs can be included that can help manage a greater range of business activities.

The following KPIs are not a comprehensive list but a place to start or benchmark your process.

Supplier-related KPIs

• Number of suppliers: The aggregate number of suppliers is a key number to track as many supply management organizations seeks to reduce the size of their supply base to create less administrative work and leverage stronger relationships with fewer suppliers. The number of suppliers in a specific commodity area is also an important measure when considering capacity related sourcing decisions.
• On-time delivery by supplier: This KPI is the gold standard for supplier performance. A KPI measuring the overall on-time delivery metric can show trends, but an individual supplier on-time delivery KPI is a critical performance measure in supply management.
• Spend: KPIs in this area include the overall amount of money spent with all suppliers, the amount spent with direct and indirect suppliers, spend within specific commodity areas and spend per supplier.
• Quality performance rating: This KPI can show an overall supply base quality rating, but specific quality KPIs at the supplier level are critical to measure specific performance.
• Supply chain risk: This may be a tough KPI to develop due to the range of potential risks. One related KPI would be to track the number of sole-source suppliers, as they offer the greatest opportunity for risk.

Staff-related KPIs

• Spend per employee: This is a common, yet deceiving KPI. Buyers may manage critical suppliers but not spend a lot of money. Others may spend a considerable amount with a few suppliers, perhaps in an automated format. Aggregate spend, broken down into direct and indirect spend and those spend analytics in commodity areas, are important for staffing and support needs.  
• Cost savings or cost avoidance: Buyers often maintain their own cost savings related KPIs while others depend on ERP generated reports calculated through last time buy or standard cost calculations.
• Spend under contract:  KPIs in this area can calculate the number of formal contracts or agreements, spend with approved suppliers and the amount of maverick spend, which are funds spent with unapproved suppliers or outside of normal procurement procedures.
• Purchase order cycle time: This KPI is a measure of the efficiency of the procurement department and can include automated transactions and individual order placement. KPIs in this area can also be established for direct and indirect spend.
• Training and development: This KPI can track training hours for staff development.

Organizational KPIs

• Payments to suppliers within terms: This KPI should be tracked by the accounts payable department. On-time payment to suppliers is an important aspect in supplier relationships and impacts overall supplier performance.
• Inventory accuracy: Poor inventory accuracy leads to shortages, stock-outs and pressure on suppliers and buyers alike. This KPI can be further broken down by using ABC inventory analysis.
• Receipts made the day goods received: Formal receipt of materials the day they are received directly impacts other KPIs including on-time delivery performance measurements. This KPI is an indicator of process controls and staffing in the receiving area.  
• Ratio of spend to sales revenue: This KPI is a common one generated by income statement calculations and is related to the cost of goods sold. This KPI measures purchase content and impacts operating margins.
• Inventory turnover: Inventory turnover is a measure of velocity and has a direct impact on cashflow. High inventory turnover is a positive attribute but requires more frequent on-time deliveries from high-performing suppliers. This KPI has a far-reaching impact throughout operations and finance.

Many strategic plans, including those in supply chain management, frame the strategy in a (1) goals, (2) objectives and (3) tactics methodology.

The overall supply chain strategy might identify a series of goals around cost savings, supplier delivery performance and staff performance. Objectives supporting those goals can include a specific on-time delivery target. Tactics supporting the objectives would offer a way to get there, such as distributing delivery performance data to suppliers. The KPI would act as the measurement tool of the identified goals, objectives and tactics.

Aggregate KPIs may lead to individual KPIs. You can track an aggregate on-time delivery KPI for your entire supply base, but also KPIs for specific commodity classifications and at the discrete supplier level.

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There are no right and wrong KPIs; they just need to measure important aspects of your business.

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Organizations without a formal strategic goal can still use KPIs as effective tools to track important metrics, but they would be less effective as ones aligned to a clear strategy. These organizations should identify a selection of KPIs that are important to business outcomes. Perhaps choose two or three KPIs identified in this article, look for gaps in the data being sought and add more.

There are no right and wrong KPIs; they just need to measure important aspects of your business.

As companies and business conditions change, so does the data we track and analyze. Be sure to keep your KPIs list pruned to keep its relevance. Once companies get into the KPI habit, the roster of KPIs can grow to an unmanageable level. Too many KPIs dilute their importance, defeating their original intent and minimizing their effectiveness.