Top 20 Procurement KPIs: How to Set and Measure

Procurement is more than just putting in orders or receiving things on time, it's central to how a business reduces costs, fosters relationships with suppliers, and keeps the supply chain fluid. Whether you're managing procurement at a high-volume factory, ordering medical equipment at a hospital, or coordinating vendors at an expanding tech firm, one thing's true no matter what: you can't make things better if you can't measure them.

And how do you know whether your procurement process is really doing the job? That's where essential procurement KPIs enter into the picture. They are the figures that let you know what is on track, what is lagging behind, and where you can improve. Consider KPIs your dashboard. They not only tell you how quickly you're moving—they inform you when you're low on gas, off course, or spending too much time doing the wrong thing.

We're going to take you through 20 of the most practical procurement KPIs in this guide. You'll find out what each one is, why you need it, and how you can actually measure it without going crazy.

What Are Procurement Key Performance Indicators (KPIs)?

Procurement KPIs are figures or measurements that assist your procurement department in monitoring how well things are progressing—from saving money to keeping suppliers on time. Consider procurement KPIs your scorecard. They inform you whether your procurement function is effective, where there may be bottlenecks, and how close you are to achieving your business objectives.

Some of the main performance indicators consider money such as how much you're actually saving (cost saving), what you're not spending unnecessarily (procurement cost avoidance), or how much bang you're getting for your buck (procurement ROI). Others measure the movement of your procurement processes such as supplier lead time, accuracy of purchase orders, or how often you've had to make emergency purchases because something fell through the cracks.

The objective? To provide your procurement team with the proper information to make smarter decisions. When you're constantly monitoring procurement KPIs, you can identify what's succeeding, correct what's failing, and strategize wiser for the long term. That is the essence of enhancing procurement performance, minimizing supply chain threats, and enhancing overall procurement effectiveness.

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Top 20 Procurement KPIs to Track

If you want your procurement team to move the needle, you need to know what to measure. These procurement KPIs keep your decisions data-driven.

1. Cost Management

This one's a personal favorite, and rightly so. Saving money is all about how much real money you're leaving in the business through better purchasing. Suppose your business was paying £10 a unit for packaging. You negotiated with the supplier and got that down to £8. That £2 a unit? That's real savings.

How to set and measure it:

Review your previous buying prices and compare with what you're currently paying for the same products or services. You can also add procurement cost avoidance such as when your team gets into a contract before there's any price competitiveness and increase. This KPI assists the procurement unit in demonstrating tangible outcomes and enhancing overall procurement performance.

2. Procurement ROI

If you're putting time, money, and manpower into procurement, you must understand the return. This informs you exactly that—what value your people are delivering for what you're investing.

How to set and measure it:

Use the formula: (Annual Procurement Costs Saved – Procurement Operating Costs) / Procurement Operating Costs

It's a straightforward measure of your procurement function's performance. High ROI indicates that your procurement function is lean and intelligent.

3. Spend Under Management

This KPI informs you of the percentage of your firm's overall expenditure that is indeed going through the right procurement procedures. If half your departments are buying on their own without looping in procurement, you’ve got a problem.

How to set and measure it:

Divide your spend that goes through formal procurement by total company spend. The larger the number, the greater the impact procurement has, the greater is the potential to enhance procurement efficiency. When this is high, you also have improved visibility, improved vendor management, and more control over operating expenses.

4. Cost Avoidance

Unlike cost reduction, where you reduce price already being spent, cost avoidance is when you never paid the higher price initially. Let’s say a supplier was about to increase prices, but you locked in a long-term contract before the hike. That avoided cost counts.

How to set and measure it:

Compare projected price hikes or market rates to the price you paid. Also include items such as purchase price variance, improved payment terms, or avoiding unnecessary features that would have increased cost. Tracing this indicates the visionary strength of your procurement actions.

5. Maverick Spend

Maverick spend sounds thrilling, but in procurement, it's far from it. It refers to individuals in your company purchasing goods outside approved routes or suppliers.

It tends to result in increased costs, redundant orders, and makes controlling costs a nightmare.

How to set and measure it:

Use your enterprise resource planning (ERP) system to mark up purchases that didn't go through the official purchase requisition process. The more you look, the more procurement process inefficiencies you probably have. What's the objective? Keep everything in check, minimize the surprises, and tighten up your procurement operations.

6. Supplier On-Time Delivery Rate

Ever had a supplier arrive late with a delivery and disrupt your whole production timeline? Yeah, this KPI prevents that. Supplier on-time delivery rate quantifies the frequency to which your suppliers provide what they said, on the day they said it.

How to set and measure it:

OTD Rate (%)= (Number of On-Time Deliveries/Total Deliveries)*100

If your vendor performance here is low, it may translate to delays, dissatisfied customers, or hasty emergency buys that consume your budget. Tracking this on a regular basis enhances your supply chain predictability and increases customer satisfaction.

7. Supplier Defect Rate

Receiving the goods is one thing, receiving them in good shape is another. That is where supplier defect rate is used. It indicates the frequency with which suppliers supply products that are damaged, wrong, or below quality standards.

How to set and measure it:

Defect Rate (%)= (Number of Defective Units/Total Units Received)*100

High levels of defects result in additional returns, lost time, and escalating associated costs. In addition, it negatively affects your supplier performance and freezes the entire procure to pay process. This measurement is a necessity for procurement professionals who desire cleaner, more efficient procurement processes.

8. Supplier Lead Time

Taking too long for deliveries? That's an issue. Supplier lead time informs you how many days it takes from ordering to receiving the goods. Shorter lead times translate to quicker turnaround, fewer stockouts, and less last-minute scrambling for fixes.

How to set and measure it:

Track the number of days between purchasing order delivery and receiving goods. Take an average per supplier to be able to compare and to determine your best (and worst) suppliers. This assists with everything from inventory planning to strategic initiatives, and reduces those pricey emergency buys that disrupt your budget.

9. Supplier Compliance Rate

Are your suppliers abiding by the terms of the contract? Are they shipping the correct product, in the correct amount, on the correct date? That's what the supplier compliance rate is telling you.

How to set and measure it:

Check all orders that were completed and observe how many of them completely fulfilled the conditions of the contract. Compare that to the number of orders and convert it to a percentage. If low, it might be time to reconsider your vendor management or re-negotiate contracts. High compliance? That's a win for your procurement function and a great assist in achieving your overall business performance targets.

10. Contract Compliance

This one focuses on whether or not purchases are being made under the proper, agreed-upon contracts, no off-contract sales, no back-door orders.

How to set and measure it:

Monitor the percentage of total procurement spending that's placed through valid, approved contracts. Everything outside of those arrangements needs to be picked up. High contract compliance = reduced risk, improved pricing, and more efficient procurement operations. It's also an excellent method for mitigating maverick spend and adhering to the terms your procurement leaders negotiated hard.

11. Purchase Order Cycle Time

How long does it take your team to create and approve a purchase order? If it’s dragging, you’re slowing down the whole procurement cycle. Purchase order cycle time estimates the average duration between when a purchase requisition is initiated and when the purchase order is approved and issued.

How to set and measure it:

Monitor how long in hours or days from beginning to end each order takes, and then average it over a time span. Faster PO cycle times indicate a more streamlined procurement process. And if it's taking too long? That's a warning sign for procurement process inefficiencies such as too many approval steps or antiquated procurement software.

12. Purchase Order Accuracy

Mailing the wrong information to a supplier (wrong quantities, incorrect prices, incorrect goods and receipt delivery address) can ruin your entire operation. Purchase order accuracy measures how consistently your team is getting the facts right the first time.

How to set and measure it:

PO Accuracy (%) = (Number of Accurate Orders/Total Orders)*100

This is one of those buying metrics that humbly saves you loads of time. It minimizes back-and-forth with vendors and eliminates returns, delays, and unnecessary cost management headaches.

13. Procurement Cycle Time

This KPI looks beyond POs. Procurement cycle time tracks how long it is taking to go through the entire procurement process, from the recognition of need to the receipt of the goods or services. It demonstrates how responsive your procurement function actually is.

How to set and measure it:

Measure how long each procurement activity takes (from request, through sourcing, to delivery) and average it over time. If your cycle period is lengthy, you may have to examine internal bottlenecks, enhance supplier communications, or lean into improved procurement software. Quicker cycles result in faster manufacturing, improved supplier availability, and more effective procurement operations.

14. e-Procurement Adoption Rate

Are your staff still emailing Excel spreadsheets to suppliers? Gosh. The adoption of e-procurement is an indicator of how efficiently your online tools are being utilized by your procurement employees.

How to define and measure it:

Count how many are actually using your e-procurement system versus how many would be using it. Then put that as a percentage. This KPI indicates the level of digitally maturity your procurement team has. High adoption can automate workflows, enhance procurement data gathering, and minimize time and cost-consuming rework. If there is low adoption, that may indicate a lack of training, or perhaps your system simply isn't easy to use.

15. Number of Active Suppliers

Having too many suppliers is difficult to deal with. Having too few, and you invite availability problems. That's why monitoring the number of active suppliers is so crucial. This provides you with insight into who is actually contributing to your procurement spend, rather than who is in your system taking up space.

How to establish and measure it:

See how many suppliers you've actually ordered from within a specified time period (such as the last 12 months). Remove those with zero transactions. It assists with vendor availability, supplier performance, and even supply chain risk reduction. A balanced supplier base provides flexibility and reinforces your strategic sourcing.

16. Supplier Availability Rate

Have you ever needed a product in a hurry only to be told, "Sorry, we're out of stock"? That's where supplier availability rate comes in, it informs you about how frequently your suppliers are really capable of supplying you with what you need, when you need it.

How to set and measure it:

Take the number of completed order requests and divide that by the total number of order requests, and then multiply that by 100. That gives you the percent of times that a supplier was available when they were called.

Monitoring this assists you in identifying reliability problems early. It also aids in improved vendor performance assessments and reduces the risk of interruptions in your procurement operations. A high availability rate translates to fewer emergency buys and a more comfortable ride for your entire supply chain.

17. Rate of Emergency Purchases

Emergency purchases are a fire drill for your buying department. They're stressful, unplanned, and most often costly. This KPI monitors how frequently you're having to do last-minute purchases.

How to set and measure it:

Divide the number of emergency purchases done over a given timeframe by the overall number of purchases. Then multiply by 100 to convert it into a percentage. A high level of emergency buys indicates poor planning, inventory mismanagement, or supplier problems.

And each emergency purchase drives up procurement cost per invoice, puts pressure on your staff, and drives up your operating expenses. The objective? Keep this number low. It's one of those procurement key performance indicators that indicates how proactive (or reactive) your procurement activities are.

18. Invoice Processing Time

How quickly does your team process an invoice, from receipt to payment? That's what invoice processing time informs you. The faster the processing, the greater the cost saving potential and improved supplier relationships.

How to set and measure it:

Measure the average number of days from receiving the invoice to paying for it.

Long processing times can impact your early payment discounts, cause delays in reconciliation, or harm your supplier performance rating. Cutting back on this improves your procurement team's performance and helps for a smoother procurement to pay cycle. And if you're still doing it manually? Automating it using procurement software is a great first step.

19. Procurement Cost per Order

This KPI responds to an important question: how much does it really cost you to put in and deal with an individual order? Consider admin time, system utilization, labour, approvals—the works.

How to measure and set it:

Procurement Cost per Order = Total Procurement Costs/Number of Purchase Orders

Maintaining this expense at a low level is a mark of an efficient, streamlined procurement process. It's among the most effective cost-saving KPIs to display your procurement ROI and enhance general cost control methods.

20. Rate of Returned Goods

Each returned product is a red flag. That means something went awry, perhaps the supplier sent the wrong product or perhaps there is a quality problem. Either way, it's eating into your time and money.

How to define and measure it:

Return Rate (%)= (Number of Returned Units/Total Units Sold or Delivered)*100

This KPI affects your supplier compliance rate, uncovers vendor management issues, and even indicates internal issues such as improper purchase requisitions.

Monitoring procurement KPIs such as this one on a regular basis keeps you ahead of minor issues before they grow into full-blown problems.

Benefits of Tracking Procurement KPIs

Here are the major advantages that are associated with regularly tracking procurement KPIs—you'll notice how they can assist your team, save you money, and improve efficiency.

Spot Overpriced Suppliers Quickly

By monitoring your procurement metrics, you are able to immediately notice price inconsistencies. This means that you are able to negotiate a better deal or discover more affordable suppliers, keeping you from overpaying and enhancing your procurement ROI.

Reduce Stockouts and Delays

When you monitor lead times and the availability of suppliers, it enhances inventory management. That way, you remain ahead of planned stockouts or delays and maintain your procurement operations smoothly, minimizing disturbances in the supply chain.

Cut Down on Manual Rework

Monitoring procurement metrics such as PO accuracy and invoice processing time translates into fewer errors. By minimizing errors, you reduce manual rework, lowering operating expenses and increasing your procurement efficiency. Less human effort = smoother processes.

Catch Maverick Spending Fast

Maverick spend occurs when workers go off-contract and purchase outside authorized channels. Through spending tracking and application of procurement policy, you are able to catch this quickly, enforce compliance, and keep ahead of cost-saving KPIs.

Improve Budget Forecasting

Monitoring your procurement KPIs provides you with information regarding spending trends. This allows for better planning by procurement managers, preventing budget overruns and better future budgetary decisions. You'll make wiser estimates, saving time and money.

Identify Top & Underperforming Suppliers

Monitoring items such as compliance rate of the suppliers, defect occurrence, and on-time delivery on a regular basis allows you to identify which suppliers are performing and which are not. This enables you to optimize your vendor management strategy and make decisions based on data.

Procurement KPIs and Procurement SLAs (Service Level Agreements)

When you are running procurement, it's important that your KPIs align with your procurement SLAs. SLAs create expectations clearly, whereas KPIs enable you to monitor if those expectations are fulfilled or not. For instance, if your SLA demands that 95% of the time the suppliers must deliver on time, your supplier on-time delivery rate KPI enables you to monitor this.

Together, SLAs and KPIs ensure both your suppliers and your team are on track. Without them, it'd be difficult to measure procurement KPIs and enhance it or make sure everyone is hitting their targets. They make procurement more structured and easier to optimize.

How to Use Procurement KPIs to Drive Strategic Decisions

So what can you actually do with all those procurement KPIs? It's about leveraging them as more than a set of data points because they're decision-making juggernauts. They inform everything from your cost-cutting objectives to your overall procurement strategy.

Begin by aligning your KPIs to your business goals. For example, if saving cost is top priority, use KPIs such as cost of procurement per order, purchase price variance, and cost avoidance. If your goal is to achieve resilience, monitor supplier lead time and vendor performance.

Make these KPIs a part of your routine decision-making. If your emergency purchase rate is increasing, it may be time to revamp your sourcing strategy. Conducting monthly or quarterly reviews using these metrics will keep you on your toes, make changes to your procurement methods, and ensure everything continues to run smoothly. Keep your KPIs at the forefront, and you'll be more effective at making wiser, quicker decisions.

Common Mistakes When Using Procurement KPIs

When it comes to defining procurement KPIs, a number of teams end up making a few predictable pitfalls. Here's what to avoid:

• Paying attention to vanity metrics: Impressive-looking tracking numbers that don't directly influence procurement performance. Ensure your KPIs paint a genuine, meaningful picture.
• Measuring too much: Attempting to monitor all of them equals monitoring nothing well. Focus on a limited set of KPIs that reflect your primary objectives, for example, procurement effectiveness or cost control.
• Not refreshing targets: Your business requirements evolve, and so must your KPIs. Fixed targets may introduce blind spots or mismatched priorities, hampering procurement processes and supplier performance.
• No automation: Manual tracking is error-prone and inefficient. Utilize procurement software or enterprise resource planning (ERP) solutions to automate tracking for better, real-time insights.
• Siloing procurement from the supply chain: Procurement KPIs must be linked to supply chain data. Separating them is losing trends that influence the procure to pay cycle through emergency buys.

Avoiding these pitfalls, your procurement team can leverage KPIs to inform wiser, more efficient operations.

Conclusion

Procurement today is an important component of fueling growth and profitability. So how do procurement managers and teams remain on target? The response is straightforward: procurement KPIs.

Through the measurement procurement KPIs like cost saving, supplier performance, and purchase order cycle time, you can make better decisions, enhance supplier relations, and improve your bottom line.

Tracking these KPIs isn’t a one-time thing. It’s an ongoing process of refining and improving your procurement efforts. Whether you’re leading a seasoned team or just starting out, using the right metrics ensures every purchase and supplier supports your bigger business goals.

FAQs

1. What are the most important KPIs in procurement?

Some of the main procurement KPIs to highlight are cost reduction, procurement return on investment, lead time from the supplier, and spend under management. These indicate both financial outcomes and how efficient your procurement procedures are.

2. How do you measure procurement efficiency?

Procurement cost per order, purchase order cycle time, and procurement ROI make excellent KPIs to monitor. They demonstrate how effectively your procurement department is undertaking its sourcing efforts and containing costs.

3. What KPI is used for supplier performance?

Consider measures such as supplier on-time delivery rate, supplier defect rate, and supplier compliance rate. These provide you with a clear indication of how high-quality and reliable your suppliers are.

4. What is a good procurement ROI?

A good procurement ROI typically lies anywhere from 5:1 to 10:1. That means, for every dollar you spend, you should be saving five to ten dollars. Naturally, this can be different based on your industry and procurement methods.