On a good day, procurement officers are drowning in a swell of data points. From information about suppliers to contract milestones and basic ROI, the success or failure of the procurement department is measured by a smorgasbord of stats.
Although procurement executives should have easy access to performance measurements, not all procurement metrics are created equal—some numbers are just more telling and valuable than others. Here’s a look at the top three data points procurement officers need to keep tabs on, and the best ways to track them.
1. Spend under management: It’s an inescapable reality: every procurement group is responsible for managing at least some of its budget expenditures. Spend under management is one of the most revealing metrics that procurement officers can rely on to determine whether or not their funds are being used efficiently.
This metric takes into account a slew of factors, including how closely the procurement department sticks to its sourcing schedule, the number of active contracts in place, or the documentation of expenditures on requisition orders. By tracking spend under management across all procurement categories – direct, indirect, marketing, labor, etc. – procurement and finance have a handy rule of thumb for understanding how well they are doing compared to their peers.
2. Supplier count per category: The number of suppliers a firm works with for any specific spend category (e.g., network services, software, office supplies) speaks volumes about the overall health of its procurement department.
Think of it as a Goldilocks situation: contracting too many suppliers in one category may mean that it’s time to simplify or even negotiate better pricing. On the flip side, relying on too few suppliers creates unnecessary risk (although there are exceptions, such as employee health insurance). In the event of a natural disaster or supplier acquisition, firms that work with just one or two suppliers could face supply chain disruptions or delays.
Each procurement category manager should know the “just right” number of suppliers for their areas of responsibility. Familiarity with existing contracts and various local and market trends can also help procurement officers maintain the magic number of suppliers in each category.
3. Contract compliance: Tracking procurement contract compliance isn’t just smart risk management—it’s an essential part of leading a smart team. And like spend under management, contract compliance can be measured in a variety of ways.
Do you know how much of your contracted spend is actually used? Are any business units going rogue and buying off-contract? The answers to these questions can uncover potential liabilities lurking beneath the surface of your procurement program.
For example, off-contract purchasing is a quick way to tarnish your reputation with contracted suppliers and will make future price negotiations harder. Procurement officers should collaborate with their managers to encourage better contract etiquette and establish processes that properly document spend.
These three important metrics probably already exist in your procurement department —but they may be sprinkled across various programs or are measured infrequently. Unfortunately, simply having this information is not the same as being able to update or access it when you really need it.
Data is becoming more and more critical not just to operations, but also to your organization’s bottom line success. The burden falls on procurement officers to build teams that can effectively measure performance, and equip them with the tools they need to convert measurements into business improvement.