Understanding Procurement KPIs: Key Metrics for Success 

If your executive team asked how Procurement was performing, would you have the data to back up your answer? If your answer is not a resounding “yes,” it’s time to evaluate your procurement KPIs and make sure you have a way to track the ones that matter.  

What are procurement KPIs? 

Procurement KPIs, also known as key performance indicators, are metrics that measure Procurement’s performance in specific areas of responsibility. KPIs can either measure what Procurement did or they can measure the results that the function produced.   

Benefits of tracking procurement KPIs 

Tracking a Procurement KPI dashboard provides an objective way to measure where the function is succeeding and where it needs to make improvements. KPIs can also serve as the first signs of developing problems and help the function pivot quickly. 

Below we outline specific ways Procurement can use these metrics to improve performance, relationships across the business, and the function’s overall business value. But to get right to the metrics, scroll for a list of 17 crucial procurement KPIs every team needs to track. 

Increased transparency 

KPIs provide a specific, objective way for Procurement to report impact and performance to the wider business. They also provide an in-depth look at where Procurement is impacting the business and how results are changing over time. KPIs can also be a great way to highlight areas where Procurement needs extra buy in or cooperation from stakeholders. 

Enhance supplier relationships 

KPIs also provide an objective look at supplier performance, which Procurement can use to communicate and align with business units, discuss issues with vendors, negotiate better contracts, set expectations with new suppliers, and more.  

Improved performance monitoring 

KPIs are what take procurement performance management from focusing on “getting work done” to driving value and bottom-line impact. Not only do they provide standards for evaluating performance at a leadership level, but they also make those standards clear to the whole procurement organization. Performance KPIs are also a great way to find continuous improvement opportunities, especially when the numbers meet or exceed expectations. 

Increased efficiency 

No matter how efficient a process looks, there are always ways to make it better. Procurement KPIs help find these opportunities. Measurable metrics can pinpoint the inefficient parts of a process and even diagnose a process that’s faulty altogether. 

Aligned objectives 

Like with performance management, KPIs protect alignment by making goals and standards clear. When they’re communicated regularly and transparently, KPIs build trust both inside Procurement and with stakeholders. Most importantly, KPIs clarify the levers Procurement will use to achieve its goals and how the function is performing against them at any given moment.  

17 key procurement KPIs every team needs to track 

There are an endless number of KPIs that a procurement team can track. Your specific goals, operating model, and team make-up will play a large role in what metrics you track. However, the following 17 are industry standards that every team should monitor.

Purchase order cycle time 

PO cycle time can function as both a leading and a lagging indicator. This procurement KPI tracks how long it takes to complete a purchase order, from creation to fulfillment and payment. It’s an important metric for Procurement to monitor regularly because inefficient sourcing processes negatively impact the following: 

• Business unit operations – Delays between PO requests and approvals slow the pace of production and erode trust with Procurement. 
• Cost control – Inefficient processes bloat people hours, increase shipping fees, miss discounts, and can even result in unnecessary talent or technology investments. 
• Supplier relationships – Delayed payments or unpredictable order requests can make a company difficult to deal with. Over time, these difficulties can harm contract opportunities or preferred customer statuses that may lower costs and deprioritize delivery during shortages. 
• Inventory management – Many companies, especially in manufacturing, operate under a just-in-time inventory system that significantly reduces costs. However, poor PO processes make this impossible, forcing added investments in inventory storage. 
• Risk levels – Inefficient, disorganized PO processes increase the likelihood of disruptions, malicious rogue spending, and cyber vulnerabilities. 

Supplier compliance rate 

Supplier compliance rate measures how many of a vendor’s orders meet agreement terms, such as  

• Pricing 
• Quality 
• Technical scope 
• Order accuracy 
• Documentation 
• Safe packaging 

This KPI helps Procurement evaluate its suppliers and establishes an audit trail for future reference.  

Procurement ROI 

Are investments in Procurement paying off? Monitoring your bottom line or EBITDA impact as a percentage of your budget will answer this question and help you stay agile as a leader. It can also be a valuable metric when requesting budget for procurement software, especially if you can build a business case for how that software will increase the function’s ROI. 

Vendor availability and performance 

The availability and performance of a vendor tells you if a supplier is meeting your requirements both in terms of availability and quality.  

Availability tracks the difference between on-time delivery and full orders versus late shipments, partial stock, or back orders. Tracking this metric helps you proactively avoid disruptions and the high shipping and sourcing costs that come from turning to other vendors in the event of a supply chain shortage. 

Supplier performance measures product or service quality. The way you track this KPI depends on several factors including whether you are in direct or indirect procurement. However, it will give you a standard for comparing vendors, negotiating contracts, and reviewing relationships. It’s also a great way to build trust with the business units that have to deal with these supplier issues.  

Cost competitiveness 

Cost competitiveness measures how a vendor’s pricing compares to other suppliers. As a procurement KPI, it can involve several metrics including purchase price variance (PPV), total cost of ownership (TCO), cost savings percentage, and per unit cost. A mature organization may choose to compile these metrics into a rating system. However, if you want to keep things simple, you can always compare bulk and per-unit pricing to industry benchmarks. 

Purchase order costs 

Purchase order (PO) cost, measures everything you spend to create a single PO. Ittakes into account the cost of: 

• Administration 
• Procurement and finance software 
• Transaction costs 
• Logistics and freight 
• Quality control  
• Lost revenue from delays 
• Inventory storage 

This KPI is another important way to evaluate suppliers. But it can also reveal opportunities to improve your processes, reduce costs, and even eliminate some spend altogether. 

Percent spend increase per category or business unit 

Increasing spend in a category isn’t uncommon, especially in inflationary markets like we’ve seen over the past few years. However, this KPI can be an early indicator of strategic opportunities. It can reveal: 

• Higher inflation relative to a specific category or subcategory 
• Contract negotiation opportunities or needs 
• Contract non-compliance 
• Increasing category importance 
• The need for more supply chain coverage 
• Developing scarcity, supply shortages, or supply chain interruptions 
• General market trends 

Of course, spend in a category doesn’t always increase. You should track spend decreases as well. They’re a great sign that Procurement’s efforts are paying off. 

Gap to budget 

Gap to budget measures how much a business unit or the business as a whole spent relative to budgeted amounts. This KPI can be a great way to track where Procurement should step in and help find cost reduction opportunities.  

P&L impact percentage 

Procurement’s impact on profit and loss is one of the first metrics that stakeholders and executives use to evaluate the function, especially in publicly traded organizations. Since you’ll answer questions about P&L impact at least annually, if not quarterly, you should track it on a regular basis. Not only will it prepare you for reports and reviews, knowing Procurement’s impact at every moment will allow you to stay agile and modify your strategy if necessary. 

Supplier depth, fragmentation, and single-sourced spend 

Understanding the state of supplier relationships in each category and subcategory is crucial, especially in a world where supply interruptions seem to pop up every few weeks. Balance proactive supplier relationship management with cost base optimization can be tricky, but knowing your supplier numbers is the first step to success. 

New supplier spend 

New supplier spend tracks how many new vendors the business has bought from in a given period and how much spend that purchasing has created. It illustrates the general trajectory of supplier relationships across the business and can indicate that category managers need to ask the following questions: 

• Are there unknown issues with existing vendors? 
• Are compliance processes well developed and communicated? 
• Are there market or category developments you should know of? 

Additionally, new supplier spend will give you a list of suppliers that need due diligence checks to protect against ESG issues, cyber risk regulations, corporate social responsibility risks, and supply chain issues.  

Contract impact percentage 

Are your contracts having the desired impact on P&L? This procurement KPI will give you an objective answer. It can also serve as a sign for areas of performance that need deeper investigation. For example, if the realized impact percentage is significantly different than forecasted results, it may be a sign of non-compliance or supplier performance issues.  

Non-compliance rate 

A different angle on the previous KPI, this metric shows how often buyers are purchasing outside of approved channels and contracts. In other words, it highlights areas where an established spend management mechanism isn’t working, therefore making spend higher than its expected baseline.  

Non-compliance is often a sign of: 

• Inefficient processes 
• Communication issues 
• Savings improvement opportunities 
• Fraud 
• Uncontrolled buying channels 

Managed spend rate 

There are sections of a company’s spend that Procurement can’t do anything about. However, it’s important to understand how much of its addressable spend is under management. The managed spend rate answers this with a percentage and tells Procurement: 

• How well its capitalizing on opportunities 
• What areas of the business to focus on next 
• Where there is low hanging fruit 
• Coverage with existing resources and talent 
• Sourcing strategy effectiveness 
• Opportunities for continuous improvement 

This is one of the best Procurement KPIs to track for each category and subcategory, simply because it will tell you a lot about your category management strategies over time.  

Diversity 

Supplier diversity is a crucial ESG metric. There are 17 different designations under which a business can be certified as diverse, so it’s wise to understand your diverse supplier spend holistically instead of as a simple currency amount. 

• Percentage of suppliers that are diverse 
• Net spend with diverse suppliers 
• Percentage of spend with suppliers that meet two or more diversity criteria 
• Percentage of spend with women-owned businesses 
• Spend or percentage of spend with minority-owned businesses 

Finding diverse suppliers can be challenging, so SpendHQ has partnered with Supplier.io to create an in-platform search engine and diversity performance tracking system. 

Scope-3 emissions and sustainability  

Like with diversity, there are several subsets of sustainability that you should track. The first is scope-3 emissions, which measures the carbon emissions of your supply chain. You can measure this in terms of  

• Suppliers with net zero commitments 
• Suppliers under a certain threshold 
• Suppliers that are near or re-shored 

Material and resource waste, especially as it relates to plastic and water, is another growing issue that you should track. It’s also becoming increasingly important to understand your vendors’ supply chains as far down as possible. 

Third party risk 

Third party risk management (TPRM) is rapidly becoming one of the most important non-financial KPI areas that Procurement can track. Risk no longer deals only with supply chain shortages; now companies are responsible for understanding vendor risk related to:  

• Cyber data – GDPR regulations can fine businesses that are exposed through vendor leaks 
• Human rights and modern slavery – Know Your Supplier laws hold companies responsible for contributing to human rights violations through their supply chains 

Vendor financial risk is another crucial procurement KPI that you should track to help prevent the unpleasant surprise of finding that a critical player in your supply chain has suddenly declared bankruptcy.  

Of course, risk is more varied and complex than a typical KPI. Because tracking these crucial KPIs isn’t just a matter of percentages and net spend amounts, it’s usually graded with a holistic risk score. To simplify risk monitoring, SpendHQ’s spend analytics solution partners with several risk monitoring services to provide “done for you” risk monitoring in-app.