Purchase Planning Metrics

In today's world, procurement activities - at least for companies - are not activities that can be simplified. Especially individuals who advance in the growth of their companies/businesses and make strategic moves towards them are the executives of serious operations.

Purchasing departmentspef or procurement managers stand out as the most effective people in purchasing other businesses/companies that will join the company and in conducting other purchasing operations. Every decision made will either bring the purchase success or have unintended consequences. For a procurement manager to succeed he or she has to get the tips and use them correctly

Purchase Order Cycle Time

Know who to place your immediate orders

The purchase order cycle time is the period from when a purchase requisition is submitted to a supplier or contractor. The entire purchase order cycle is in the scope of this KPI.

Order creation, confirmation, delivery, invoice creation and payment are steps in the purchase order cycle. The PO (Purchase Order) cycle time can vary from hours to days. Suppliers responding to urgent orders can be determined from the value of this metric. Depending on the value of the cycle time, suppliers can be divided into several categories.

For example, suppliers with a PO cycle time of 4 days or less may be classified as short, a cycle time of 5 to 8 days is medium, a cycle time greater than 8 days is long.

Urgent order may be placed with a vendor with a short PO cycle time. Overall cost and productivity of the procurement function and staff productivity can be improved by reducing the PO cycle time.

A purchase order is a process between a buyer and a vendor that is used to purchase material. The price, terms, conditions and additional obligations of the product or service must be specifically defined. The order form to be prepared must contain all the details and include date and signature locations.

The form for purchase orders should generally be delivered by fax, email or other electronic means. In some cases, delivery mode must be specified on the invoice. It is also very important to get your urgent orders from which supplier.

Performance Indicators

Reducing your cycle time can increase the return on other key activities and increase staff efficiency and the total cost of procurement functionality.

Vendor Rejection Rate & Costs

Review your quality management strategies

Vendor performance metrics such as rejection rate and costs should be regularly monitored to ensure sustainable development of your business. The interdependence between the two notifies you if there are more serious problems, such an increase in both, and if the purchaser can claim new goods or damages in a short period of time.

Communication is also important here to avoid further bottlenecks. It is important to find common grounds and negotiate possible solutions to ensure that the relationship in the future is not harmed by possible claims cases or collateral claims.

Vendor performance KPIs, such as rejection rate and costs, provide actionable information regarding the internal quality management strategy. The continuous monitoring of these KPIs is essential for sustainable business growth. Associating vendor denial and vendor cost metrics helps analyze both the cause of the increase in measures and the likelihood of looking for a new product for damaged goods in a short period of time.

A significant increase in any of these two measures requires prompt action by the purchaser. Uninterrupted communication between buyer and supplier is essential to negotiating solutions to avoid bottlenecks and ensure healthy vendor relationships.

Regularly monitoring vendor rejection and cost metrics helps avoid unwanted cases for damages or warranty claims. The causes of problems and ways to avoid them in the future can be identified by following these KPIs.

Performance Indicators

Review the rejection rate and your vendor costs to determine what caused them and how you can improve them in the future.

Emergency Purchase Ratio

Track emergency purchases

Urgent purchase rate is a purchase KPI, focusing on unplanned orders. These orders are usually done when there is a product shortage indicator and are measured over a period of time, expressed as a percentage between emergency purchases and total purchases.

Additional details about the emergencies that occur can also affect the quarterly project average. In essence, if this metric is lower, the organization has the opportunity to save costs, improve planning processes and reduce supply risks, among other important impacts.

These indicators will, as a result, show you how effective your planning is and whether you should adjust future strategies.

While it is normal for a business to have ad-hoc demands, the existence of a large number of unplanned purchases is poorly reflected in the procurement strategy. Urgent purchase rate is a KPI that sheds light on unplanned orders. Emergency purchases are usually made when there is a shortage of operations, products or services.

Emergency purchases are typically made at higher purchase rates, so the lower the emergency purchases, the better the productivity at work.

• Having a low emergency purchase rate helps businesses

• Save costs

• Streamline supply plans

• Ensuring continuity (availability) of goods

• Minimize supply risks

This measure is a reflection of the effectiveness of the procurement strategy and a guide for planning future strategies. Efforts to keep emergency purchase rates low will help businesses avoid process bottlenecks and product shortages in the product portfolio.

Performance Indicators

The aim is to keep the ratio as low as possible to avoid bottlenecks and shortages in your product portfolio.

Cost of Purchase Order

Check your internal costs arising from purchases

Cost of the purchase order is one of the disputed procurement KPIs as definition and implementation vary. Theoretically, this metric represents the average costs of processing an order from the purchase process to the closing of the invoice.

So when you measure that metric, what you decide to consider is: what is the average cost for processing a purchase order based directly or indirectly on how long it takes by the related employee.

The KPI definition and implementation of purchase order cost may vary for each business. A broad definition of the cost of the purchase order is the average cost of purchasing an order until the purchase, creation, and invoice settlement. Practically speaking, the measurement of this KPI involves tracking several variables.

Each business comes with a different variable list that determines the cost of the purchase order. Some take into account direct and indirect costs, others may only consider direct costs and the time each order takes. It is important to understand the essence of tracking purchase order cost metrics; this is to increase the efficiency of the purchase life cycle and to keep errors and costs to a minimum. After understanding the purpose of measuring this KPI, businesses can decide which variables to consider in order to measure it.

Performance Indicators

The idea is to increase the efficiency of the purchase-pay cycle to avoid mistakes and reduce costs

Procurement ROI

Determine the profitability of your investments

Procurement ROI is one of the most important metrics that determine the cost-effectiveness and profitability of the procurement investment. This metric is valuable for internal analysis of the procurement function. Even though it is an important KPI, return on purchase investment cannot be considered on its own in order to get a full picture of the performance of the purchasing function. It must be associated with other KPIs to get the full picture of the performance. This metric does not take cost avoidance metric into account. Identifying a 10x acquisition ROI of internal investments is a good buying strategy

To calculate the procurement ROI, you must divide the annual cost savings by the cost of internal procurement per year, expressed as a rate. This is a good single metric but it does not necessarily speak for the larger "procurement scorecard" and does not include cost avoidance. Also, if investment in purchasing is very low, you are more likely to measure essentially difficult cost savings.

The list of key performance indicators of procurement that each entity uses to assess performance can vary based on the size and type of business. P2P follow-up from supply to payment offers a huge potential for value added and cost savings. The P2P cycle covers tasks from sourcing raw materials to receiving goods/services such as storage services, office supplies, and utilities. Monitoring P2P KPIs enables increased efficiency and cost savings in procurement and accounts payable processes.

Performance Indicators

The procurement ROI should have a large payback and it is a good target for the procurement department to set it up 10x more than the internal investments.

Cost per Invoice and Purchase Order Number (Cost per invoice and PO)

Cost-saving KPIs: Save

This procurement KPI represents the average cost of processing an order from order creation to invoice closing.

The cost per purchase order varies based on various factors and varies from one organization to another. For example, a company that uses manual methods to process invoices might have higher processing costs than a company that uses automated procedures.

Cost spent per invoice and purchase order can vary from one organization to another depending on the factors included in this calculation. An entity that follows a manual approach will have higher processing costs compared to other organizations that use an automated process.

Performance Indicators

Build a system that evaluates the quality of your invoice and purchase orders. Set clear goals and track the performance of your purchases in detail.

Price Competitiveness

Increase your competitive edge

Little or no competition between vendors could lead to a location where a few suppliers enjoy the monopoly. This can reduce quality in the long term. The emphasis is placed on short-list vendors that give the buyer a distinct competitive advantage.

Price competitiveness can be measured by comparing the price paid against the published market prices listed on a smart site in the supply market, such as Beroe Inc.

It also provides procurement leaders with the ability to generate custom reports that show key metrics such as PO cycle time, emergency purchase rate, and the ratio of annual purchase savings to annual acquisition costs.

Performance Indicators

Establish a system where you can conduct market research with the cheapest positioning in the market, the average positioning where most competitors gather, and the highest pricing placement where luxury brands gather. Determine where you stand against your competitors.