Pricing metrics
To understand if the organization is paying different prices for a similar product or service across its business units and geographies. This is a common problem because business units/geographies often do not share data and best practices. The analysis can be performed at the following levels:
- Price variation for a SKUwhere the same SKU can be purchased in different price variations from different suppliers.
- Price variation by business unit / geographywhere the same SKU can be purchased at different price variations within different divisions and geographies.
- Spending / price developmentto assess whether an increase in spend for a SKU/category is resulting in a reduction in unit cost.
Financial metrics
To understand how to optimize working capital by using payment terms as a key lever. Another important element is to control overspending by comparing the budget or purchase order value with actual invoicing.
Some analyses that can provide insights into this are:
- Visibility and optimization of payment terms to free up working capital by comparing categories/geographies with external and internal benchmarks.
- Incoterms can be analyzed to identify opportunities to transform to profitable.
- Invoice processing costs should be kept to a minimum and analyzed using a number of transactions per supplier and the average invoice value.
- The quotation/purchase order and invoicing must be synchronized to determine the difference between quotes/purchase order and actual invoices.
Compliance metrics
It allows to understand the variations of the defined process and the agreed KPIs. Generally, these cannot be completely avoided, but they must be controlled, given that the materialization of risks always comes at a higher price. Ideal metrics to explore include:
- Spending from non-approved and non-preferred suppliers.
- Maverick Expense as a percentage of total spending.
- Expenses without a contract and without a purchase order.
- Fraud detection by analyzing factors including expenditures close to approval limits and large expenditures without purchase orders.
4. Supplier base metrics
It helps to understand the performance of the existing supplier base and to identify opportunities to consolidate further, using, for example, more global contracts to secure better pricing. Procurement teams should consider the following analyses:
- Supplier performance metrics to measure actual performance against the SLAs and KPIs agreed in the contract.
- Accumulation of supplier baseto understand which geography/division has a high supplier base built up over the years, compared to recorded spend.
- Leverage product/service offerings from existing suppliers to cover multiple categories.
5 CPO Metrics
To understand the overall sourcing performance and efficiency of the Procurement team at the CPO or leadership team level:
- Acquisition cost per supplier
- Acquisition cost as % of revenues
- % expense under administration (Spend Under Management)
- % suppliers under management (Suppliers Under Managment)
- % single source categories / materials
