If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first two installments, we began, and continued, a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the final 7 KPIs, addressing the remainder of the 21 KPIs outlined by Tanya.

Category & Spend Analytics

   Top All Spend Categories

Your top spend categories are not static, and nor are your top savings opportunities, as those are a subset of the top categories NOT currently under management — and that’s what you care about. This necessitates a great spend analysis solution that tracks spend in real time and allows you to track your top categories, filter those out not under contract/management, analyze price variance/market price to find your top opportunities, and then you can pursue those for opportunities.

   (Top) Maverick Spend Categories

Building on all spend categories, this focusses on the categories for which there are contracts, and are classified as “under management”, but where there is a lot of maverick spend that is costing the organization money and even customer of choice reputation with key suppliers. This requires a great e-procurement system that tracks all the spend and a great spend analysis system that analyzes the spend against the contractual requirements.

   Tail Spend

Tail spend might sound insignificant, if it’s only 30% of the spend, but the reality is that, because it is completely unmanaged, the average over spend across categories is 15% to 30%, which gives a savings potential of 4.5% to 6.0% on the spend vs maybe an average overspend of 5% on the upper spend categories that are partially to fully managed (without strategic sourcing decision optimization and advanced analytics) for a savings potential of maybe 3%. Thus, an e-Procurement solution that tracks and manages tail spend is absolutely crucial to spend under management, cost savings, and (future) cost avoidance.

Sustainability & Diversity

   Diverse Supplier Spend

This may not mean a damn thing in the “anti-woke” USA, and even be a turn-off to those white-skinned men related to the boss who acquire their position based on “merit”, but in most countries in the world, especially where there are government programs and incentives for diverse suppliers, where diversity actually improves your brand value, and where people are smart enough to realize that diverse views can actually bring ideas you wouldn’t have thought of into your supply chain, the ability to track and measure (but NOT mandate) this matters. This requires a good supplier management platform with deep profiles and the ability to correlate performance with innovation so buying organizations can determine the right level of diversity to have in their supply chain.

   Sustainable Spend

Again, while this may not mean a damn thing to American C-Suites with the American Federal Government rolling back environmental legislation to the early modern era to the point that Sourcing Innovation had to pen a piece on the Chief Sustainability Officer: USA Edition, this is very important in Europe and the Rest of the Developing/Developed world which has, and is continuing to introduce, environmental legislation and critically important to anyone with enough forward thinking to realize that the production of goods and services that require scarce and dwindling non-renewable resources, too much energy, or too much freshwater is coming to end due to shortages of raw materials, energy, and freshwater globally and sustainability is the key to corporate survival. Thus, a GHG, carbon, energy, and (fresh) water tracking solution, either as part of the supplier management or analytics platform, is becoming key to sustainable (and continually profitable) sourcing and procurement.

Innovation & Collaboration

   Joint Supplier Projects

You need the ability to create, manage, track, and report on projects that require supplier innovation/joint supplier development, especially in direct supply chain as this is critical to gaining, and maintaining, an edge in an ever-evolving marketplace. Suppliers will often hear of new techniques and production technologies and options before you will. Plus, you want them to be figuring out how to give you the best product at the best quality and the best price, otherwise, why are they your strategic supplier? This will require a great supplier onboarding, collaboration, development, and management platform.

   Idea Implementation Rate

You need the ability to not only track the number of ideas a supplier submits for quality, delivery time, or cost improvement, but how many are determined to have potential and how many ultimately get realized. This is important for two reasons. One, you want your suppliers to be helping you improve over time. Two, you want to focus on strategic relationships with suppliers that give you workable ideas you can use and do use over time. This also require a great supplier onboarding, collaboration, development, and management platform.

In other words, all of these KPIs require not only good solutions to track them, but great solutions to improve them. While these KPIs don’t necessarily dictate the full, appropriate, breadth of Source-to-Pay tech that you should have (because the sourcing and contract management platforms could be minimal to non-existent, etc.), they do provide a way to help you judge the appropriateness of a vendor if you can’t effectively judge the underlying technologies.

When looking for new ProcureTech software, simply include ALL of your Procurement KPIs in your RFP and require that the vendor’s response:

• indicate which KPIs it will improve,
• by how much it expects to improve those KPIs based on other customers usage and experience, and
• describe in detail how its solution will enable you to realize those improvements it is promising

while also requiring that the demo include an actual demonstration of the solution performing all of the indicated workflows and functions necessary to achieve the KPIs it promises. This will be much more appropriate than their typical bells-and-whistles show that, as per our recent series, looks great but, in actuality, is quite useless as those bells and whistles in the demo turn out to be cells and thistles in production.

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first installment, we began a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the next 6 KPIs, bringing our discussion to 14 total.

Compliance & Risk

   PO Compliance

This requires a good P2P (Procure to Pay) or I2P (Invoice to Pay) solution that can do 3-way match against the PO, the Invoice, and the good receipt to ensure that the supplier is honouring the contract pricing and the PO quantity, and ensuring this ensures that the cost savings you negotiate actually materialize.

   Contract Compliance

This requires a great P2P or I2P solution that can not only ensure the supplier is honouring the price and quantity, but also the lead time, quality, milestones and rebates that they promise. It also requires a great contract lifecycle management solution that can track the organizational’s obligations, such as hitting an order volume by a threshold to unlock a rebate or additional discount, reviewing a new product design or doing a quality test, or making investments/payments on time (to keep the supplier’s cost of capital, and your costs, down).

   Supply Base Risk

This requires a great SRM/TPRM or (spend) analytics solution that can build integrated risk cubes that allow you to determine your overall supply base risk by geography, category, or other relevant factor.

   % of Audited Suppliers

This will require a best of breed S(P/R/L/X)M+ / TP(R/C)M solution that tracks supplier audits and can tell you the percentage of suppliers who have been audited over the past quarter and year. This is especially important if you need to adhere to carbon/GHG regulations or there is a risk of labour exploitation in the supply chain.

Operational Efficiency

   Procurement Cycle Time

This requires a great P2P platform that tracks every action from requisition through RFQ through PO through acknowledgement through invoice through receipt (in the warehouse) through delivery to the requisitioner, can compute the average cycle time end to end as well as the average time in each step, because if the cycle time is longer than industry average, or not decreasing over time, it’s critical to understand which step is the problematic one.

   Automation Rate

This is key. Your automation rate for data processing and tactical tasks should be 90% or higher. There is no excuse today for anything less. And it doesn’t have to be new-fangled experimental Agentic AI that may or may not work. Classical RPA, finely tuned for various Sourcing and Procurement activities, is just fine, as long as you are not manually shuttling data from one system to another, setting up a sourcing event for something you’ve sourced before when the contract is coming up for renewal, manually doing that monthly PO to restock inventory when demand is steady/contracted and predictable, manually building those dynamic spend cubes and manually refreshing them, etc.

Come back tomorrow for the final set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, we are going to take the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to start with the first 8 (even though 8 is clearly not enough).

Cost Management

These KPIs will require you to have an e-Sourcing platform in place with good reporting, and/or a spend analysis platform in place with good category management (since, theoretically, if you like the extra work and headache, you can continue to source using e-mail and PDF/Excel templates and get good results if you are guided by a good category management solution and have a good analytics platform to compare the results).

   Cost Savings

You can’t compute, track, and present the cost savings KPI in real-time without an e-Sourcing solution with integrated reporting, or a modern spend analysis solution that updates the cube on every synch with the CLM and ePro system. Both improve your Sourcing focus!

   Cost Avoidance

This requires understanding the current market price vs. the price negotiated, which might be higher than the previous price. If the price paid under the last contract was $1.00 per unit, the current market price, due to supply shortages, is $1.30, but you negotiate $1.15 per unit, you have a cost avoidance of $0.15 per unit, which can be substantial if you need 100,000 units and would have to pay market price without a contract. Without a spend analysis solution that can pull in these market prices and your negotiated prices, it’s very hard to show the cost avoidance your team secures.

   Spend Under Management

This requires a top notch spend analysis system that can suck in all organizational spend across systems, categorize it against a sufficiently defined taxonomy, link each category that is under contract to the associated contract, and then compute spend under management vs. spend available to be managed vs. all organizational spend.

Supplier Performance

These KPIs will require you to have a good supplier management system in place that goes beyond simple onboarding and relationship management system (which even the suites have, even if clumsy), and allows you to truly track supplier performance and supplier ratings.

   Supplier Lead Time

In order to track supplier lead time, you need a good e-Procurement platform that tracks the lead time promised in sourcing, the date the order was placed, and the date the goods receipt was logged in the system. This way, you can track the average lead time across all orders as well as against the promise, and if the supplier is not meeting the promise, you know you need to order earlier and kick off a supplier development project.

   On-time Delivery

You need a good e-Procurement system to track both the delivery date vs. the expected delivery date based on the lead time, but the delivery date vs. the promised delivery date in the acknowledgement, because if a supplier indicates they need extra time for a larger than anticipated order, and you don’t cancel, they are on time if they meet the promised delivery date.

   Supplier Fill Rate

You need a good e-Procurement system to compare the order to the goods receipt to track the fill rate over time. This is critical because if the supplier keeps underdelivering, you risk costly stock-outs, which become more costly if they shut down production lines in a manufacturing or cause customers to start shopping at a competitor’s (online) storefront because the competitor actually has the stock they promise.

   Supplier Defect Rate

You need a good e-Procurement system or a good Supplier Management System to track the number of defects and compare that to the fill rate to track the defect rate, which is very critical, especially if you have SLAs that you are depending on when you make your orders (as a higher than allowed for defect rate could result in stockouts and even expensive production line shutdowns).

   Supplier Rating

This requires a top notch supplier performance management solution (which is a small fraction of the supplier management platforms); a top notch spend analysis system that allows you to build and analyze performance, compliance, and risk cubes; or a top notch SXM+/TP(R/C)M solution that allows you to build Supplier 360 ratings, which is critical to understanding how well your supply base is serving you and how well you are supporting your supply base.

Come back tomorrow for the next set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.