Key performance indicators (KPIs) are how organizations measure success. Supplier management KPIs assure that value is received for the money spent with suppliers and vendors while keeping one eye on cost savings.
When evaluating your organization’s supply chain, you can review several areas, such as:
- Lifecycle Management: onboarding, change management, and off-boarding.
- Supply Chain Management: implementation of internal policies that govern suppliers and supplier performance.
- Performance Measurement: understanding whether goods and services received are what was agreed upon and delivery was timely.
- Contract Management: legal agreements and contracts with suppliers are agreed upon.
- Relationship Management: measuring satisfaction and efficiency with suppliers and vendors.
Supplier management across the entire lifecycle can be difficult because of the sheer number of vendors and suppliers a corporate organization typically uses. KPIs will help drive effective and efficient supplier management by setting targets and establishing lead times.
Finding a scalable way to track these aspects of the relationship is critical, however, because if you don’t measure something, how can you improve it? Moreover, if there are no benchmark metrics, how can you judge whether improvements have happened?
Neglecting measurement of the procurement process can result in lost opportunities for cost-savings, degraded profitability and customer satisfaction, unhappy vendors, and a lack of insight into the gaps or areas for improvement that can benefit the business overall.
There’s also a security and risk management aspect to supplier management as well. KPI measures can indicate negligent or high-risk vendors that have a high likelihood to become a risk in the future. Let’s take a look at some of those KPIs.
Supplier Management KPIs to Consider
There are several specific KPIs to consider when conducting vendor performance reviews.
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Compliance Metrics
As an organization with compliance obligations, you’re not only responsible for your own requirements, but for your suppliers as well. Including compliance in vendor management can help to uncover potential issues that can be mitigated before surprise costs or regulatory penalties occur.
KPIs might include the ratio of disputes to total invoices, or the ratio of orders where the price paid was over the price quoted against orders where both figures were the same.
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Defect Rates
Another important performance management KPI is the defect rate, because that is a strong indicator of vendor quality. The defect rate can be figured by dividing the number of defective orders into the total number of orders.
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Order Accuracy
Accuracy is another vital procurement KPI. Higher accuracy can result in lower costs, so it’s important to understand which vendors aren’t living up to your standards.
KPIs include a ratio of the number of times an order was delivered and completed accurately to total orders over a period of time.
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Supplier Lead Time
Supplier lead time is a supply chain KPI that measures the amount of time passed between receipt of an order and its delivery time. Longer lead times over a period of time can indicate degraded procurement performance.
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PO Cycle Lengths
The purchase order cycle time measures the time an order is submitted to the time when it is sent to a supplier and spans the entire ordering process.
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PO/Invoice Costs
Cost per purchase order or invoice may look different for each organization and can vary. The objective here isn’t cost avoidance, but rather to understand the components involved in the total cost and comparing it over time as well as against other vendors.
This can help to identify areas for improvement. That might be whether to source to a less expensive vendor or perhaps automating aspects of the purchase order or invoicing process.
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Procurement Return on Investment (ROI)
Procurement ROI helps to determine the cost-efficiency of a procurement strategy overall as well as the investments that have gone into it. It can be determined by dividing annual cost savings into annual procurement costs.
Supplier Management Made Easy
As stated previously, vendor management can be time-consuming and cumbersome — particularly when you’re trying to do it manually with spreadsheets and legacy systems.
A GRC compliance management platform like ZenGRC can help you to streamline vendor risk management through the automation of tedious manual tasks, allowing you to understand vendor risk at a high level.
Our easy-to-use risk management templates provide the framework you need to properly evaluate risk, while our user-friendly dashboard centralizes your monitoring efforts in real-time so you always know where you stand.
ZenGRC automates your risk management workflows so you can quit sweating the details and focus on tasks that grow your business, like nurturing your vendor relationships and creating a collaborative environment that allows you both to thrive.
Worry-free vendor risk management is the Zen way. Find out more by booking a free demo of our software today.
