• April 27, 2021

Procurement Performance: How to Measure Procurement Performance in 9 Easy Steps

The purpose of measuring procurement performance is to provide feedback to people on the achievement of the objectives and goals that have been set. The way to do this is to decide what should be measured, set goals for the level of performance you want, compare current performance against those goals, decide what action (if any) needs to be taken, and then verify that the action has been accomplished. it has been taken and it has been effective.

Here’s a simple 9-step process on how to measure procurement performance.

1. Write down your key objectives. Remember that a goal is a broad statement of your intentions and an objective is a means to achieve the goal. It has a beginning and an end and is measurable. For example, our acquisition objective could be to achieve significant benefits for our organization. So our goal could be to reduce costs in the next 12 months by achieving an average price reduction of 5% through better sourcing strategies. Your primary goals should be traceable to your corporate goals to show how your role supports the organization.

2. Identify the activities that are critical to achieving those goals. In our example, critical activities could be assessing supply risk for those categories that account for 80% of our total spend and developing sourcing strategy options for high-spend and high-risk categories.

3. Decide the best way to measure those activities. For our example, this could be having a governance process that approves the sourcing options we develop, so one way to measure activity would be to measure the percentage of sourcing strategies approved versus the number shipped.

4. Set objectives for activities. Now that we have a way to measure critical activities, we must set goals. In our example, this could be to have an initial goal of accepting 60% of the sourcing strategies submitted for review.

5. Decide what data you need to collect. The data you need is determined by the performance measure that you set.

6. Assign responsibilities. The data is not collected, analyzed or reported on its own. These tasks should be assigned to those who have the skills and abilities to perform them. Having the time to do so can be a problem that needs to be addressed by examining your priorities and re-establishing them as necessary.

7. Turn data into meaningful information. Data alone is generally meaningless, it is just a collection of facts. However, when you have processed, organized and structured it, you have created information, intelligence that allows you to act. For example, data that tells you how much was paid for a list of items is not valuable on its own. When you have processed it so that you have an analysis that shows that you have paid different prices for the same item to different suppliers, you have useful information.

8. Communicate the results. You need to communicate your performance measures. This is because different people at different organizational levels will act on them. In particular, the results of your measures must be linked to processes, improvement projects and the people responsible for both. This needs a performance management system.

9. Take action. Knowing that performance measures exceed or fall short of the goals you have set is useless unless someone takes action. This can be a corrective action to get you back to normal or an action to further improve performance.

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