15 Procurement KPIs to Track in 2025

What are Procurement KPIs?

Key performance indicators (KPIs), also called metrics, are tools to measure how effective the company is at achieving its objectives and goals. These are the kinds of measurement tools that evaluate the efficiency of the performance in procurement. It helps the company to optimize and monitor spending, quality, cost, and time. 

Procurement KPIs allow project teams to monitor and share progress in a transparent and objective manner.

The purchase order cycle times are a crucial procurement KPI. Having a well-established KPIs can help companies to identify opportunities, manage supplier risks, and streamline the procurement processes.

KPIs to Implement to Assess your Process

1. Cost reductions

Many companies are looking for ways to minimize their cost by negotiating better prices on products and materials that they need. However, some do not recognize that efficiency improvements are what they need to assess to reduce the cost of labor.

Streamlining and automating your procurement processes can reduce your labor costs. Through automation, you can lessen the need for you to hire additional staff when your demand rises.

2. Savings

Cost savings make the top management happy with your procurement strategy and this can happen by using KPI to put hard evidence of the cost savings that you are generating in front of the top management. 

You can do this by keeping track of whether you will be able to get better prices when you switch to other suppliers. Additionally, to know your true savings figure, you should remember to assess and calculate unavoidable costs through KPIs.

3. Cost avoidance

Cost avoidance avoids potential extra costs that the company may incur in the future. This can be done by replacing the defective parts before they fail and damage the other parts. This is sometimes called soft savings. 

Through KPIs, you can develop a strategy to map your cost avoidance and combine it with the cost reduction for you to avoid future extra costs.

4. Total spending by suppliers

By using KPIs in this process, the company can find out how many suppliers it has. Through this, you will also know if you are getting the best deal out of all your suppliers. 

By consolidating the numbers of your suppliers, you can lower the costs by acquiring materials or services more affordably.

5. Procurement ROI

For many procurement professionals, procurement ROI is the most important KPI. However, it should be analyzed with the other metrics to see the bigger picture. 

In calculating the procurement ROI, you will need to divide the annual cost savings by the annual internal cost and express it as a ratio. If the procurement investments are low, it is more applicable to measure hard cost savings mainly without the avoidance and other value chain improvements.

Additionally, setting it higher than the internal investment for the procurement department is a good target for your company.

6. Spend under management

Spend under management refers to the part of procurement spending that is controlled and regulated by management. As an organization increases its spend under management, its capacity to optimize costs and accurately forecast expenses improves accordingly.

Through this metric, companies can ensure better compliance with procurement policies, leverage supplier relationships, and identify opportunities for cost savings. This, in turn, helps to drive strategic decision-making and enhances overall financial performance. To get this, you subtract the total approved spend which includes the direct, indirect, and service-related costs to the Maverick spend. 

7. Price competitiveness

Often, a situation wherein there is limited competition among suppliers could result in fewer suppliers dominating the market. To prevent this, organizations now focus on shortlisting vendors that provide a clear competitive advantage.

Price competitiveness can be assessed by comparing the prices paid to market rates which can be done through procurement digital platforms. 

8. Purchase order cycle times

You may ask yourself, how quickly does your company place a purchase order? The purchase order cycle times are a crucial procurement KPI. It demonstrates the efficiency of the operation and procurement efforts of the company against other companies. 

By having a purchase order cycle times KPI, you can reduce the overall cost and productivity of the procurement functions. The productivity of your staff can be further enhanced by reducing the cycle time of your purchase orders.

To get this, you measure the hours or days from the time a purchase requisition is submitted to the time when it is transported to a contractor. 

9. Lead time

Supplier lead time refers to the time taken from the moment a supplier receives an order to the moment when the order is shipped. This is usually measured in days.

This is quite essential for inventory management and planning since shipping delays often disrupt supply chains and result to production rescheduling due to such delays. By applying this metric, buyers can assess the reliability of their suppliers. You can get the lead time by subtracting the delivery time to the purchase order time. 

10. Contract compliance

To know if you are getting the best deal from the contract you have signed with your supplier, you must check if they are following all the terms of the contract. 

You must create a contract compliance KPI in ensuring that you can make your suppliers accountable for what they have promised in the contract. If they comply with all the requirements, the company will see more opportunities for collaboration and growth.

11. Emergency purchase ratio

The emergency purchasing ratio highlights the frequency of unplanned orders, which often occur when a business anticipates shortages of products or services. They usually come at higher costs, so maintaining a low ratio is the key to improve efficiency.

Tracking the number of emergency purchases is important for evaluating the effectiveness of a business’s procurement strategy. Although occasional emergency requests are normal, many unplanned purchases indicate poor planning. This can be measured by the percentage of emergency purchases to the total number of purchases over a fixed period.

12. Supplier quality rating

If your company has plans to manage current and future relationships, this metric would be important since it tracks factors such as defect rates, damaged goods, and returned goods.

By monitoring these metrics and using data-driven insights, businesses can negotiate better contracts, set clear performance goals, and ensure dependable supplier relationships.

13. Supplier availability

This KPI will measure how well a supplier responds to urgent needs, helping businesses evaluate the supplier’s reliability.

By monitoring supplier availability regularly, businesses can now assess a supplier’s dependability. A higher supplier availability indicates a well-functioning supply chain.

14. Supplier defect rate

This measures the ratio of defective products to the total units inspected, often expressed as defects per million. It lets the company evaluate product quality and gain insights into supplier performance by breaking down defects by type.

This can help businesses identify issues, improve vendor reliability, and ensure high-quality production. You can do this by dividing the number of substandard products to the total number of units actually tested.

15. Vendor rejection rate and costs

They provide valuable insights into a company’s internal quality management strategy.

Regularly tracking these metrics can help identify root causes for the increase or decrease in rejection rates and costs to allow businesses to address issues or maintain pacing. This, in turn, help improve future performance.

The Need for KPIs in Procurement

The procurement process is not the simple procurement that people are used to before. It has grown into a business function that plays a crucial part in the growth of the business. Thus, the need for procurement KPIs is greater than ever. 

It is also obvious that you cannot improve something if you cannot measure it. By using KPIs, you can measure the efficiency of the procurement process which plays a critical role in the supply chain when an emergency or economic downturn arises. 

Without the KPIs in procurement, the company may not be able to see opportunities to improve its procurement and supply chain. Additionally, the company may not be able to see the problems which may turn into problems in the long run that will harm its growth. 

Procurement KPIs also help procurement managers create data-driven process improvement decisions that will help the company enhance its process and its employees.

These are also some of the reasons why KPIs are needed in procurement:

• Assesses the efficiency of the procurement management of a company
• Streamlines the spending, time, quantity, and acquisition of goods and services of the company
• Allows procurement managers to make informed decisions through the data
• Aligns the procurement process with the objectives and goals of the company
• Empowers the company to decide on what to improve with their process and competitive strategy. 

Conclusion

The adoption of procurement KPIs is imperative for companies aiming to thrive in a competitive market. These metrics provide a comprehensive understanding of procurement efficiency, allowing for informed decision-making, cost reduction, and strategic alignment with organizational goals. Through KPI implementation, companies can proactively address challenges, seize opportunities, and optimize their procurement processes for sustained growth.