ANALYZING THE BEST KEY PERFORMANCE INDICATORS (KPI) IN BENCHMARKING PROCUREMENT MODELS
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1 ANALYZING THE BEST KEY PERFORMANCE INDICATORS (KPI) IN BENCHMARKING PROCUREMENT MODELS 18 February 2015 Melbourne Aurel Brudan CEO, The KPI Institute 198 Harbour Esplanade, Suite 606. Melbourne Docklands, VIC 3008, Australia T: M: E: aurel.brudan@kpiinstitute.com W:
2 Online resources Contact details Life.lab Building Suite 606, 198 Harbour Esplanade Melbourne Docklands, VIC 3008 Australia Web:
3 Nr. Match Statement Nr. Tool 90% 1 Target # Air temperature in the refrigerated storage 2 Goal # Employees in the procurement department 3 Initiative $ Average minimum cost of raising an order 4 Key Risk Indicator Complete 50% of the Purchasing Office implementation by 31/12/15 5 Key Performance Indicator Enable our staff to deliver compassionate care, by bringing together our people 6 and suppliers to optimize value and outcomes from our external resources Metric Hire Purchasing Advisory Service Manager 7 Milestone Improve awareness and compliance to procurement policies 8 Mission Statement Integrity 9 Objective Plan and coordinate procurement and logistics activities supporting 10 organisational excellence Process Procurement department transformation 11 Program Provide an efficient procurement practice 12 Task Purchasing Advisory Service establishment 13 Value Driver Requisition and purchase order processing 14 Value Statement Timeliness 15 Vision Statement
4 Nr. Match Statement 1 Target 90% 4 Key Risk Indicator # Air temperature in the refrigerated storage 6 Metric # Employees in the procurement department 5 Key Performance Indicator $ Average minimum cost of raising an order 7 Milestone Complete 50% of the Purchasing Office implementation by 31/12/15 15 Vision Statement Enable our staff to deliver compassionate care, by bringing together our people and suppliers to optimize value and outcomes from our external resources 12 Task Hire Purchasing Advisory Service Manager 9 Objective Improve awareness and compliance to procurement policies 14 Value Statement Integrity 8 Mission Statement Plan and coordinate procurement and logistics activities supporting organisational excellence 11 Program Procurement department transformation 2 Goal Provide an efficient procurement practice 3 Initiative Purchasing Advisory Service establishment 10 Process Requisition and purchase order processing 13 Value Driver Timeliness
5 1. % Perfect purchase order rate 2. Quality 3. Category management implementation finalised on time 4. Supplier performance 5. # Procurement employees 6. % Procurement projects delivered on time, budget and scope 7. # Purchase order cycle time 8. % Purchase spend under management 9. $ Procurement department budget 10. Achieve cost savings 11. # Procurement categories 12. % Procurement department employee engagement 13. Timeliness 14. Achieve negotiated cost reduction savings of $1,000,000 this financial year under the Head of Procurement s guidance KPI Definition: The measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity s activity. The KPI Institute (2015) line items on average per purchase order. The World of KPIs
6 1. % Perfect purchase order rate 2. Quality 3. Category management implementation finalised on time 4. Supplier performance 5. # Procurement employees 6. % Procurement projects delivered on time, budget and scope 7. # Purchase order cycle time 8. % Purchase spend under management 9. $ Procurement department budget 10. Achieve cost savings 11. # Procurement categories 12. % Procurement department employee engagement 13. Timeliness 14. Achieve negotiated cost reduction savings of $1,000,000 this financial year under the Head of Procurement s guidance KPI Definition: The measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity s activity. The KPI Institute (2015) line items on average per purchase order. The World of KPIs
7 1. METRICS KPIS- KRIS - ANALYTICS Metrics Measurement Performance Assessment KPIs KRIs Risk Assessment Analytics Decision Making 7
8 2. TERMINOLOGY STANDARDS Objectives KPIs start with start with $ = Value of Initiatives start with Verb # = Number of % = Percentage of Noun Increase customer satisfaction $ Revenue per client # Complaints received CRM software implementation % Customer satisfaction 8
9 3. UNDERSTAND SMART OBJECTIVES Option 1: Increase customers base to reach 20% market share by financial year end under Sales Director coordination. Option 2: Increase customers base Objective KPI Target Time Owner % Market share 20% By financial year end Sales Director 2 The Wrld of KPIs 9
10 4. EXTERNAL RESEARCH Most popular Procurement KPIs No. List 1 % Perfect purchase order rate 2 $ Negotiated cost reduction savings 3 % Supplier on-time delivery 4 % Purchase spend from sales revenue 5 # Safety stock 6 % Cost reduction savings in procurement 7 % Relationship established with certified suppliers 8 # Purchase order cycle time 9 # Purchase orders 10 % Key suppliers accounting for 80% of spending 11 % Invoice accuracy 12 % Purchase spend under management 13 $ Variable cost of placing order with supplier 14 % Cost avoidance savings in procurement No. List 15 $ Purchase spend per purchasing employee 16 % Contract compliance 17 % Procurement return on investment 18 # Requisition, purchase order, or invoice transaction volume 19 % Purchase spend controlled by purchasing 20 % Pending purchase order invoices 21 $ Activity-based cost of acquiring materials and services 22 % Transactions handled by the purchasing department 23 % Purchase spend offshore 24 % Purchase operating expense from purchase spend 25 % Payable invoices not matched to a purchase order 10
11 5. STRUCTURE PERFORMANCE ARCHITECTURE 11
12 6. PROCUREMENT DEPARTMENT SCORECARD 12
13 7. PROCUREMENT DEPARTMENT DASHBOARD National Health System, UK # Incidents where patients were affected by lack of product/service availability % Non pay expenditure captured electronic % Cost to procure to non pay expenditure % Procurement staff with formal procurement qualification Source: NHS (2013) 13
14 8. SUPPLIER SCORECARD a) 3 Perspectives Outcome performance Delivery performance Service excellence b) 8 Categories Outcomes Schedule Budget Communication Value add/innovation Delivery capability Responsiveness / Account Management Client satisfaction c) 24 Indicators Compliance with client requirements Quality and severity of defects The objectives of the engagement were achieved Timely delivery schedule Ability to meet interim milestones Ability to complete work within agreed upon budget Ability to control costs / Cost improvements over time Value for money / Competitiveness of pricing Provides effective and timely communication Service and product delivery problems were quickly resolved Documentation requirements / Understanding of business requirements Innovative in helping delivering solutions Understanding of the client s business processes and practices Understanding of the industry and market and how it applies to VG Technical skills and experience Personnel quality (i.e. independence and thoroughness) Overall project management Reasonable negotiations and contract, ease of doing business Effective, accurate and efficient billing system Flexible, accessible and responsive to inquiries Overall satisfaction with vendor deliverables and services Professional and cooperative behaviour with the client personnel Work ethic, flexibility and responsiveness 14
15 9. CONSIDER DATA VISUALIZATION PRINCIPLES Victorian Government Procurement, Australia % Delivery on time % Delivery in full % Cost to industry benchmark % Risks managed Source: Department of Treasury and Finance, Victorian Government Procurement (2013) 15
16 10. APPROACH BENCHMARKING WITH CARE A. Performance Benchmarking B. Organisational Benchmarking - Process, experience site visits 16
17 IN WORDS Vision: Change the world - More happy people, acting ethically in beautiful organizations and a sustainable environment. Values: Added value: offering more through innovation and value for money Best know-how: through own research and integration of multidisciplinary global expertise Common sense: respect, modesty and friendship Data and facts: expertise and opinions based on specific data Efficiency: key principle for prioritisation and getting things done Mission: Establish performance integration as a discipline through research, publications and educational programs. IN NUMBERS 4: offices in Australia, Europe, Middle East, SE Asia 5: continents on which we delivered training 10: years spent on researching KPI best practice 11: global partner organisations 20: countries where we delivered educational programs 50: staff members 75: countries with research clients 117: research reports published to date 2004: year of establishment 2,500: professionals trained 3,400: training hours delivered 20,475: KPI examples published on smartkpis.com 28,000: companies registered on smartkpis.com 73,000: members in our online communities 654,949: professionals reached through smartkpis.com 17
18 RESEARCH 18
19 PUBLICATIONS Top 25 KPIs Series Toolkits 19
20 EDUCATION For more details, consult our 2015 scheduled courses agenda: 20
21 CERTIFIED SUPPLIER PERFORMANCE PROFESSIONAL Highlights of the agenda: Supplier selection Supplier panels Service Level Agreements Development Contract management Supplier performance reporting governance Supplier scorecards and dashboards Supplier relationship management 21
22 REFERENCES Department of Treasury and Finance, Victorian Government Procurement (2013), Supplier scorecard. Available at: Supplier%20Performance%20Scorecard%20Tool%20(Appendix%206).XLS National Contract Management Association (2004), Creating and using supplier scorecards. Available at: National Health System (2013), NHS Procurement Dashboard: Overview. Available at: SmartKPIs.com (2015), KPI examples. Available at: Spider Strategies (2015), QuickScore. Available at: The KPI Institute
23 Headquarters Melbourne Office Life.lab Building 198 Harbour Esplanade, Suite 606 Melbourne Docklands, VIC 3008, Australia T: M: office@kpiinstitute.org European Division Sibiu Office Sibiu City Center Somesului Street, No Sibiu, Romania T: M: office@kpiinstitute.org Middle East Division Dubai Office The Fairmont Dubai Suite 13 - Office 2103, 21st Floor Sheikh Zayed Road, PO BOX , Dubai, UAE T: M: office@kpiinstitute.org SE Asia Division Kuala Lumpur Office Wisma UOA II 21 Jalan Pinang, Unit 11-10, Kuala Lumpur, Malaysia M: office@kpiinstitute.org Why choose The KPI Institute? Global expertise in: Strategy Management Performance Management KPIs and analytics Business Intelligence Rigorous research programs Extensive collections of publications Comprehensive educational programs Web:
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