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Essential KPIs for sourcing department

Essential KPIs for sourcing department
Sarah Johansson
2 April 2022
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What are the most important KPIs in purchasing and what are their current values? And what has changed compared to previous years? Every year, the German Association of Materials Management, Purchasing and Logistics (BME) presents one of Europe's most comprehensive benchmark analyses on processes and costs in purchasing with its "Top KPIs in Purchasing". Below we have summarised the top ten key figures from the current analyses of 2021 and 2022 for you.

Definition: What exactly are KPIs

KPI stands for Key Performance Indicator. KPIs are key performance indicators that reflect the performance of a company. Companies use KPIs, for example in purchasing, to check the success of certain activities in the company. In this context, KPIs serve as a basis for information and documentation, for control and planning, as a basis for decision-making, for pointing out and observing developments, and as a basis for comparison.

The 10 most important KPIs in purchasing

Indicator 1: Purchasing costs

Hardly any other key figure in purchasing illustrates the efficiency of the processes like the purchasing costs related to the procurement volume. According to the BME, these have fallen from 1.7 to 1.66 per cent in 2019 compared to the previous year. In recent years, this value has always fluctuated between 1.5 and 1.7 per cent.

Indicator 2: Purchasing volume as a percentage of turnover

This key figure provides an overview of structural differences between individual sectors with regard to their own value creation. The figure has increased slightly to around 47 percent, but remains in the range observed over many years.

Indicator 3: Purchasing volume per employee

According to the BME, the purchasing volume per buyer has steadily declined over the past ten years as many purchasing departments have increased their staff. In 2019, the value is just under ten million euros per year.

Indicator 4: Costs per order transaction

For a long time, the benchmark for operational efficiency was well above 100 euros. After a decline to 97 euros in the 2018 evaluation, the costs have now risen sharply to 103 euros compared to the previous year. However, the considerable increase is primarily due to the information provided by a single company. Without this, the value would still be below the 100-euro threshold.

Indicator 5: Purchasing volume for which purchasing is responsible

The current BME report shows that purchasing covers the majority of the procurement volume in German companies. In recent years, the ratio has remained very stable at between 85 and 90 per cent, both for large companies and SMEs. The current value of about 87 percent is within the fluctuation range. However, the study also shows that a considerable part of at least 10 per cent of procurement still bypasses purchasing and is carried out by means of maverick buying.

Indicator 6: Purchasing volume through long-term contracts

This key figure is considered an important indicator for the necessary effort in purchasing, which is significantly lower for long-term contracts than for so-called spot orders. According to "Top key figures in purchasing 2018", the share of long-term contracts in the purchasing volume has remained almost unchanged at 50 per cent for years. Many of these long-term contracts are still processed manually, the share of automatically triggered orders has been stagnating for years.

Indicator 7: Further training costs

Requirements and job profiles in purchasing have changed massively in recent years. However, the study for 2018 shows that spending on continuing education in German purchasing departments is stagnating. There is no shortage of offers: the BME alone offers around 1,000 courses of various formats for further training in purchasing throughout Germany.

Indicator 8: Adherence to delivery dates and complaint rate

Delivery reliability and complaint rates are two of the most important KPIs in purchasing, as they provide insights into performance. Fortunately, both key figures have improved again according to the 2018 study: on-time delivery performance is high and the complaint rate is low.

Indicator 9: Call-off rate from framework agreements and catalogues

The call-off rate from framework agreements and catalogues is also part of the key figures in purchasing published by the BME. According to the 2018 study, almost half of all orders are now called off from framework agreements and catalogues.

Indicator 10: Payment term and cash discount

In the past years 2017 and 2018, the average payment term was 30 days, according to BME, and the volume processed via cash discount remained at 35 per cent.

Key figures remain stable - Purchasing must do more self-marketing

The figures from the current analyses of 2018 and 2019 confirm the trend of stable processes and structures in purchasing. Dramatic changes have not been observed. However, it also proved true that the implementation of the purchasing strategy in many companies did not take place as planned: every second purchaser is still rather operational.

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