Procurement OKRs

Category: Procurement OKRs.

Introduction

Procurement, as a function, is an evitable aspect of all business organizations. A procurement process is a series of steps that an organization identifies and follows in order to obtain goods or services for fulfilling its business goals and objectives. So while planning for a procurement, it is critical to foresee and prepare for the execution strategically, which inturn helps to progress through the procurement cycle smoothly, right from placing a requisition till receiving the goods.

Procurement accounts for spending an organization’s revenue on acquiring goods and services and so it has a direct impact on cost savings objectives. Apart from achieving cost savings objectives, an effective procurement process helps an organization to enhance supplier performance, compliance, risk management, contract utilization, and sourcing cycle time.

A well-implemented procurement process enables an organization to secure higher visibility into stakeholder performance. Greater transparency helps organizations enforce higher compliance in terms of costs, quality of goods/services, etc. In order to enforce visibility, transparency and accountability, the organization can use goal setting frameworks like OKRs to track the efficiency of the procurement process. With OKRs, a procurement department can define it’s top priorities, align them with company-level goals or other departmental OKRs, and see great results to reap benefits.

What builds a great procurement OKR? Let’s take a look at 10 excellent examples of procurement OKRs that encapsulate the responsibilities of the procurement department, and also certain KPIs and metrics that must be kept in mind while setting targets and outlining initiatives for procurement. Focus on the listed examples and use them as a starting point to help identify your business priorities and develop OKRs that help you drive progress and positive outcomes in your procurement department.

Procurement Cycle

Description: This measure calculates the number of days required to pay suppliers from the time a purchase order is placed until the time payment is complete. It is part of a set of Cycle Time measures that help companies analyze the duration of the process “procure materials and services” from beginning to end.

#1: Optimize procurement cycle time

objective-circle-iconObjective

David Griffin

Optimize procurement cycle time

30%

Target Date: Q2-2021

Visibility: All Employees

key-icon1Key Results

Decrease time taken to create and approve purchase requisition (PR) from 5 days to 3 days

Q2-2021 decrease-icon PO Cycle Time
5 Day(s) 3 Day(s) 4 Day(s)

50%

Decrease time taken to create purchase order from 2 days to 1 day

Q2-2021 img-roger-smith-assignee1 decrease-icon2 PO Cycle Time
2 Day(s) 1 Day(s) 3 Day(s)

36%

Improve the perfect PO rate from 75% to 80% by next quarter

Q2-2021 img-alice-assignee1 increase-icon Perfect PO
75% 90% 77%

40%

#2:Reduce the rate of emergency purchases

objective-circle-icon2Objective

David Griffin

Reduce the rate of emergency purchases

9%

Target Date: Q2-2021

Visibility: All Employees

key-icon2Key Results

Decrease number of unplanned purchase orders from 20 to 15 per month

Q2-2021 increase-icon2 # of unplanned purchase order
20 15 19

20%

Maintain service level of 98% for every fast moving category to avoid shortages

Q2-2021 img-roger-smith-assignee2 Control-KPI-icon Service Level
49% 147% 63%

4%

Improve procurement plan by aggregating emergency orders to meet more than 90% of vendor minimum

Q2-2021 img-alice-assignee2 Control-KPI-icon2 VMIN order rate
45% 135% 52%

2%

Procurement Quality & Compliance

Description: Contractual and policy compliance are pivotal to ensure legal security. If these compliance rates dip down, they can spike up indirect and maverick spend. A foolproof purchasing contract with clearly defined penalties can improve the compliance rate

#3: Improve compliance rate

objective-circle-icon3Objective

David Griffin

Improve compliance rate

15%

Target Date: Q2-2021

Visibility: All Employees

key-icon3Key Results

Reduce the ratio of disputed invoices to total invoices from 21% to 10%

Q2-2021 decrease-icon3 Dispute Ratio
21% 10% 19%

18%

Control the difference of price paid and the price invoiced for every vendor not more than $5000 every month

Q2-2021 img-roger-smith-assignee3 control-KPI-icon3 Dispute Ratio
$2500 $7500 $3526.86

2%

Improve vendor availability from 90% to 98% to measure a vendor’s capacity to respond to emergency demands

Q2-2021 img-alice-assignee3 increase-icon3 Vendor availability
90% 98% 92%

25%

#4: Improve quality process

Description: By ensuring that the purchased products are of a specific quality, as defined by the quality standards, the purchasing department is ensuring that the quality of the products for customers is maintained.

objective-circle-icon4Objective

David Griffin

Improve quality process

26%

Target Date: Q2-2021

Visibility: All Employees

key-icon4Key Results

Reduce the number of defective items per thousand from 4 to 2 for every receipt

Q2-2021 decrease-icon5 # of defective items
4 2 3

50%

Streamline QA process by increasing certified vendors (100% OTIF fulfilment for 3 months continuously) from 10 to 25

Q2-2021 img-roger-smith-assignee4 baseline-icon # of certified vendors
0% 100% 10%

55

10%

Increase the RMA % from 90% to 95% for all products failing quality standards

Q2-2021 img-alice-assignee4 increase-icon4 RMA %
90% 95% 91%

20%

#5: Improve supplier performance to fulfil the order

Description: Vendor performance management refers to the monitoring and analyzing of the reliability, quality, and performance of the org’s vendors. It helps to boost efficiency and profits, reduce stock levels and inventory costs, and improve (both internal and external) customer satisfaction

objective-circle-icon5Objective

David Griffin

Improve supplier performance to fulfil the order

57%

Target Date: Q2-2021

Visibility: All Employees

key-icon5Key Results

Improve the fill rate of A category suppliers from 98% to 99%

Q2-2021 increase-icon5 Fill rate
98% 99% 99%

100%

Reduce the lead time for orders (PO receipt to shipment) from 7 days to 5 days, and not beyond the contractual vendor lead time

Q2-2021 img-roger-smith-assignee5 decrease-icon4 Lead Time
7 Day(s) 5 Day(s) 6 Day(s)

50%

Improve the OnTime-InFull rate from 90% to 95%

Q2-2021 img-alice-assignee5 increase-icon6 OTIF
90% 95% 91.1%

22%

#6: Reduce procurement spend

objective-circle-icon6Objective

David Griffin

Reduce procurement spend

31%

Target Date: Q2-2021

Visibility: All Employees

key-icon6Key Results

Rationalize supplier base from 5 to 3 per category

Q2-2021 decrease-icon6 Supplier base
5 3 4

50%

Improve the discount rate from 2% to 5% for monthly order value > $10000

Q2-2021 img-roger-smith-assignee6 increase-icon7 Vendor Discount
2% 5% 2.4%

13%

Increase the pay term period from 14 days to 21 days

Q2-2021 img-alice-assignee6 increase-icon8 Pay Term Period
14 Day(s) 21 Day(s) 16 Day(s)

29%

#7: Optimize the procurement cost to get better prices by controlling the total cost of ownership

Description: Cost savings remains a fundamental, pivotal metric to measure the success of the procurement function. Consider the time value of money to optimize procurement strategy and increase the cost savings

objective-circle-icon7Objective

David Griffin

Optimize the procurement cost to get better prices by controlling the total cost of ownership

12%

Target Date: Q2-2021

Visibility: All Employees

key-icon7Key Results

Maintain the total cost of ownership (e.g., delivery costs, supplier management, life cycle costs, etc.) between 5%-10% of the total inventory cost

Q2-2021 control-KPI-icon4 TCO
5% 15% 6.1%

50%

Reduce maverick spend in procurement from 5% to 1%

Q2-2021 img-roger-smith-assignee7 decrease-icon7 Maverick spend
5% 1% 4%

25%

Increase discounts through payments on time from $100,000 to $200,000

Q2-2021 img-alice-assignee7 increase-icon9 Discount Cost
$100K $200K $109.59$

10%

#8: Implement process automation to improve efficiency and cost savings

objective-circle-icon8Objective

David Griffin

Implement process automation to improve efficiency and cost savings

18%

Target Date: Q2-2021

Visibility: All Employees

key-icon8Key Results

Automate PO process to reduce the cost spent per invoice from $8 to $2

Q2-2021 decrease-icon8 Cost per invoice
$8 $2 $6.63

23%

Reduce PO processing time from 1 hour to 30 minutes by adding mobile requisition and approval capabilities

Q2-2021 img-roger-smith-assignee8 decrease-icon9 PO Processing Time
60 Min(s) 30 Min(s) 54 Min(s)

20%

Increase turnaround efficiency in the CCC process from 80% to 95% by reducing manual touchpoints and automating the workflow

Q2-2021 img-alice-assignee8 increase-icon11 Turnaround Efficiency
80% 95% 81.8%

12%

#9: Control every dollar of procurement to be placed under management

Spend under management compares strategic sourcing expenditures on products and services against overall expenditures in a given fiscal period. As an organization’s spend under management rises up, its ability to optimize cost and forecast expense increases with it.

objective-circle-icon9Objective

David Griffin

Control every dollar of procurement to be placed under management

29%

Target Date: Q2-2021

Visibility: All Employees

key-icon9Key Results

Increase the cost savings from 6% to 12% by ensuring SUM procurement spend dollar is under management (Total approved spend (i.e., direct, indirect, and service-related cost ) – Maverick spend)

Q2-2021 increase-icon10 SUM
6% 12% 7%

17%

Increase the procurement ROI (Annual cost savings / Annual procurement cost) from 5% to 10%

Q2-2021 img-roger-smith-assignee9 increase-icon12 Procurement ROI
5% 10% 6%

20%

Increase the Spend Under Management score from 7 to 9 for procurement department

Q2-2021 img-alice-assignee9 increase-icon13 SUM
7 9 8

50%

#10: Optimize procurement cost of the organization

Description: The procurement cost can be optimized by both cost reduction and cost avoidance

objective-circle-icon10Objective

David Griffin

Optimize procurement cost of the organization

11%

Target Date: Q2-2021

Visibility: All Employees

key-icon10Key Results

Reduce the cost of labor associated with procurement from $40 to $20

Q2-2021 decrease-icon10 Labor cost
$40 $20 $37.04

15%

Reduce the overall cost of procurement from $80 to $70 by eliminating the need to hire additional staff

Q2-2021 img-roger-smith-assignee10 decrease-icon11 Labor cost
$80 $70 $78.37

16%

Maintain unmanaged spend to be not more than 5% of the total procurement cost

Q2-2021 img-alice-assignee10 Control-KPI-icon5 Unmanaged spend
2% 8% 3%

2%

Conclusion:

Procurement has started its journey towards becoming a long-term strategic function of an organization in contrast to its tactical past. An effective procurement process ensures higher process efficiency at every stage of a procurement cycle in an organization. OKRs can serve as a great starting point to help organizations track a well-structured and effective procurement process.

To stay committed to aligned goals, plan your OKRs with company-level priorities and define dependencies proficiently. Use Profit.co integrations to automate KPI updates, or complete weekly check-ins to make sure you are staying on track. Implementing well-defined and trackable procurement OKRs can help transform the level of progress that you can achieve in your organization.

For more information on how to write great OKRs and to see more examples of OKRs for all your departments, don’t forget to check out our blog!

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