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.
Target Date: Q2-2021
Visibility: All Employees
Decrease time taken to create and approve purchase requisition (PR) from 5 days to 3 days
Decrease time taken to create purchase order from 2 days to 1 day
Improve the perfect PO rate from 75% to 80% by next quarter
Target Date: Q2-2021
Visibility: All Employees
Decrease number of unplanned purchase orders from 20 to 15 per month
Maintain service level of 98% for every fast moving category to avoid shortages
Improve procurement plan by aggregating emergency orders to meet more than 90% of vendor minimum
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
Target Date: Q2-2021
Visibility: All Employees
Reduce the ratio of disputed invoices to total invoices from 21% to 10%
Control the difference of price paid and the price invoiced for every vendor not more than $5000 every month
Improve vendor availability from 90% to 98% to measure a vendor’s capacity to respond to emergency demands
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.
Target Date: Q2-2021
Visibility: All Employees
Reduce the number of defective items per thousand from 4 to 2 for every receipt
Streamline QA process by increasing certified vendors (100% OTIF fulfilment for 3 months continuously) from 10 to 25
Increase the RMA % from 90% to 95% for all products failing quality standards
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
Target Date: Q2-2021
Visibility: All Employees
Improve the fill rate of A category suppliers from 98% to 99%
Reduce the lead time for orders (PO receipt to shipment) from 7 days to 5 days, and not beyond the contractual vendor lead time
Improve the OnTime-InFull rate from 90% to 95%
Target Date: Q2-2021
Visibility: All Employees
Rationalize supplier base from 5 to 3 per category
Improve the discount rate from 2% to 5% for monthly order value > $10000
Increase the pay term period from 14 days to 21 days
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
Target Date: Q2-2021
Visibility: All Employees
Maintain the total cost of ownership (e.g., delivery costs, supplier management, life cycle costs, etc.) between 5%-10% of the total inventory cost
Reduce maverick spend in procurement from 5% to 1%
Increase discounts through payments on time from $100,000 to $200,000
Target Date: Q2-2021
Visibility: All Employees
Automate PO process to reduce the cost spent per invoice from $8 to $2
Reduce PO processing time from 1 hour to 30 minutes by adding mobile requisition and approval capabilities
Increase turnaround efficiency in the CCC process from 80% to 95% by reducing manual touchpoints and automating the workflow
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.
Target Date: Q2-2021
Visibility: All Employees
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)
Increase the procurement ROI (Annual cost savings / Annual procurement cost) from 5% to 10%
Increase the Spend Under Management score from 7 to 9 for procurement department
Description: The procurement cost can be optimized by both cost reduction and cost avoidance
Target Date: Q2-2021
Visibility: All Employees
Reduce the cost of labor associated with procurement from $40 to $20
Reduce the overall cost of procurement from $80 to $70 by eliminating the need to hire additional staff
Maintain unmanaged spend to be not more than 5% of the total procurement cost
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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