§S8- Procurement
Performance Metrics
and Analytics
Abdullah Al Masud
• Establishing KPI
Things to • Drivers & Matrix
Cover • Procurement Analytics
Establishing KPI
The balanced scorecard is a
management system aimed at
translating an organization's strategic
goals into a set of organizational
performance objectives that, in turn,
are measured, monitored and changed
if necessary to ensure that an
organization's strategic goals are met.
Establishing KPI for Suppliers
Developing Key Performance Indicators (KPI)
Setting Key Performance Indicators (KPI’s) is important in order to be able measure performance and then
subsequently manage it effectively. KPI’s should be SMART which means Specific, Measurable, Achievable,
Relevant and Timely
Facilitated by Abdullah Al Masud
Supplier Performance Monitoring through KPI
Key Performance Indicators (KPIs): (Trent, 2010).
can be defined in SLA;
• general categories - cost of poor quality,
• delivery cost, inventory cost,
• response index, order fulfilment score,
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• order visibility score, returns/charge-back score;
• custom categories - vendor risk, innovation, customer complaints, corporate social
responsibility
KPIS for Performance monitoring
• Cost
ü Cost based Matrix
Suppler score card for Cost might include
• How stable the pricing of a particular product or services
• How accurate and timely the the processing of invoice is
• What cost reduction initiatives are in place.
o Cost reduction target (KPIs): savings_ CSF to KPI
Critcal success factor (CSF) Key Perfrmance Indcator Performance Measurement
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The cost of service delvery must The contractor is workng effectvely Cost vs budget report
remain within the budget with the employer to maintain costs Cost of variations
at the anticipated level Measurement of innovaton and
continious improvement proposals
KPIS for Performance monitoring
• Cost
ü Total Price performance score : at a scale of 0,2, 6,8,10 (Price quality ratio beneath to Exceeding Market avg)
Points Description
0 Price quality ratio beneth the maerket average and unexceptabily low
Unreasonbale cost resultng from total life cycle quality of the. Supplied product or service
2 Price qualty ratio bellow market average. Prce adjustments are rarely dscussed and agreed prior to
implementation. Sgnfcant cost incurred resultng from the total lfe cycle qualty of the supplyed produc/ service
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6 Price quality ratio reflects market average. Price adjustment are always discussed and agreed prior to
implementation. Acceptable additional cost incurred resultng from the total lfe cycle qualty of the supplyed
produc/ service
8 Price quality ratio exceeds market average. Price adjustment and implementation are only after discussione and
based on cost transperancy. Supplier initiatives decrease cost in the total value chain
10 Price quality ratio markedly exceeds market average and is outstanding.
KPIS for Performance monitoring
• Quality:
Garvin (1984) five major approaches to how quality is defined
Transcend approach: the view that equates quality with excellence-
User Based Approach: making of the product that is fit for the purpose and use.
Product Based approach: the view that the quality is precise and measurable.
Manufacturing based approach: the view that qualify is the manufacture of the product, precisely meets
specification.
Value based approach: A development of the manufacturing-based approach that incorporate both cost &
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price.
o SERVQUAL identifies 5 gaps that cause unsuccessful service delivery (the Gap Model)
• Gap between customer expectation and management thinking
• Gap between perception of management and the specification
• Gap between the specification and the service delivered
• Gap between service delivered and external communications
• Gap between service expected and service perceived
KPI for Quality
Performance
monitoring
o RATER’s:
Reliability, Assurance, Tangibles,
Empathy, Responsiveness
o Quality (KPIs)
o PPM: Parts Per Million
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KPIS for Performance monitoring
• Delivery:
Ø Delivery measures includes
ü Percentage of on time in full (OTIF)
ü Percentage of Early Delivery
ü Percentage of Late Delivery
ü Percentage of Delivery Over Order Qty
ü Percentage of Delivery under Order Qty
ü Percentage of Delivery with Correct Paper Works
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KPIS for Performance monitoring
• Delivery:
Ø Service-level agreement (SLA)
ü A service-level agreement (SLA): defines the level of service you expect from a vendor, laying out the
metrics by which service is measured, as well as remedies or penalties should agree-on service levels not
be achieved.
ü Service Credit: Compensation given by a supplier to buyer when service falls bellow the required level.
Facilitated by Abdullah Al Masud
KPIS for Performance monitoring
• Safety:
ü Health & safety and welfare of the management employees and contractors.
Project KPI for health and safety typically includes
§ Accident report;
§ Loss time as a result of accident;
§ Industrial accident rate (covering loss time, external medical treatment, basic first aid treatment etc.)
§ Accident avoided.
ü Safety Performance Index SPI= (LTI x C)/M:
§ LTI: Number of Loss time incident to date
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§ M: Total Man Hour expended to date
§ C: Constant employee working for full year
Critcal success factor (CSF) Key Perfrmance Indcator Performance Measurement
The service shall ensure safe and Health, safety and envronmental • Accident incident reports
stimulating envronment for stakeholder standards are regularly monitored. • Number of reportable accidents
Reviewed and maintained in • Audit non conformances
accordance with legal and regulatory • HSE reports
requirments. • Achievement of planned
environmental initiative
Drivers & Matrix
Drivers of Supply Chain Performance
• Facilities are the actual physical locations in the supply chain network where product is stored, assembled, or
fabricated. The two major types of facilities are production sites and storage sites. Facility costs show up under
PP&E (property, plant and equipment), if facilities are owned by the firm or under selling, general, and
administrative if they are leased.
• Inventory encompasses all raw materials, work in process, and finished goods within a supply chain. The inventory
belonging to a firm is reported under assets. Changing inventory policies can dramatically alter the supply chain’s
efficiency and responsiveness.
• Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form
of many combinations of modes and routes, each with its own performance characteristics.
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• Information consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and
customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply
chain because it directly affects each of the other drivers.
• Sourcing is the choice of who will perform a particular supply chain activity such as production, storage,
transportation, or the management of information. At the strategic level, these decisions determine what
functions a firm performs and what functions the firm outsources.
• Pricing determines how much a firm will charge for the goods and services that it makes available in the supply
chain. Pricing affects the behaviour of the buyer of the good or service, thus affecting supply chain performance.
Supply Chain Decision Making
Framework
• Most companies begin with a competitive strategy and
then decide what their supply chain strategy ought to be.
• The supply chain strategy determines how the supply
chain should perform with respect to efficiency and
responsiveness.
• The supply chain must then use the three logistical and
three cross-functional drivers to reach the performance
level.
• The supply chain strategy dictates and maximize the
supply chain profits. Although this framework is
generally viewed from the top down.
• A study of the six drivers may indicate the need to
change the supply chain strategy and potentially even the
competitive strategy.
SOURCING-RELATED METRICS
• Days payable outstanding measures the number of days between when a supplier performed a supply chain
task and when it was paid.
• Average purchase price measures the average price at which a good or service was purchased during the year.
•Range of purchase price measures the fluctuation in purchase price during a specified period. The goal is to
identify if the quantity purchased correlated with the price.
•Average purchase quantity measures the average amount purchased per order. The goal is to identify whether a
sufficient level of aggregation is occurring across locations when placing an order.
•Supply quality measures the quality of product supplied.
•Supply lead time measures the average time between when an order is placed and when the product arrives.
Long lead times reduce responsiveness and add to the inventory the supply chain must carry.
•Fraction of on-time deliveries measures the fraction of deliveries from the supplier that were on time.
•Supplier reliability measures the variability of the supplier’s lead time as well as the delivered quantity relative to
plan. Poor supplier reliability hurts responsiveness and adds to the amount of inventory the supply chain must
carry.
Procurement
Analytics
What is Data Analytics
Most companies are collecting lots of data all the time—
but, in its raw form, this data doesn’t really mean
anything. This is where data analytics comes in. Data
analytics is the process of analyzing raw data in order to
draw out meaningful, actionable insights, which are
then used to inform and drive smart business decisions.
A data analyst will extract raw data, organize it, and then
analyze it, transforming it from incomprehensible
numbers into coherent, intelligible information. Having
interpreted the data, the data analyst will then pass on
their findings in the form of suggestions or
recommendations about what the company’s next steps
should be.
What Is Procurement Analytics
Procurement analytics is the practice of
collecting, analysing, and reviewing data from
various sources to identify trends, anomalies,
and opportunities. When this is performed by
practitioners, the process is called procurement
analysis.
Organizations use it to make data-based
decisions, mitigate risk, maximize value and
predict future market conditions.
Often, when we see the word "data," our brains
are immediately flooded with concepts of boring
things like graphs and spreadsheets. But data
doesn't have to be intimidating! When data used
correctly, it can be the key to understanding
what your company needs to do to improve and
thrive.
Examples of Procurement Analytics
There are many different examples of
procurement analytics, such as:
•Spend analytics—the analysis of procurement
spend data from internal or external data sources.
•Supplier risk and performance analytics—
analysis of risk, performance, and sustainability
potential across the supplier base.
•Bid analytics—analysis of bids to determine the
best price, value, terms, and least risky options.
•Contracting analytics—analysis of contracts,
contract loyalty, and metadata.
•CO2 analytics—granular carbon tracking for
industrial decarbonization.
•Savings analytics—analysis of opportunities,
initiatives, and realized savings.
•Procurement benchmarking (price/rate/hours)—
comparing organizational performance to peers or
market benchmarks.
Examples of Procurement Analytics
1.Descriptive Analytics: This first step involves collecting information from various sources (including ERP
systems) to gain insight into past performance and identify trends across periods. This type of analysis may
include things like annual sales figures or inventory levels over time.
2.Diagnostic Analytics: Diagnostic analytics is done to understand the reasons behind current
performances or, in simpler terms, to run correlations and identify why it happened. A perfect example of
this type of analysis is having dashboards that provide drill-down functionality for deeper insights.
3.Predictive Analytics: Predictive analytics is based on correlations or patterns to predict the situation to
know when something will happen so that you can avoid it or lower its impact. An example of such
analyses is adding rule-based calculations to datasets to reveal cause-effect relationships.
4.Prescriptive Analytics: Prescriptive analytics is the process of using data and AI to predict future events
and make decisions about what to do when those events occur. These types of analytics use prescriptive
models to suggest decisions, actions, and implications so that you know what to do when something
happens.
Supplier Selection
Liner weighted model: Supplier Score 80
Score out of 100 Weightning Weighted score
Quality 80 40% 32
Price 70 30% 21
Delivery 90 30% 27
Analytical Hierarchy Process (AHP)
Select best
Goal suppplier
Quality Cost Time
Criteria
Supplier 1 Supplier 2 Supplier 3
Choices
Preference Numerical
Supplier Selection Rating
Extremely importent 7
Analytical Hierarchy Process (AHP)s 6
Strongly importent 5
Quality is strongly more important than price (5) 4
Quality is moderately more important than delivery (2) Moderately Importent 3
Price is strongly more important than Delivery (4) 2
Equally Importent 1
Quality Price Delivery Quality Price Delivery
Quality 1 5 2 Quality 1 5 2
Price 1/5 1 4 Price 0.200 1 4
Delivery 1/2 1/4 1 Delivery 0.500 0.250 1
1.700 6.250 7
Quality Price Delivery Total Weighting =
total/3
Quality 0.588 0.800 0.286 1.674 0.558
Price 0.118 0.160 0.571 0.849 0.283
Delivery 0.294 0.040 0.143 0.477 0.159
Thank you
