Detailed performance metrics contain the necessary data to enable the purchasing function to chart the effectiveness and efficiency of the firm’s overall purchasing effort and highlight areas for improvement. There are three dimensions to purchasing performance measurement.
Supplier Performance Measurement
Measuring the level of supplier performance is concerned with ensuring that the objectives, expectations, and agreements contracted between the buyer and supplier are being fulfilled. Supplier quality and reliability are key areas in this measurement.
Purchasing Department Performance
Regular evaluation of the purchasing function is needed to ensure that departmental activities are being optimized in the pursuit of value-added objectives. Critical areas of review include cost reduction and cost containment; supplier development; and the viability of internal procurement systems, processes, and personnel.
Continuous Improvement
Permeating both performance areas is a commitment to continuous purchasing management improvement. Successful companies consider continuous improvement as a way of life for suppliers, customers, and employees alike. Integrating purchasing performance measurement programs and continuous improvement objectives are fundamental building blocks of competitive advantage. Some of the categories for improvement in procurement include global sourcing, technology and Internet resources, and supplier relationship management (SRM).