Key Performance Indicators (KPI):
If its
 KPI is a measurable value that
demonstrate how effectively a company
is achieving.
 KPI can assist an organization in defining
and measuring its progress. KPI’s are
quantifiable measurements of the
improvement in performing an activity
that is critical to business success. KPI
needs to complement the overall targets
of an organization and relate to its key
activities.
StrategicPurchasing:
 KPI’s for Supply Management:
 Customer Service – satisfaction of the
customers for services and goods
received.
 On – Time Delivery – requested
products delivered within requested
timeline.
 Inventory Accuracy – actual inventory
on hand correctly reflected in inventory
records.
 Cost of Quality of Goods – the quality
of the goods, materials and services
received.
 Lead Time – time spent in the
acquisition process
Strategic Purchasing:
 Criteria for Measuring Purchasing
Performance
 Purchasing Functionality
– performance is measured against the
functional requirements of the purchasing
function. The primary function of the
department is to provide the correct
items at the required time at the most
competitive costs as possible.
 Purchasing Efficiency
– administrative costs are the basis for
measuring purchasing efficiency. It relates to
how well the purchasing department is
performing in the activities they are expected
to perform against their budget.
operating costs are within the budget, then
the efficiency of the purchasing department
will exceed expectations. If it is using the
funds over and above the budget then the
purchasing function is not efficient.
Purchasing Effectiveness – a popular
method of assessing purchasing
effectiveness is to review the inventory
turnover ratios, the ratio measures the
number of times, on average, the inventory
is used during the period. The ratios is used
to measure the liquidity of the inventory.
Purchasing Proficiency – this measures
the abilities of the purchasing department to
be able to contribute to the overall
profitability of the organization in relation to:
 Generating cost savings for the
company.
 Increased quality, thus, reducing
wastes.
 Improving and shortening ordering
lead times.
 Transportation improvements.
Strategic Purchasing:
Approaches to Strategic Purchasing:
 Analyzing how money is spent for
purchases. Spend Analysis will reveal
way to make the process more efficient
and possibly save the company time and
money.
o Spend Analysis - is a strategic
purchasing teams examine the
amount of money they spent in
each category of goods and
services and use this analysis to
identify opportunities for
improvement.
 Staying on top of current and projected
needs of the company is also
 part of strategic purchasing.
 It also involves in building rapport
between buyers and suppliers by
improving ordering leadtimes, lowering
inventories, and reduced
product costs.
Approaches to Strategic Purchasing:
 The use of strategic planning also means
automating as much of the planning
process as possible. This free purchasing
staff to focus on other aspects of the
purchasing process and this increase the
changes of using available resources with
more efficiency.
 In the end, these approaches are all
about buying habits, processes, and
behaviors so that the company enjoys the
most benefit. From this perspective,
strategic purchasing is not an event, but
an outgoing process that involves the
interaction of purchasing professionals
with suppliers, and the management arm
of the company.  and regularly spend time meeting with
STRATEGIC PLAN:
 Purchasing managers should have a
strategic plan, and then use effective
buying tactics to carry it out.
 By definition a “Strategy” is a plan to
reach long – term goals that takes one
year or longer to complete.
 Strategy gives direction while tactics form
the basis for handling the various battles
of the day.
Strategic Purchasing Planning:
 Strategic Purchasing Planning seeks to
identify critical long – range supply
issues, and to foresee sourcing changes.
 This reduces uncertainty by formalizing
analytical and creative thinking in cost
reduction.
 Strategic Purchasing Planning is a
necessity for purchasing to become
predictive and proactive, rather than
reactive with short – term problem
solving.
 Interpreting the strategic implications of
global supply assurance for the company
is a purchasing management
responsibility.
Transforming Your Purcahsing Department
from Tactical to Strategic
 12 Characteristics of Strategic, in

contrast to Tactical:
Spend Analysis
– is a strategic purchasing teams
examine the amount of money they spent
in each category of goods and services
and use this analysis to identify
opportunities for improvement
 Supplier – Relationship Management
– measures the supplier performance
suppliers to implement improvements.
 Technology Implementation
– frequently update and add technologies
that measurably reduce costs, decrease
cycle time and make the process more
efficient.
 Develop Project Plans
– use project measurement practices to
map out both recurring activities and one
– time projects.
 Enterprise – Wide Contracts
– consolidate spend across all parts of
the firm and enter into contracts with a
limited supply base to serve the needs of
the entire firm.
 InvolvementSpecificationDevelopment
– are involved at the early stages of
specification development, lending
 specialized knowledge in materials
availability, cost drivers, standard parts,
and reliability of supply.

 Development of Productivity Tools –

develop tools so repetitive tasks can be
done more quickly and error free.
 Supplier Development – don’t blindly
accept the suppliers and products that
are currently available. They work with
suppliers to develop need capabilities or
products that will improve cost or quality.
 Work Responsibility Refinement
– constantly identify ways to automate,
delegate or eliminate tactical, non –
value added work.
 Forecasting
– regularly document changes that they
forsee in price levels, availability, and
markets to ensure a competitive
advantage for their companies.
 Risk Management
– involves in identifying risk in
procurement contracts, analyzing and
developing mitigating responses to risks.
 Category Management
– is a structured approach to the
procurement of goods and services and
applies best practices tools and
techniques in the development and
implementation of an integrated category
strategy aligned to the organization
needs.