PROCUREMENT

METRICS AND
MATHEMATICAL
FORMULAE
SUPPLIER: CLOUD SERVICES PROVIDER (CSP)
SERVICE: HOSTED ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM
Acceptable Measurement
Performance Metric Description Impact of Non-Compliance
Level Frequency

Percentage of
Service credit of 1% of monthly
time the ERP
Uptime 99.95% Monthly fee for each 0.01% below
system is
99.95%
available

Time taken to
acknowledge and Escalation to next-level support
Response Time (P1 Incidents) 15 minutes Per incident
begin working on after 30 minutes
critical incidents

Time taken to
Service credit of 20% of hourly
Resolution Time (P1 Incidents) resolve critical 4 hours Per incident
rate for each hour over 4 hours
incidents

Time taken to
acknowledge and
Escalation to next-level support
Response Time (P2 Incidents) begin working on 30 minutes Per incident
after 1 hour
high-priority
incidents

Time taken to
Service credit of 10% of hourly
Resolution Time (P2 Incidents) resolve high- 8 hours Per incident
rate for each hour over 8 hours
priority incidents

Percentage of
planned system Root cause analysis and
Change Management Success
changes 99.5% Monthly corrective action plan required
Rate
implemented for each failed change
successfully

Any loss of Termination of agreement and

Data Loss Zero tolerance Quarterly
customer data potential financial penalties

Prompt
Detected security notification and Escalation to senior
Security Incidents breaches or remediation Per incident management and potential
vulnerabilities plan within 24 regulatory reporting
hours

@RAVI NISHANT
 CATEGORIES
COVERED

PROCUREMENT DIRECT
CAPEX
FOR PROJECTS MATERIALS
PROCUREMENT
PROCUREMENT

PROCUREMENT
SERVICES LOGISTICS AND
FOR
PROCUREMENT TRANSPORTATION
MERCHANDISING

CONTRACT SUSTAINABILITY PACKAGING

MANAGEMENT PROCUREMENT

LOGISTICS AND
TRANSPORTATION MRO CONSULTING

@RAVI NISHANT
 CAPEX
PROCUREMENT
No Metric Formula Significance

Pre-purchase

Purchase Price +
Installation Cost +
Helps evaluate the true cost
Total Cost of Ownership Maintenance Cost
1 of ownership beyond the
(TCO) + Operating Cost +
initial purchase price.
Disposal Cost (over
the asset's life)

Initial Investment /
Indicates how long it takes
Annual Cash Flow
2 Payback Period to recover the initial
generated from
investment.
the asset

Discounted rate
that makes the Net
Measures the profitability of
Internal Rate of Return Present Value
3 the investment, considering
(IRR) (NPV) of all cash
the time value of money.
flows from the
asset equal to zero

(Gain from
Investment - Initial
Return on Investment Expresses the percentage
4 Investment) /
(ROI) return on the investment.
Initial Investment *
100%

Post-purchase

Actual Operating
Hours / Total Measures how efficiently the
5 Utilization Rate
Available equipment is being used.
Operating Hours

Varies depending
on the specific Measures the equipment's
6 Performance Metrics equipment (e.g., effectiveness in achieving its
output per hour, intended purpose.
production quality)

Actual Tracks actual maintenance

Maintenance Costs expenses against budget
7 Maintenance Cost
/ Planned and identifies potential cost
Maintenance Costs savings.

Measures the frequency and

Total Downtime /
duration of equipment
8 Downtime Total Operating
downtime, impacting
Hours
productivity and costs.

@RAVI NISHANT
 PROCUREMENT FOR
PROJECTS
Metric Formula Interpretation

CPI > 1 indicates under budget, CPI <

Procurement Cost Performance Index CPI = EV / AC
1 indicates over budget

Procurement Schedule Performance SPI > 1 indicates ahead of schedule,

SPI = EV / PV
Index SPI < 1 indicates behind schedule

CV > 0 indicates under budget, CV <

Procurement Cost Variance CV = EV - AC
0 indicates over budget

SV > 0 indicates ahead of schedule,

Procurement Schedule Variance SV = EV - PV
SV < 0 indicates behind schedule

Time from
requisition to Measure of time taken for
Procurement Lead Time
receipt of procurement process
goods/services

Time from initiation

to completion of Measure of total time taken for
Procurement Cycle Time
procurement procurement process
process

SPS = (On-time
Higher SPS indicates better supplier
Supplier Performance Score Deliveries / Total
performance
Deliveries) * 100

SQS = (Conforming
Higher SQS indicates better supplier
Supplier Quality Score Deliveries / Total
quality
Deliveries) * 100

COGS = Opening
Inventory + Direct costs attributable to
Procurement Cost of Goods Sold
Purchases - Closing production of goods sold
Inventory

ROI = (Net Profit /

Measures ROI from procurement
Procurement Return on Investment Total Procurement
activities
Cost) * 100

Savings Percentage
= [(Original Cost - Percentage of savings achieved
Procurement Savings Percentage
Negotiated Cost) / through procurement negotiations
Original Cost] * 100

Procurement Risk Exposure
Risk Exposure =
Measures potential impact of risks
Probability of Risk *
on procurement activities
Impact of Risk

@RAVI NISHANT
 DIRECT MATERIALS
PROCUREMENT
Metric Formula Interpretation

Raw Material Cost RM CPI = RM EV / RM RM CPI > 1 indicates under budget,

Performance Index AC RM CPI < 1 indicates over budget

RM SPI > 1 indicates ahead of

Raw Material Schedule
RM SPI = RM EV / RM PV schedule, RM SPI < 1 indicates
Performance Index
behind schedule

Raw Material Cost RM CV > 0 indicates under budget,

RM CV = RM EV - RM AC
Variance RM CV < 0 indicates over budget

RM SV > 0 indicates ahead of

Raw Material Schedule
RM SV = RM EV - RM PV schedule, RM SV < 0 indicates
Variance
behind schedule

Time from requisition to Measure of time taken for raw

Raw Material Lead Time
receipt of raw materials material procurement process

Time from initiation to

completion of raw Measure of total time taken for raw
Raw Material Cycle Time
material procurement material procurement process
process

RM Inventory Turnover
Raw Material Inventory Indicates how often raw materials
= Cost of Goods Sold /
Turnover are used and replenished
Average Inventory

RM On-Time Delivery
Raw Material On-Time Rate = (Number of On- Percentage of raw material
Delivery Rate Time Deliveries / Total deliveries that are on time
Deliveries) * 100

RM Quality Acceptance
Percentage of raw material
Raw Material Quality Rate = (Number of
deliveries that meet quality
Acceptance Rate Conforming Deliveries /
standards
Total Deliveries) * 100

RM COGS = Opening Direct costs attributable to

Raw Material Cost of
Inventory + Purchases - production of goods using raw
Goods Sold
Closing Inventory materials

RM ROI = (Net Profit /

Raw Material Return on Measures ROI from raw material
Total Raw Material
Investment procurement activities
Cost) * 100

@RAVI NISHANT
 Metric Formula Interpretation

The percentage increase from cost

(Selling Price - Cost Price) / Cost
Markup Rate price to selling price, indicating profit
Price * 100%
margin.
PROCUREMENT FOR MERCHANDISING
(Original Selling Price - Discounted The percentage decrease from the
Markdown Rate Selling Price) / Original Selling Price original selling price, indicating
* 100% reduction in revenue to sell stock.

Revenue generated per unit of retail

Sales per Square Foot Total Sales / Store Square Footage space, indicating space utilization
efficiency.

How often inventory is sold and

Inventory Turnover Cost of Goods Sold (COGS) /
replaced within a period, indicating
Rate Average Inventory
stock liquidity.

The number of days' worth of

Average Inventory / Average Daily
Stock-to-Sales Ratio inventory held on average, indicating
Sales
inventory risk and carrying costs.

The smallest order size accepted by a

Minimum Order Minimum amount a supplier
supplier, impacting negotiation power
Quantity (MOQ) requires for an order
and inventory management.

The average amount of product sold

Total Demand / Number of Days in
Average Daily Demand per day, crucial for forecasting and
Period
ordering.

The highest inventory level allowed,

Maximum Inventory Lead Time * Average Daily Demand
considering lead time, demand
Level + Safety Stock
fluctuations, and buffer stock.

The inventory level at which a new

Reorder Point Lead Time * Average Daily Demand order should be placed to maintain
stock without stockouts.

The cost of storing and managing

Inventory Carrying Holding Cost per Unit * Average
inventory, impacting overall
Cost Inventory
profitability.

Number of Items Delivered The percentage of orders received

Vendor Fill Rate Complete / Number of Items complete and accurate, impacting lead
Ordered * 100% times and sales.

The percentage of orders received on

Number of Items Delivered on Time
On-Time Delivery Rate time, impacting restocking schedules
/ Number of Items Ordered * 100%
and customer satisfaction.

Composite score based on various Overall evaluation of a supplier's

Supplier Performance
factors (e.g., fill rate, on-time performance, aiding in sourcing
Rating
delivery, quality) decisions.

(Actual Purchase Price - Standard The difference between the actual and
Purchase Price
Purchase Price) * Quantity expected purchase price, indicating
Variance
Purchased cost control effectiveness.

(Actual Inventory Value - Book The difference between the physical

Inventory Accuracy Value of Inventory) / Book Value of and recorded inventory value,
Inventory * 100% impacting stock availability and costs.

The percentage of inventory lost due

(Value of Lost Inventory) / Total
Shrinkage Rate to theft, damage, or errors, impacting
Sales * 100%
profitability.
@RAVI NISHANT
 SERVICES
PROCUREMENT

Metric Formula Interpretation

Service-Level Agreement (SLA)

Metrics:

Percentage of time
Measures reliability and
- Uptime the service is
performance of the service.
available

Time taken to
acknowledge and Measures responsiveness to
- Response Time
begin working on service requests.
an issue

Time taken to Measures efficiency in

- Resolution Time
resolve an issue resolving service issues.

- First Contact Resolution (FCR) Rate
Percentage of issues
Measures ability to solve
resolved during the
problems efficiently.
first contact

Financial
compensation for Encourages vendors to
- Service Credits
not meeting SLA maintain service quality.
terms

Cost Management Metrics:

Direct costs +
Indirect costs (e.g., Evaluates the true cost of the
- Total Cost of Ownership (TCO)
training, service over its lifetime.
integration)

Total cost / Units of Measures the cost-effectiveness

- Price per Unit of Service
service consumed of the service.

@RAVI NISHANT
 LOGISTICS AND
TRANSPORTATION
Metric
Transportation Cost per Unit
On-Time Delivery Rate
Freight Cost Variance
Freight Cost as a Percentage
of Sales
Carrier Performance Score
Freight Spend Savings
Transit Time Variance
Carrier Utilization Rate
Cost per Mile
Shipment Accuracy Rate
Formula
Total Transportation Cost /
Total Units Shipped
(Number of On-Time
Deliveries / Total Deliveries)
* 100
Actual Freight Cost -
Budgeted Freight Cost
(Total Freight Cost / Total
Sales) * 100
(Number of Deliveries as
per SLA / Total Deliveries) *
100
(Previous Freight Spend -
Current Freight Spend) /
Previous Freight Spend *
100
Actual Transit Time -
Expected Transit Time
(Total Loaded Miles / Total
Available Miles) * 100
Total Transportation Cost /
Total Miles Shipped
(Number of Accurate
Shipments / Total
Shipments) * 100
Significance
Measures the average cost
incurred per unit transported
Indicates the percentage of
deliveries made on time
Measures the variance between
actual and budgeted freight costs
Indicates the proportion of sales
revenue spent on freight
Reflects the carrier's adherence to
service level agreements
Measures the percentage of
savings achieved in freight spend
compared to the previous period
Measures the variance between
actual and expected transit times
Indicates the percentage of
available miles utilized by carriers
Measures the average cost
incurred per mile of
transportation
Indicates the percentage of
shipments that are accurate
@RAVI NISHANT
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