Blog · Procurement and supply chain · Procurement
The ten KPIs a procurement function should run on, each with its formula, the export it comes from and what it tells you: spend under management by invoice, contracted share against actual spend by category, maverick spend by requester, savings realised against savings claimed, suppliers per category and the tail, payment terms compliance, supplier performance against own baseline, contract expiry coverage, price variance on like items, and supplier concentration. Also the three measures most teams miss, the figures to drop, the identities, and who owns what.
Procurement is judged on savings and on control, and both are usually claimed from contracts and never checked against the invoices. The measures that matter all start from what was actually paid.
| # | Measure | Formula | Export | What it tells you |
|---|---|---|---|---|
| 1 | Spend under management | Invoices with a contracted supplier, in force, covering the category, through the agreed channel ÷ addressable spend | Payables ledger; contract file | What procurement has really seen |
| 2 | Contracted share by category | Spend with contracted suppliers ÷ category spend | Payables ledger; contract file | Categories with a contract and low compliance |
| 3 | Maverick spend by requester | Off-contract spend in contracted categories, by requester and cost centre | Payables; purchase orders | Where off-contract buying comes from |
| 4 | Savings realised against claimed | (Baseline price − price invoiced) × volume invoiced under the agreement ÷ savings claimed | Invoice lines; sourcing records | Whether the savings reached the ledger |
| 5 | Suppliers per category and the tail | Suppliers making up the last 5 percent of category spend; transactions and cost to process | Payables ledger | A tail that costs more to run than it buys |
| 6 | Payment terms compliance | Days paid against contracted terms, value-weighted; invoices paid early | Payables ledger; contract terms | Working capital given away |
| 7 | Supplier performance against own baseline | OTIF, defects and lead time against the supplier's trailing 12 months | Receipts; quality file | Suppliers that have changed |
| 8 | Contract expiry coverage | Contracts expiring in 180 days with a sourcing plan ÷ contracts expiring, by spend | Contract file | Renewals that will be rolled over by default |
| 9 | Price variance on like items | Highest ÷ lowest unit price paid for the same item across sites and suppliers | Invoice lines with item codes | The same item bought at three prices |
| 10 | Supplier concentration | Largest supplier's share of category spend; single-source categories | Payables ledger | Dependence, and negotiating position |
Every one of these is computed per account, per category and requester, and in total, and every one carries an identity that must hold before the table is shown.
Savings realised. Savings are reported at contract signature and seldom revisited against invoices.
Invoices paid early. Terms are negotiated by procurement and ignored by the payment run.
Maverick spend by requester. Reported as a percentage, which prompts a policy. As a list of names it prompts ten conversations.
A packaging contract claimed savings of $480,000 on forecast volume of 12 million units. In the first year 7.4 million units were invoiced at the new price, 2.1 million at the old price from a site that never switched, and 1.9 million were bought from another supplier. Savings realised were $296,000: 62 percent of the claim. The remainder sits with one site and one requester.
Savings claimed. Only realised savings, from invoice lines.
Number of suppliers, firm-wide. By category, with the tail costed.
Purchase orders processed. Activity, not outcome.
| Table | Must hold |
|---|---|
| Spend | Total spend = addressable + excluded; addressable = managed + unmanaged |
| Categories | Category spend sums to addressable spend; every supplier in one primary category |
| Savings | Volume forecast = bought at new price + bought at old price + bought elsewhere + not bought |
| Contracts | Contracts = in force + expired + no end date recorded |
A table whose identity fails is a table with a row missing or counted twice. It is not shown until it is fixed.
| Measure | Owner | Reviewed |
|---|---|---|
| Maverick spend; payment terms compliance | Category managers; accounts payable | Monthly |
| Supplier performance; contract expiry coverage | Category managers | Monthly |
| Savings realised; price variance | Chief procurement officer; finance | Quarterly |
| Spend under management; tail; concentration | Chief procurement officer | Quarterly |
A measure with no owner is a metric, not a KPI; see KPI versus metric versus measure.
Ten measures, every one computed from invoices rather than claimed from contracts. Savings realised, early payment and maverick spend by name are where the money is. Covirage computes all of them from the exports procurement teams already produce, files only, with the definitions stated and the identities checked. See Covirage for procurement teams.
Take the negotiated price and the baseline price, and look at what was actually invoiced: volume, price paid, and supplier. Savings realised is baseline price minus price paid, times volume actually bought under the new terms. It is usually 50 to 70 percent of what was claimed, because volume went to other suppliers, the old price kept being invoiced, or demand changed.
Purchases made outside a contract that exists for the category. It differs from unmanaged spend, where no contract exists. By requester and cost centre it is usually concentrated: a fifth of requesters account for most of it, often for understandable reasons such as a preferred local supplier. The list makes it a conversation with ten people, not a policy memo to a thousand.
Contracted terms of 60 days paid at 25 give the supplier 35 days of the company's cash for nothing. Across the ledger it is often several days of payables. It happens because invoices are approved and released without reference to terms. Days paid early by supplier, weighted by value, quantifies it.