Intro to Procurement Productivity Metrics<\/h3><\/div><\/div><\/div>PurchTips edition #399<\/p>\n<\/div>
Are Your Procurement Metrics True Productivity Metrics?<\/h4><\/div><\/div><\/div>Today\u2019s executives love metrics. Specifically, they love productivity metrics.<\/p>\n
Productivity metrics indicate how much output an organization gets from each unit of input. For example, \u201ccost savings\u201d is a good metric, but it\u2019s not a productivity metric by our definition. Productivity metrics involve division.<\/p>\n
As a productivity metric, cost savings could be expressed as \u201caverage cost savings per procurement employee\u201d or \u201ccost savings as a percentage of procurement operating costs.\u201d So, if a procurement team achieved $10 million in annual cost savings and had 20 employees, the \u201caverage cost savings per procurement employee\u201d would be $500,000. If that procurement team\u2019s operating costs \u2013 consisting of salaries, benefits, facility costs, and other overhead \u2013 were $2 million, then the \u201ccost savings as a percentage of procurement operating costs\u201d would be 500%.<\/p>\n
What executives like about using productivity metrics is that they expect them to improve over time. Additionally, even if the output has to change, executives expect team leaders to make changes to input levels and still improve productivity.<\/p>\n
For example, if the cost savings in the example were due to a one-time capital improvement project, the team may not need all 20 employees after the project ended. So, if the team only saved $6 million the next year, that wouldn\u2019t necessarily be bad if it reduced its head count to 10 employees and its operating costs to $1 million. In that case, the new year\u2019s \u201caverage cost savings per procurement employee\u201d of $600,000 and the \u201ccost savings as a percentage of procurement operating costs\u201d of 600% would actually represent productivity improvements, even though total cost savings would be lower.<\/p>\n
In functions like procurement where output can change year to year due to business conditions, productivity metrics can be useful. I challenge you to think of the other performance metrics you use that can be converted to productivity metrics.<\/p>\n<\/div><\/div><\/div><\/div><\/div>
Want A More Rewarding Procurement Career?<\/h5><\/div>![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2021\/04\/career.jpg\" "\\"career\\"")
<\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Nothing will change unless you take action towards becoming a world-class procurement professional. Work your way up NLPA\u2019s CPO Suite Programs, an enhanced version of our SPSM certifications and bring the most modern procurement practices into your organization and achieve your career potential.<\/p>\n
Download our NLPA Course Catalog<\/strong> for a comprehensive list of the CPO Certification Programs and their corresponding modules per level.<\/p>\n<\/div>
PurchTips edition #399<\/p>\n<\/div>
Are Your Procurement Metrics True Productivity Metrics?<\/h4><\/div><\/div><\/div>Today\u2019s executives love metrics. Specifically, they love productivity metrics.<\/p>\n
Productivity metrics indicate how much output an organization gets from each unit of input. For example, \u201ccost savings\u201d is a good metric, but it\u2019s not a productivity metric by our definition. Productivity metrics involve division.<\/p>\n
As a productivity metric, cost savings could be expressed as \u201caverage cost savings per procurement employee\u201d or \u201ccost savings as a percentage of procurement operating costs.\u201d So, if a procurement team achieved $10 million in annual cost savings and had 20 employees, the \u201caverage cost savings per procurement employee\u201d would be $500,000. If that procurement team\u2019s operating costs \u2013 consisting of salaries, benefits, facility costs, and other overhead \u2013 were $2 million, then the \u201ccost savings as a percentage of procurement operating costs\u201d would be 500%.<\/p>\n
What executives like about using productivity metrics is that they expect them to improve over time. Additionally, even if the output has to change, executives expect team leaders to make changes to input levels and still improve productivity.<\/p>\n
For example, if the cost savings in the example were due to a one-time capital improvement project, the team may not need all 20 employees after the project ended. So, if the team only saved $6 million the next year, that wouldn\u2019t necessarily be bad if it reduced its head count to 10 employees and its operating costs to $1 million. In that case, the new year\u2019s \u201caverage cost savings per procurement employee\u201d of $600,000 and the \u201ccost savings as a percentage of procurement operating costs\u201d of 600% would actually represent productivity improvements, even though total cost savings would be lower.<\/p>\n
In functions like procurement where output can change year to year due to business conditions, productivity metrics can be useful. I challenge you to think of the other performance metrics you use that can be converted to productivity metrics.<\/p>\n<\/div><\/div><\/div><\/div><\/div>
Want A More Rewarding Procurement Career?<\/h5><\/div><\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Nothing will change unless you take action towards becoming a world-class procurement professional. Work your way up NLPA\u2019s CPO Suite Programs, an enhanced version of our SPSM certifications and bring the most modern procurement practices into your organization and achieve your career potential.<\/p>\n
Download our NLPA Course Catalog<\/strong> for a comprehensive list of the CPO Certification Programs and their corresponding modules per level.<\/p>\n<\/div>
Today\u2019s executives love metrics. Specifically, they love productivity metrics.<\/p>\n
Productivity metrics indicate how much output an organization gets from each unit of input. For example, \u201ccost savings\u201d is a good metric, but it\u2019s not a productivity metric by our definition. Productivity metrics involve division.<\/p>\n
As a productivity metric, cost savings could be expressed as \u201caverage cost savings per procurement employee\u201d or \u201ccost savings as a percentage of procurement operating costs.\u201d So, if a procurement team achieved $10 million in annual cost savings and had 20 employees, the \u201caverage cost savings per procurement employee\u201d would be $500,000. If that procurement team\u2019s operating costs \u2013 consisting of salaries, benefits, facility costs, and other overhead \u2013 were $2 million, then the \u201ccost savings as a percentage of procurement operating costs\u201d would be 500%.<\/p>\n
What executives like about using productivity metrics is that they expect them to improve over time. Additionally, even if the output has to change, executives expect team leaders to make changes to input levels and still improve productivity.<\/p>\n
For example, if the cost savings in the example were due to a one-time capital improvement project, the team may not need all 20 employees after the project ended. So, if the team only saved $6 million the next year, that wouldn\u2019t necessarily be bad if it reduced its head count to 10 employees and its operating costs to $1 million. In that case, the new year\u2019s \u201caverage cost savings per procurement employee\u201d of $600,000 and the \u201ccost savings as a percentage of procurement operating costs\u201d of 600% would actually represent productivity improvements, even though total cost savings would be lower.<\/p>\n
In functions like procurement where output can change year to year due to business conditions, productivity metrics can be useful. I challenge you to think of the other performance metrics you use that can be converted to productivity metrics.<\/p>\n<\/div><\/div><\/div><\/div><\/div>
Want A More Rewarding Procurement Career?<\/h5><\/div><\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Nothing will change unless you take action towards becoming a world-class procurement professional. Work your way up NLPA\u2019s CPO Suite Programs, an enhanced version of our SPSM certifications and bring the most modern procurement practices into your organization and achieve your career potential.<\/p>\n
Download our NLPA Course Catalog<\/strong> for a comprehensive list of the CPO Certification Programs and their corresponding modules per level.<\/p>\n<\/div>
<\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Nothing will change unless you take action towards becoming a world-class procurement professional. Work your way up NLPA\u2019s CPO Suite Programs, an enhanced version of our SPSM certifications and bring the most modern procurement practices into your organization and achieve your career potential.<\/p>\n
Download our NLPA Course Catalog<\/strong> for a comprehensive list of the CPO Certification Programs and their corresponding modules per level.<\/p>\n<\/div>