Buyer Web Tool

For measuring the purchasing performance you need to compare the purchasing costs against another value. The problems come to define this 'another value'. Unfortunately, the worst solution is the most popular. Usually the top management compares the purchasing costs against the sales prices following this calculation rule

Purchasing Performance  % = (Purchasing Costs / Sales Prices ) x 100

Doing that, top management is not really measuring the purchasing performance but some kind of 'purchasing weight' in the sales prices. This value can be interesting but this is not purchasing performance.

If your sales guy is really incompetent, or detest the purchasing department as usual, he can decide to reduce the Sales Prices, so the percentage of Purchasing Costs will increase, and the 'Purchasing Performance' will decrease.

Let's see how to find a method to work for everybody : sales, purchasing and top management.

In my opinion, there are 4 different problems.

1) Customers managed by Sales department and Suppliers managed by Purchasing department are in general working in two different markets with different rules, cycles and ways to work.

2) Top Management doesn't care about problem number 1. They are focused in profits.

3) The main difference between sales and purchasing, regarding the way to work is that purchasing department buys items and sales department sales final products. It can be a stupid difference but it is the root cause of a lot of misunderstandings.

4) Top Management doesn't care about problem number 3. They are focused in profits.

So, It is time to propose a new approach.

To be continued.

Purchasing Performance (Economical measurement)

99.99 % of industrial companies don't measure the economical purchasing performance. And this is for several reasons :
1) They don't know how to do that.
2) They do but incorrectly.
3) They don't have the tools (softwares and procedures) to do it.
When I said 99.99 % I am speaking about big, very big, small and very small ones. I mean all of them. And I keep 0.01 % because I am optimistic, it is part of my personality.

If EPP is below 100 %, you ca say that your purchasing department is working well. 
If EPP is 100 %, you can say that your purchasing department is doing the job.
If EPP is over 100 %, you have a problem.

But the real problem is to define and calculate the Purchasing Costs and the Purchasing Targets.

We can start studying the Purchasing Costs.
Then we will continue with the Purchasing Targets.

KPI's are today the elements of the dashboard in all companies.

Usually KPI's for Purchasing are not defined (or defined incompletely).

In some cases, KPI's are not used correctely to measure that they suppose to measure.

This text try to clarify the concept of KPI's and their use inside the Purchasing Department.

KPI's Concept.

Every KPI used in a company need to have these elements.
- Name
- Definition
- Calculation Rule
- Measurement Unit : currency, days, number, ratio, percentage...
- Explanation what the KPI is intended to measure in your company.
- Rationale: Why this KPI is used at this moment by your company.
- Review period : Monthly, semester, yearly...
- Start Level: it is the level of the KPI at the beginning of the period.
- End Level : it is the level of the KPI at the end of the period.
- Today level : it is the level of the KPI at this moment.
- KPI Target : it is the target level fort the KPI at the end of the period.