Definition: (Purchasing cost of the previous period - Purchasing cost of the current period)/Purchasing cost of the previous period ×100%. It measures the performance of the purchasing department in reducing purchase prices.

Reference value: Depending on the industry and company goals, the average manufacturing industry may expect to reduce procurement costs by 5% - 10% per year.

Suggestion: In order to calculate accurately, it is necessary to clarify the scope of procurement costs, including product price, transportation costs, tariffs, etc. At the same time, market price fluctuation factors must be taken into consideration to avoid excessive price reduction that affects supplier relationships and product quality.

Definition: Purchase price/average market price ×100%. Used to evaluate whether the purchase price is reasonable. Below 100% means that the purchase price is better than the market average.

Reference value: Ideally below 100%, specific values ​​vary by product and market. For example, for standardized raw materials, this ratio might target a value of 90% - 95%.

Suggestion: Collect market price information regularly, which can be obtained through market research institutions, industry associations, supplier quotations and other channels. And compare prices according to the quality level of the product to ensure that the prices are compared under the same quality.

Definition: The absolute amount of savings in procurement costs achieved through negotiation, bidding, optimization of procurement processes, etc.

Reference value: Set a target amount based on the company's procurement size. For example, a company with an annual procurement volume of US$100 million may hope to save US$1-5 million per year.

Recommendation: Record in detail each cost-saving measure and the corresponding amount, including bulk purchase discounts, long-term contract discounts, etc. At the same time, cost savings are linked to employee incentives to encourage procurement personnel to actively look for savings opportunities.

Definition: Quantity of qualified purchased products/Total quantity of purchased products ×100%. Reflects the quality level of purchased products.

Reference value: For most industries, the quality qualification rate should be no less than 95%. In some industries with extremely high quality requirements, such as medical equipment and aerospace, it may be required to reach more than 99%.

Recommendation: Establish strict quality inspection standards and processes, clarify quality requirements with suppliers, and stipulate liability for quality breaches in the contract. At the same time, we regularly evaluate and provide feedback on suppliers’ product quality.

Definition: The number of products returned due to quality problems / the total number of purchased products × 100%. This is an inverse indicator of the severity of quality problems in purchased products.

Reference value: Generally it should be controlled below 3%, the lower the better.

Recommendation: Cooperate with suppliers to solve quality problems and require suppliers to take corrective measures, such as improving production processes and strengthening quality control. For suppliers with frequent quality problems, consider terminating cooperation.

Definition: On-time delivery purchase order quantity / total purchase order quantity × 100%. It reflects the supplier's ability to deliver goods according to the agreed time and the purchasing department's ability to control the delivery date.

Reference value: Usually the target value is set between 90% - 98%.

Recommendation: Clarify the delivery date and liability for breach of contract in the procurement contract, communicate order requirements with suppliers in advance, and establish an effective order tracking and early warning mechanism. For suppliers who frequently delay delivery, take corresponding punitive measures or replace suppliers.

Definition: (Average delivery cycle of the previous period - Average delivery cycle of this period) / Average delivery cycle of the previous period × 100%. Used to measure the effectiveness of the procurement department in shortening procurement lead times.

Recommendation: Negotiate with suppliers to optimize supply chain processes, such as adopting VMI (Vendor Managed Inventory) model, establishing a quick response mechanism, etc. At the same time, we analyze the reasons for the long delivery cycle, such as transportation links, production processes, etc., and make targeted improvements.

Definition: The interval from when an emergency purchase order is issued to when the supplier confirms the delivery time.

Reference value: Depending on the industry and product urgency, you may want a response time within 24 hours for very urgent orders.

Suggestion: Establish emergency cooperation agreements with some suppliers to clarify the responsibilities and response methods of both parties in the event of emergency orders. At the same time, we regularly evaluate emergency order response capabilities and optimize internal processes to ensure that various departments can quickly cooperate to handle emergency orders.

Definition: The number of newly developed qualified suppliers within a certain period of time.

Reference value: Set according to the company's procurement strategy and market conditions, such as developing 3-5 new key suppliers every year.

Suggestion: Clarify the standards and processes for supplier development, including supplier qualification review, on-site inspections, sample testing, etc. Actively participate in industry exhibitions, supplier recommendation meetings and other activities to expand supplier development channels.

Definition: Collect suppliers’ satisfaction evaluations on cooperative relationships through questionnaires, supplier meetings, etc.

Reference value: The satisfaction score (out of 100 points) should be above 70 points, the higher the better.

Recommendation: Conduct supplier satisfaction surveys regularly (such as once every six months). The survey contents include cooperation and communication, timely payment, fairness of the procurement process, etc. Provide timely feedback and improvements to questions and suggestions raised by suppliers.

Definition: Number of eliminated suppliers/total number of suppliers ×100%. Used to control the quality of the supplier team and eliminate unqualified suppliers.

Reference value: According to the supplier management strategy, it is generally around 5% - 10%.

Recommendation: Establish a scientific supplier elimination mechanism and decide whether to eliminate suppliers based on their performance evaluation results (such as quality, delivery time, price, etc.). Before eliminating a supplier, the supplier should be communicated with and given an opportunity to improve.

Definition: The time interval from the submission of a purchase requisition to the issuance of a purchase order.

Reference value: Set according to the size of the enterprise and the complexity of the procurement process. It is generally expected to be completed within 3 - 7 working days.

Recommendation: Optimize the procurement process, simplify unnecessary approval procedures, and use information systems to improve the efficiency of purchase order processing. Regularly analyze the reasons for long order processing cycles, such as poor internal communication, incomplete information, etc., and carry out targeted optimization.

Definition: The number of accurate procurement documents / the total number of procurement documents × 100%. Ensuring the accuracy of procurement documents can avoid contract disputes and procurement mistakes.

Reference value: The accuracy should be above 98%.

Recommendation: Establish a procurement document review system so that procurement documents undergo multi-layer review before release. Provide training to procurement personnel to improve their document production and review capabilities. Also, reduce human error with templates and automation tools.