Maasai Mara University Unit Title: Introduction To Purchasing and Supplies Course Code: BCM 2213 Lecturer: Kevin Gudda CONTACT: 0718833517

MAASAI MARA UNIVERSITY
UNIT TITLE: INTRODUCTION TO PURCHASING AND SUPPLIES
COURSE CODE: BCM 2213
LECTURER: KEVIN GUDDA
CONTACT: 0718833517
EMAIL: [email protected]
Performance Measurement
Performance Evaluation
 Measuring Purchasing performance is essential for effective management and continued improvement
of the purchasing function. Purchasing evaluation provides vital feedback to the purchasing
department as well as top managements for assessing the effectiveness of an organization’s purchasing
strategies and decision-making processes. Overall performance of an organization is strongly affected
by how well the purchasing function can contribute to the firm’s strategies and goals.
 Purchasing Departments are tasked in sourcing goods or services at the best possible price with the
right quality, quantity and time. The possibilities of procuring cheaper materials with quality desired
from alternative sources as part of their daily activities.
Evaluating Purchasing Performance
 An organization would need a systematic approach if they want to efficiently evaluate the
purchasing performance which may lead to the following benefits:
1. Better Decision Making – From identified variances of planned results and actions can be
taken in the future to prevent further occurrences.
2. Better Communication – Such as analyzing certain invoices which would need an extra
check that would lead to better payment arrangement procedures and improve understanding
between purchasing and administration.
3. Better Visual – It makes things more visible with regular reporting against actual vs
Planned this enables a buyer to verify whether their expectations have been realized.
4. Better Motivation – An evaluation system can meet the personal and motivational needs
of each purchaser which can be used as constructive goal setting and developing personal
programs in purchasing.
There are several performance measurements that businesses can use when they measure
purchasing performance:
Purchasing Efficiency – Administrative costs are the basis for measuring purchase efficiency,
this performance measurement does not relate to the amount purchased items that the
department has procured but the measurement relates to how well the purchasing department is
performing in the activities they are expected to perform against the budget that has been
placed. If the purchasing costs are within budget, then the efficiency of the purchasing
department has met its expectations. If the department is using funds over and above the
budget then the purchasing function is not efficient.
Purchasing Effectiveness – Price that is paid for an item will not be necessarily a good
measurement of performance. Prices may fluctuate due to market conditions, availability and
other demand pressures in such situations purchasing departments may not be able to control
the price A popular method of assessing purchasing effectiveness is to review the inventory
turnover ratios. The ratio measures the number of times, on average that the inventory is used,
or turned, during the period.
Purchasing KPI Management Tool
KPIs help to point in the direction where it improves performance levels. Improvement for
more efficient and sustainable procurement processes. The three major groups of Purchasing
KPI are Cost Savings, Quality, and Delivery of purchased items.
Cost Savings KPI’s

Measuring the percentage of managed spend against total spend on purchases for external
products and services. Managed spend can be calculated as the sum of all spend run by an
organization. Goal of this KPI is to have more spend standard procedures, thereby saving on
costs. And Reducing Consumption to determine if it’s necessary, an organization can exclude
things that they can they can do without or substitute, for example the reduction of travel
expenses by deployment of video conferencing. Consolidation of spend hidden costs can arise
if specifications are harmonized such as Mobile Phones laptops and lease cars which could
lead to savings. From suppliers, Improving competition among suppliers for cost saving,
generating higher competition among suppliers, By using benchmarking and comparing
supplier participation rate results.
Quality KPI’s
Products and services of low quality would affect an organizations product quality which might add additional
costs. KPI quantifies the purchase quality of the procurement branch. Metrics such as percentage of rejections,
goal is to lower these percentages, rejected services from service providers, lowering the disapproval rate.
Seller rejection rate rejected goods which is important if it directly affects customers. Disruptions due to low
quality, if the company is facing continuity disruptions due to low quality focus on increasing the quality of
strategic materials. Setting a lower end quality standard for each article and the goal is to follow the quality
standards.
Delivery KPI’s
To establish strategies that can improve delivery as well as continuity of supply. Strategic supply is important
for organizations, late deliveries might affect supply chain continuity, early deliveries can result in higher
operational/Inventory costs. The goal is to have lower number of errors against the requested time frame for
deliveries. Deliveries that are on time helps to Maintain continuity, improve inventory management which
leads to cost savings. The Accuracy of purchase orders is the outcome of suppliers delivering the right quantity
of right goods. Inaccurate purchase orders might result in additional inventory or operational costs and shortage
in quantity can interrupt continuity
Factors Influencing Purchasing performance
Operational and administrative activity: Management evaluates purchasing operations
primarily on parameters such as order backlog, administrative lead-time, number of orders
issued, numbers of requests for quotations issued, adherence to existing procedures, etc.
Commercial activity: Management is aware of the savings potential which purchasing may

represent. Parameters being used here are the total savings reported by purchasing, number
of quotations issued, variance reports, inflation reports, etc.
Part of integrated Logistics: Management becomes aware that price hunting has its
drawbacks and may lead to sub-optimization. Evaluation is aimed at quality improvement,
lead time reduction and improving supplier delivery reliability.
Strategic business area: Purchasing is actively involved in deciding the company’s core

business and reinforces the company’s competitive position. Management evaluates
purchasing amongst others on the number of changes in its supply base, number of tenders
and e-auctions, and its contribution to the bottom line in terms of savings realized.
Establishing KPI
An organization should figure out what stakeholder’s interest is and along with the
company’s strategies and future objectives. KPI’s are usually customized, looking for
metrics that reveal progress towards achieving goals.
Analysis of the data: management should look for interrelationships between means and
ends.
Following the analytical stage, various measures are developed, implemented and
subsequently refined. Prevent measures becoming too complex and too numerous, as
simplicity is key.
KPIs should be relevant to your business or department and simple to use. Key Indicators of
five or six would be enough, and not being overwhelmed by data it should not be about
taking hours gathering data.
Read on performance evaluation techniques
END OF LW 10

Maasai Mara University Unit Title: Introduction To Purchasing and Supplies Course Code: BCM 2213 Lecturer: Kevin Gudda CONTACT: 0718833517

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Maasai Mara University Unit Title: Introduction To Purchasing and Supplies Course Code: BCM 2213 Lecturer: Kevin Gudda CONTACT: 0718833517

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MAASAI MARA UNIVERSITY

UNIT TITLE: INTRODUCTION TO PURCHASING AND SUPPLIES

COURSE CODE: BCM 2213

LECTURER: KEVIN GUDDA

Cost Savings KPI’s

Commercial activity: Management is aware of the savings potential which purchasing may

Strategic business area: Purchasing is actively involved in deciding the company’s core

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