Personnel cost to perform the process group "procure materials and services" per $1,000 revenue

This measure calculates the personnel cost to perform the process group "procure materials and services" per $1,000 revenue. Personnel cost refers to employee personnel compensation (salaries and wages, bonuses, overtime and benefits) and fringe benefits (e.g. contributions made towards the employees' government retirement fund, workers compensation, insurance plans, savings plans, pension funds/retirement plans, stock purchase plans, and special allowances such as relocation expenses and car allowances). These costs should describe both full-time and salaried/hourly employees contributing to the work in question. The process group "procure materials and services" describes the work of procurement planning, purchasing, and sourcing beginning with developing sourcing strategies for materials and services, the selection of suppliers to provide the materials and services, the development and maintenance of the corresponding contracts, and the ordering of materials and services. This Cost Effectiveness measure is intended to help companies understand this cost expenditure related to the process group "procure materials and services".

Benchmark Data

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Measure Category:
Cost Effectiveness
Measure ID:
106492
Total Sample Size:
2,155 All Companies
Performers:
25th
- Median
- 75th
-
Key Performance
Indicator:
No

Compute this Measure

Units for this measure are dollars.

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(Total cost to perform the process group "procure materials and services" * Percentage of total procurement cost allocated to personnel cost * .01) / (Total business entity revenue * .001)

Key Terms

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Total Annual Revenue/Net Revenue

Total annual revenue is net proceeds generated from the sale of products or services. This should reflect the selling price less any allowances such as quantity, discounts, rebates and returns. If your business entity is a support unit and therefore does not directly generate revenue, then provide the revenue amount for the units you support. For government/non-profit organizations, please use your non-pass-through budget. For insurance companies the total annual revenue is the total amount of direct written premiums, excluding net investment income. Note: Business entity revenue needs to only include inter-company business segment revenue when the transactions between those business segments are intended to reflect an arm's length transfer price and would therefore meet the regulatory requirements for external revenue reporting.

Personnel Cost

Personnel cost is the cost associated with personnel compensation and fringe benefits of employees (i.e., those classified as FTEs which includes both full-time and salaried/hourly employees) contributing to each respective process. Personnel cost should include all of the following costs.

Employee Compensation: Includes salaries and wages, bonuses, overtime and benefits.

Fringe: Includes contributions made towards the employees' government retirement fund, workers compensation, insurance plans, savings plans, pension funds/retirement plans, and stock purchase plans. This should also include special allowances, such as relocation expenses and car allowances.

Cost Effectiveness

Cost effectiveness measures are those in which two related variables, one of which is the cost and one of which is the related outcome related to the expenditure are used to determine a particular metric value.

Measure Scope

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Cross Industry (7.3.0)

  • 4.2.1 - Provide sourcing governance and perform category management (10277) - Creating strategies for procuring materials and services from various sources, and for managing and evaluating categories. Establish a procurement process that describes the approach for obtaining products and purchasing activities. Evaluate the sources. Create sourcing relationships in order to continuously improve. Re-evaluate purchasing activities.
    • 4.2.1.1 - Develop procurement plan (10281) - Creating a plan for procuring materials and services. Plan what to buy, when, and from what sources. Include project requirements, the procurement team, the justification for the procurement, a timeline of events, and an explanation of the supplier selection process. Outline specific actions to start and complete purchases in order to adhere to best practices.
    • 4.2.1.2 - Clarify purchasing requirements (10282) - Defining the purchasing requirements for materials and services. Specify the exact inventory required for the production process. Create a specific quotation for all the sources in order to avoid any duplication or overlap.
    • 4.2.1.3 - Establish materials management contingency plans (10283) - Developing a strategy to deal with issues projected to arise during implementation of the inventory plan. Identify how to react to issues that arise and require changes to the inventory plan, such as a vendor failing to deliver materials on time. Collaborate with production and suppliers to prepare solutions to projected problems.
    • 4.2.1.4 - Match needs to supply capabilities (10284) - Synchronizing the requirements of materials and services and the capacity of suppliers for providing these materials and services. Revamp the procurement needs of the company in consideration of the capabilities of the suppliers.
    • 4.2.1.5 - Analyze organization’s spend profile (10285) - Evaluating the spend profile of the organization. Collect, cleanse, classify, and analyze the procurement data with the purpose of reducing procurement costs, improving efficiency, and monitoring compliance.
    • 4.2.1.6 - Seek opportunities to improve efficiency and value (10286) - Seeking the most efficient sourcing and procurement opportunities.
    • 4.2.1.7 - Collaborate with suppliers to identify sourcing opportunities (10287) - Collaborating with the suppliers of materials and services in order to determine new opportunities for sourcing.
  • 4.2.2 - Develop sourcing and category management strategies (20973) - Deploying a strategic sourcing methodology to segment the majority of organizational spend based on external supply markets (versus individual suppliers or internal stakeholders) to reduce the cost of buying goods and services, reduce risk in the supply chain, and maximize value delivered from the supply base. This approach typically includes cross-functional management of categories, examining the entire category spend, how the organization uses the products or services within the category, the marketplace, and major suppliers.
  • 4.2.3 - Select suppliers and develop/maintain contracts (10278) - Evaluating supplier options to select the most effective and efficient suppliers. Validate selected suppliers. Establish and manage supplier contracts.
    • 4.2.3.1 - Select suppliers (10288) - Evaluating the pros and cons of various suppliers. Choose the most appropriate and cost-effective suppliers on the basis of their material quality, delivery schedules, and costs.
    • 4.2.3.2 - Certify and validate suppliers (10289) - Validating the supply sources, and provide certification as an official supplier.
    • 4.2.3.3 - Negotiate and establish contracts (10290) - Legally binding suppliers with the company. Negotiate contracts individually with all the suppliers that include the promised material delivery, the delivery dates and duration, etc.
    • 4.2.3.4 - Manage contracts (10291) - Keeping contracts up-to-date with routine evaluation. Maintain order and discipline with the contracts in order to avoid any loss of information and mishaps.
  • 4.2.4 - Order materials and services (10279) - Creating and approving requisitions and distributing purchase orders accordingly. Hasten the procurement process to satisfy internal needs.
    • 4.2.4.1 - Process/Review requisitions (10292) - Handling operations related to processing/reviewing the requisitions. Establish and maintain procedures for the initiation, authorization, and processing of purchase requirements to procure products/services.
    • 4.2.4.2 - Approve requisitions (10293) - Approving requisitions for materials and services. Examine distributor-specific requests, and validate them individually.
    • 4.2.4.3 - Solicit/Track vendor quotes (10294) - Requesting quotes from suppliers. Use a request for quotation (RFQ) to invite suppliers into a bidding process for specific products/services.
    • 4.2.4.4 - Create/Distribute purchase orders (10295) - Creating and placing the orders for purchasing materials and services from suppliers. Analyze vendor quotes. Choose the most cost-effective vendors. Create vendor-specific orders. Distribute them in order to initiate the purchasing process.
    • 4.2.4.5 - Expedite orders and satisfy inquiries (10296) - Accelerating the purchase orders in order to fulfill the internal needs (for raw materials) depicted through inquiries.
    • 4.2.4.6 - Reconcile purchase orders (10297) - Verify that purchase orders are filled as expected: verify that items and quantities are delivered as expected, based on purchase order details and goods receipts.
    • 4.2.4.7 - Research/Resolve order exceptions (10298) - Identifying and resolving any exceptions. Address the internal needs/inquiries for materials that cannot be procured immediately. Research inquiries that require the need of exceptional materials.
  • 4.2.5 - Manage suppliers (10280) - Collecting and analyzing new information in order to track and rate suppliers through a supplier information management system.
    • 4.2.5.1 - Monitor/Manage supplier information (10299) - Examining procurement and vendor performance. Report delivery timing and the quality of the materials procured through different vendors.
    • 4.2.5.2 - Prepare/Analyze procurement and vendor performance (10300) - Assisting the production and inventory processes through the information and reports created. Use the information and metrics of the procurement and vendor performance to enhance or improve the production process.
    • 4.2.5.3 - Support inventory and production processes (10301) - Support inventory and production processes by analyzing impact of procurement decisions and collaborating to constantly improve. (For example, perhaps minimum order requirements could be negotiated to be lower, to reduce excessive inventory and make production more flexible.)
    • 4.2.5.4 - Monitor quality of product delivered (10302) - Track the performance of the suppliers on product quality. Use this information to further improve sourcing and supplier performance.