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Every organization needs to monitor its progress and have benchmarks that track on how well the business has met its objectives. A measure is the form of recording observable performance while a metric is a basis of quantifying organizational objectives so that its performance can be assessed. Measuring the performance of the purchasing department has become increasingly important given the pivotal role the department plays in determining the revenues collected out of sale, the costs incurred during procurement, and ultimately the overall profitability of an organization (Key Performance Indicators, 2011, p.2-4).
For a metric that measures effectiveness of the purchasing department to be accurate, its architects must see beyond the unit being measured and give focus on the entire system in totality. However, the most common among popular metrics are those related to costs and revenues, though it is important to note that the modern organization is shifting away from this strict measure. This is because the management of purchases impacts on so many areas hence the scope of focus is beyond acquiring supplies and cutting costs. Some of metrics that can measure purchasing effectiveness are discussed below (Murray, nd, p.1).
Cost Efficiency Metric
This is a cost driven approach that does not focus on the cost of items purchased but rather interrogates the administrative cost incurred in the performance of departmental duties related to purchasing items. This metric’s attention is based on how well the department has used resources budgeted for purchases. This metric is a good measure of purchasing effectiveness in an organization because it can be presented in monetary terms. An account can be operated that compares the actual and budgeted costs, checks on variance from the estimated and decides whether the variance is favorable or otherwise. An organization incurring higher costs than the budgeted is not effectively managing purchases while a department that has managed to lower costs is efficient (Key Performance Indicators, 2011, p.2-4).