What are the main KPIs for a procurement department in the steel industry?

Wednesday October 11th, 2023 | Francesco Grillo | Industry 4.0, Productivity

In the steel industry, a procurement department plays a critical role in sourcing raw materials, components, and services necessary for steel production and manufacturing. Key Performance Indicators (KPIs) for a procurement department in the steel industry should be tailored to the unique challenges and objectives of this sector. Here are some main KPIs specific to the steel industry:

  1. Raw Material Cost Variation: Track fluctuations in the cost of key raw materials like iron ore, coal, and scrap metal. Monitoring cost variations helps in managing procurement budgets and assessing market risks.
  2. Supplier Performance in Quality and Consistency: Assess the quality and consistency of raw materials supplied by measuring factors like material specifications, chemical composition, and metallurgical properties.
  3. Supplier Lead Time and Reliability: Measure how well suppliers meet lead time commitments and evaluate their reliability in delivering materials on time.
  4. Inventory Turnover for Raw Materials: Monitor how efficiently raw materials are utilized, aiming for optimal inventory turnover to minimize carrying costs.
  5. Cost per Ton of Steel Produced: Calculate the cost per ton of steel produced, taking into account all procurement costs, including raw materials, labor, and overhead. This KPI reflects the efficiency of procurement operations.
  6. Supplier Relationship and Development: Evaluate the strength of relationships with key suppliers and the efforts made to collaborate on cost reduction, quality improvement, and innovation.
  7. Procurement Cost as a Percentage of Total Production Cost: Measure the proportion of total production costs that can be attributed to procurement activities. Lowering this percentage indicates cost efficiency.
  8. Compliance with Industry Regulations: Ensure compliance with industry-specific regulations, such as environmental standards and safety requirements, by tracking and reporting on adherence.
  9. Safety and Sustainability Metrics: Monitor procurement-related safety incidents and sustainability initiatives, such as carbon emissions reductions and sustainable sourcing practices.
  10. Supplier Diversity: In some regions or markets, supplier diversity goals may be important. Track spending with diverse suppliers, such as minority-owned or women-owned businesses, to meet diversity objectives.
  11. Cost Reduction Initiatives: Measure and report the success of cost reduction initiatives and strategies, such as negotiating favorable contracts, optimizing logistics, or implementing bulk purchasing agreements.
  12. Quality and Quantity of Scrap Recovery: If applicable, track the quality and quantity of scrap metal recovery in recycling or reuse programs, as this can impact both environmental sustainability and cost savings.
  13. Market Intelligence: Stay informed about market trends, supply and demand dynamics, and geopolitical factors affecting the steel industry. This can help in making informed procurement decisions.
  14. Supplier Risk Assessment: Evaluate the risk associated with key suppliers, considering factors such as geopolitical stability, financial health, and supply chain disruptions.
  15. Total Cost of Ownership (TCO) for Equipment and Machinery: If procurement involves purchasing equipment or machinery, assess the TCO, including acquisition costs, maintenance, and operational expenses.
  16. Production Downtime Due to Procurement Issues: Measure the amount of production downtime attributable to procurement-related issues, such as material shortages or quality problems.

These KPIs can help a procurement department in the steel industry manage costs, ensure a reliable supply chain, and contribute to the overall efficiency and sustainability of steel production operations. It’s essential to continually assess and adjust these KPIs to align with the specific goals and challenges faced by your organization within the steel industry.