Objective:
To create efficiencies and reduce costs by optimizing the number of purchase orders
Calculation:
| 20 days | ||||||
| Number of purchase orders placed in the month | x | |||||
| Number of workdays in the month |
Target:
Not applicable
Background Details:
Rationale
This measure is required for many other metrics and provides limited value as a standalone metric. The success of a number of types of improvement initiatives will be reflected in this measure, for instance:
- Increasing the average number of lines per purchase order (PO) will reduce the total number of POs;
- Implementing automated reordering systems may increase the number of POs if not
- accompanied by system PO consolidation;
- Standardizing products and rationalizing suppliers will reduce the number of POs; and
- Adopting alternative low dollar value solutions such as purchasing cards will reduce the number of POs.
This metric can also be useful as a starting point to compare to other like organizations to identify differences in the number of POs and investigate why there may be differences and if these differences are the result of inefficiencies.
Benefits
This is an umbrella metric. The number of purchase orders issued by the supply chain department will be directly impacted by initiatives that improve the other metrics. Since a wide range of improvements can affect this metric, a list of benefits specific to this metric is not provided as it encompasses the benefits of all related metrics. The value of this metric is as an indicator to compare to other like organizations and more broadly track improvement initiatives within an organization.
Underlying Leading Practices
Identification of Product Standardization Opportunities
Product standardization initiatives will decrease the number of POs by reducing the variety of products purchased so that greater volumes of a common product can be ordered. Standardization also focuses on consolidating the supplier base and reducing the number of single-line orders for infrequent products or infrequently used suppliers. It enables the supply chain department to convert from smaller orders from more suppliers to larger orders from fewer suppliers.
Purchasing Cards
Purchasing cards and other low dollar value solutions provide alternative methods of placing orders that require fewer supply chain resources to process than POs.
Process Productivity Tools
Automated PO release often increases the number of POs, but reduces the number of POs that require supply chain staff attention to process, thereby improving efficiency. This increase can be reversed with system batching and consolidating of POs, which improves efficiency for suppliers and accounts payable.
Target Considerations
Establishment
A specific target is not required for this metric, as it simply reflects the improvements of a number of other more specific metrics. Generally, organizations should aim to decrease the total number of purchase orders, although some initiatives may cause temporary increases. It is a useful measure to track changes over time within an organization.
Adjustment Factor
Due to the different lengths of months and the presence of holidays, the number of working days per month varies from 19 to 23. This could have an impact of over 20 per cent difference from month, to month making comparisons difficult. To avoid the issue, the calculation includes an adjustment factor (20 divided by the number of working days in the month) to normalize each month’s data to a 20-day month (four full work weeks).
Related Metrics and Standards
| Related Metrics: | Related Standards: |
|---|---|
| 2.1 Average Cost to Issue a Purchase Order 3.4 Average Lines per Purchase Order 3.5 Average Number of Purchase Orders Placed to Top 10 Suppliers in One Month 3.6 Percentage of Invoices with Purchase Orders 3.8 Percentage of Low Dollar Value Purchase Orders 4.3 Percentage of Items Activated in the Master File in One Month 4.4 Percentage of Items Inactivated in the Master File in One Month |
1.1 Purchasing Policies and Procedures 3.1 Contracts Database 3.2 Low Dollar Value Transactions Strategy 4.2 Item Master Management Policy and Processes |
Implementation:
Calculation Parameters
Calculation:
| 20 days | ||||||
| Number of purchase orders placed in the month | x | |||||
| Number of workdays in the month |
| Variable | Include | Exclude |
|---|---|---|
| Number of purchase orders (POs) placed in the month | Include all orders released to suppliers in a one-month period that are both for the following types of orders:
|
Do not include orders that are either for the following types of orders:
|
| Number of workdays in the month | Include all regularly scheduled working days in the month | Exclude:
|
| 20 days | Days in month adjustment factor |
Data Accessibility Rating
EASY - Data are available for computation
Possible Data Sources
Electronic
Procurement Module:
The Number of purchase orders placed in the month would be tracked automatically by the hospital’s electronic procurement system and can be retrieved in month-end standard reports. Some systems may be unable to break out data by the specified categories.
Manual
If electronic reporting is unavailable, the organization could consider conducting manual counts, using a logging method throughout the month or selecting a representative time period (one day, one week, etc.) to collect a subset of data to extrapolate for the month. Organizations should select the option that balances the cost of collecting the data and the associated accuracy with the benefit of reporting the metric.
The calculation for the Number of workdays in the month should be based only on standard workdays — exclude statutory holidays and other organization-wide acknowledged days off.
Implementation Challenges
Challenges:
- Organizations choosing to collect data on pharmacy and food POs should report them separately to ensure consistency across multiple organizations.
