Objective:
To improve the productivity of the supply chain department in creating and issuing purchase orders
Calculation:
| Number of purchase orders | 20 days | |||||
| x | ||||||
| Number of full-time equivalent employees | Number of workdays in the month |
Target:
To be determined after establishing a baseline
Background Details
Rationale
This is a measure of process efficiency and employee productivity. This metric allows organizations to more effectively monitor and evaluate the success of process redesign and technology implementation initiatives affecting the issuing of purchase orders (POs). The time and resources saved would enable supply chain staff to devote more attention to customer services and strategic issues, thereby providing better value to the organization.
Through work-effort analysis, automation and process redesign, organizations can identify opportunities to enhance inefficient purchasing activities, generate increased staff productivity, and streamline the purchasing process.
Benefits
Process Efficiency
By transitioning from manual to automated processes for purchasing activities, significant efficiencies can be achieved. Electronic processes will eliminate or reduce paper handling, data entry, entry errors, and phone calls to vendors and customers.
Employee Productivity/Satisfaction
Productivity can be increased by redesigning purchasing processes to streamline activities to remove duplicate and unnecessary tasks.
Underlying Leading Practices
Contract Centre of Excellence
Establishing a contract centre of excellence to develop contracts and maintain a common repository of contract information enables electronic PO generation, allowing staff to be more productive.
“End to End” eSupply Chain
Electronic commerce (EDI/XML) transactions enable faster, more streamlined issuing of POs.
Process Productivity Tools
On-line requisitioning, automation of POs, scheduling and workflow approvals reduce errors and the time required to generate and issue a PO.
Target Considerations
Establishment
To be determined after examination of baseline measures obtained over a period of six to twelve months.
Impact of Related Metrics
It is important to note the number of lines per PO would affect target consideration, measurement and results. A higher number of lines in a PO would translate into more time required to create the order. Accordingly, this metric should be evaluated in conjunction with metric 3.4 Average Lines per Purchase Order.
Future Opportunities
Eventually, new metrics should be introduced to capture information that is more specific; for example, the number of PO lines processed per productive hour.
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: |
|---|---|
| 1.1 Percentage of Active Items under Contract 3.1 Number of Purchase Orders in One Month 3.2 Percentage of Rush Purchase Orders 3.4 Average Lines per Purchase Order |
1.1 Purchasing Policies and Procedures 3.1 Contracts Database |
Implementation
Calculation Parameters
Calculation:
| Number of purchase orders | 20 days | |||||
| x | ||||||
| Number of full-time equivalent employees | Number of workdays in the month |
| Variable | Include | Exclude |
|---|---|---|
| Number of purchase orders (POs) | Include all orders released to suppliers in a one-month period that are both the following types of orders:
|
Do not include orders that are either the following types of orders:
|
| Number of full-time equivalent employees | Include the average number of full-time equivalent (FTE) employees in a one-month period (for example, four full-time staff plus holiday relief = 4.2 FTEs) that are involved in the following activities related to POs:
|
Exclude FTEs involved in:
|
| 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
CHALLENGING – Data are available but require analysis and custom reporting
Possible Data Sources
Electronic
Procurement Module:
The Number of purchase orders 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.
Payroll Module:
Month-end payroll reports the Number of full-time equivalent employees involved in issuing POs. Organizations will need to make the following adjustments:
- Calculate and include the percentage of management hours spent on in-scope activities;
- Calculate and adjust for employees who enter or depart from in-scope roles in the supply chain department within the month; for example, count an employee who works half of the month as 0.5 FTE; and
- Calculate and deduct the percentage of employee time spent on:
- Non-direct PO processing such as contract management (see chart above); and
- Categories of orders not included in the calculation parameters (see chart above).
Manual
If electronic reporting is unavailable for the Number of purchase orders, 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.
If the Number of full-time equivalent employees is not available in the month-end payroll report, annual budget data could be used. Please note, however, that budget data are not preferred as they tend to be less accurate than month-end payroll data.
Manual assessment and deduction of time spent by FTEs on out-of-scope activities and categories or addition of management time spent on in-scope activities may be difficult to assess. Estimate FTE time to within a range of 0.2 FTE accuracy. This may require subjective judgment, which will potentially add a degree of inaccuracy to this 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:
- The amount of time that management and staff with multiple job responsibilities dedicate to issuing POs will have to be estimated. This introduces variability that could lead to inconsistencies across organizations. Organizations should strive for estimates that are accurate within 0.2 FTE.
- Many hospitals are currently measuring some form of efficiency metric. To achieve consistent reporting across organizations, hospitals should convert to the new metric with the standardized measurement described above.
