There are a lot of factors that go into an efficient and successful HVAC company. One of the most important (and sometimes overlooked) is the role of purchasing and procurement. Purchasing and supply chain professionals oversee the process of purchasing high-quality products and services that offer value to your customers while staying within specific budgetary guidelines to ensure maximum profitability. It is a delicate balance of purchasing the right things at the right time that meet your quality standards and comply with all regulatory requirements.
As with every aspect of business, purchasing and logistics is an area that should be optimized for maximum efficiency. Before you can optimize any process though, you must first be able to accurately diagnose existing and potential problems. The best way to do that in your procurement process is by identifying key performance indicators, or KPIs.
Creating SMART KPIs for an HVAC contracting business
A KPI is a unique and specific metric that you can use to evaluate the success of your business and look for improvement opportunities. To identify the right items that you should be measuring, it is important to keep the SMART acronym in mind. KPIs should be:
- Specific: Unlike broader core values or general directives like “minimize costs,” a key performance indicator should be something that you can pinpoint and clearly identify when you have achieved the goal.
- Measurable: An often-repeated phrase in business (often attributed to statistician and quality expert Edwards Deming) is that you cannot manage what you cannot measure. With an effective KPI, you can create a baseline. Then you can measure it regularly over time with accurate metrics to determine whether you are achieving your goal.
- Achievable: You might be interested in cutting your costs in half. But, if it is not realistic to purchase all your supplies and labor at half price, then that would be an irrelevant and demoralizing goal for your team. Instead, KPIs should be something that your team can achieve with the right tools and good leadership.
- Relevant: Another important part is the KPI's relevance to the people who work on that aspect of your business. Setting new business acquisition goals for a procurement and logistics team will not result in higher sales. After all, that has nothing to do with their business expertise and experience. Instead, make sure your procurement KPIs are things that your procurement team can directly influence and control.
- Timely: The final aspect of an effective KPI is setting a deadline. This should be a short period with the ability to measure it regularly as you work toward the goal. However, it is also important to provide your team with enough time to complete the goal well. A rushed completion will only result in mistakes and wasted time.
An example of a SMART goal for an HVAC procurement team might be to reduce total product costs by 10% by the end of the year. It is specific (reducing total costs), measurable (by 10%), achievable (not a ridiculous amount of savings to try to achieve), relevant (procurement teams oversee purchasing) and timely (by the end of the year).
Three essential KPIs for your HVAC procurement and logistics team
There are a lot of KPIs that you can measure for HVAC procurement. Here are three to help you get started.
- Reduce your number of suppliers
Cultivating a robust and varied supplier base is essential to business continuity. However, having too many suppliers that are excessively spread out can lead to higher prices, waste and inefficiencies due to so many different invoices. Measuring your supplier base and continually optimizing it to find the right balance of current and potential suppliers in your pipeline will ensure your HVAC business is prepared for whatever market disruptions might come.
However, this one can be tricky. Simply saying that you want to "reduce your number of suppliers” is not a SMART goal. Instead, create standards by which you can gauge your current dependence on each supplier as a percentage of total purchases. It is also important to create KPIs for each supplier’s performance in meeting order and delivery deadlines.
- Customer satisfaction
It might not seem like customer satisfaction and procurement are linked, but they are. While procurement is not solely responsible for customer satisfaction, you should include questions on your customer surveys and feedback to measure satisfaction. For example, ask whether customers are happy with the quality of the products your team uses for HVAC systems. This can help you measure whether the procurement team is purchasing the best products within your budget.
- Total procurement ROI (return on investment)
A final KPI to measure is the total value that your procurement department is bringing to your HVAC operations. You can measure this by gathering some key cost data points:
- Total cost reductions that your procurement team achieved over the year.
- Total cost avoidance actions taken that can help you avoid incurring costs in the future (for example, purchasing in bulk to avoid higher per-item costs).
Add these two numbers together and divide by the total cost of your procurement operations to get your procurement ROI. This is a measurable and stable metric that you can use monthly, quarterly, or annually to ensure that your team is performing at its peak.
How to analyze KPI results to optimize your procurement process
KPIs are not something that you should be setting and then immediately forgetting about. Instead, regularly review them to make sure they are still helping you meet your goals. Additionally, now is the opportunity to further optimize them. You can fine-tune goals for future success if you realize a flaw in the plan, such as giving too tight a time constraint to complete the goal.
Effective KPIs should also be unique to your organization and your business infrastructure.
How Raiven can help your team achieve better procurement and hit their KPIs
To manage KPIs, you must provide your purchasing and logistics team with the right tools that allow them to achieve the goals you set. Raiven offers purchasing and procurement tools that increase visibility and transparency in the procurement process, so your team knows they are getting the lowest price. You get the collective power of thousands of contractors to negotiate better prices and improve overall costs.
Learn more about how Raiven can help your procurement team achieve the SMART goals and KPIs that you set.
