Our procurement team is hitting their weekly raw material cost targets perfectly, but our overall gross margin is taking a major hit due to soaring expedited shipping fees that are not captured on their scorecard. How do we redesign our procurement metrics to show the true cost of acquisition?

Question

Tyler Smith · Accepted Answer

Your procurement team is winning a game that is actively hurting your company. By focusing entirely on raw material unit costs, they are likely delaying orders to negotiate lower prices or batching orders to get volume discounts. This behavior leads to inventory shortages, which forces your operations team to pay exorbitant expedited shipping fees to meet client deadlines.

To fix this, you must change what the procurement seat is accountable for on the weekly scorecard. You need to measure the total landed cost, not just the purchase price.

Redesign your procurement metrics to track:
- Total landed cost variance from budget
- On-time, in-full delivery percentage from suppliers

The total landed cost variance captures the purchase price plus freight, duties, and any expedited shipping charges. If procurement delays an order and causes an expedited shipping fee, that fee must be charged against their scorecard metric.

Additionally, tracking the supplier delivery percentage ensures that procurement is selecting reliable vendors, not just the cheapest ones.

When the procurement leader owns the landed cost, they are forced to make decisions that protect your gross margins. This aligns their daily activities with the ultimate financial health of the business.