The KPI Material Price Variance (MPV) for planning and measuring savings in procurement
Many companies try to calculate price changes and thus savings through a single Key Purchasing Indicator (KPI) and report their realized savings to the firm’s management.
They often forget that there is not a single, universal definition for the KPI Material Price Variance (MPV), but also several variants. Additionally, MPV is strongly dependent on the type of savings initiative as well as analysis contexts. Their value and usability for measurement of procurement performance and for procurement controlling also highly depend on how MPV are combined with advanced (cause-and-effect) analyses and forecasts or simulations. The mere calculation...
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...of the purchasing key indicator (KPI) MPV doesn‘t help along the procurement department. In practice, we use the term Material Cost Variance (MCV) as a synonym. This term describes the KPI more accurately since the value is weighted by the current purchasing quantity. Therefore, the term “Cost deviation” would be more appropriate than “Price deviation”. In the following article, we mainly use the term MPV.
Depending on the used reference point, calculation formulas and applied price components, KPIs and evaluations may differ for the same topic: “Performance- / Savings measurement in procurement”.