Procurement Glossary
Quality (PPM): Quality measurement and error management in procurement
November 19, 2025
Quality (PPM) is a key performance indicator for measuring supplier quality in procurement. PPM stands for "parts per million" and indicates the number of defective parts per million units delivered. This metric enables buyers to objectively evaluate the quality performance of different suppliers and promote continuous improvement. Find out below how quality (PPM) is calculated, what significance this key figure has for supplier management and how you can use it to minimize quality risks.
Key Facts
- Quality (PPM) measures the defect rate as the number of defective parts per million units delivered
- Lower PPM values mean higher quality and better supplier performance
- World-class suppliers typically achieve PPM values below 100
- The key figure enables objective supplier evaluation and comparison
- PPM tracking supports continuous quality improvement and risk minimization
Contents
Definition and importance of quality (PPM) in procurement
Quality (PPM) is a standardized quality indicator that is used in procurement to precisely measure supplier performance.
Basics and calculation
PPM (parts per million) is calculated using the formula (number of defective parts / total number of parts delivered) × 1,000,000: (number of defective parts / total number of parts delivered) × 1,000,000. This standardization to one million units enables meaningful comparisons between suppliers with different delivery volumes.
- Standardized evaluation basis for all suppliers
- Precise detection of even low error rates
- Statistical relevance due to large reference value
Quality (PPM) vs. percentage error rate
In contrast to the percentage error rate, PPM offers a finer resolution at low error values. While an error rate of 0.01% is difficult to interpret, this corresponds to a clearly understandable 100 PPM.
Importance of quality (PPM) in Procurement
Quality (PPM) acts as a key indicator for strategic supplier management. The indicator supports buyers in the objective evaluation of supplier performance and enables data-based decisions on supplier selection and development.
Measurement and calculation for Quality (PPM)
The systematic recording and calculation of quality (PPM) requires structured processes and clear definitions of quality criteria.
Data acquisition and documentation
A reliable PPM calculation is based on complete documentation of all incoming goods and identified quality defects. Both the total quantity and the number of defective parts must be recorded precisely.
- Systematic incoming goods inspections
- Clear error definitions and categorization
- Continuous data acquisition over defined periods of time
Calculation methods and periods
PPM values can be calculated as rolling averages over different time periods. Three, six or twelve-month periods are common, with longer periods providing more stable values but reacting less sensitively to current changes.
Integration into quality management systems
Modern ERP systems enable the automated calculation of PPM values by integrating incoming goods data and complaint data. This ensures consistent and timely quality assessments.
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Interpretation and target values
The correct interpretation of quality (PPM) requires industry-specific benchmarks and a differentiated view of various influencing factors.
Sector-specific target values
World-class performance is usually achieved at PPM values below 100, although the automotive industry often requires PPM values below 25. In other industries, higher values may be acceptable, depending on product complexity and safety requirements.
- Automotive: < 25 PPM (Ziel), < 100 PPM (akzeptabel)
- Elektronik: < 100 PPM (Ziel), < 500 PPM (akzeptabel)
- Allgemeine Industrie: < 500 PPM (Ziel), < 1000 PPM (akzeptabel)
Trend analysis and development
The development trend is often more important than absolute PPM values. Continuously decreasing PPM values indicate improvement efforts by the supplier, while increasing values signal a need for action. The correlation with other performance indicators provides additional insights.
Weighting according to criticality
Not all quality defects have the same impact. Critical defects that impair safety or function should be weighted higher than cosmetic defects. This leads to differentiated PPM assessments for each defect category.
Risks, dependencies and countermeasures
The use of quality (PPM) as the sole quality indicator entails various risks that can be minimized by taking appropriate measures.
Statistical bias and data quality
Incomplete or incorrect data collection can lead to misleading PPM values. Particularly with low delivery volumes, individual quality problems can have a disproportionate impact on the PPM values.
- Define minimum volume for meaningful PPM calculation
- Regular validation of data collection processes
- Combination with other quality indicators
Focus on quantity instead of quality
An exclusive focus on PPM values can lead to qualitative aspects such as innovative ability or service quality being neglected. Suppliers may also be tempted to conceal quality problems.
Dependencies of test processes
PPM values are only as reliable as the underlying quality inspections. Insufficient inspection depth or frequency can lead to incorrect quality assessments. Coordination between different inspection levels is therefore essential.
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Practical example
An automotive supplier delivers 500,000 electronic components every month. In the last quarter, a total of 45 faulty parts were identified during the incoming goods inspection. The PPM calculation results in: (45 / 1,500,000) × 1,000,000 = 30 PPM. This value is below the industry target of 25 PPM and demonstrates excellent quality performance.
- Systematic recording of all incoming goods over 3 months
- Documentation and categorization of all quality defects
- Calculation of the PPM value and comparison with industry benchmarks
- Communication of the results to the supplier for further optimization
Current developments and effects
Digitalization and the use of artificial intelligence are changing the way quality (PPM) is measured and interpreted.
Predictive quality analytics
AI-based systems analyze historical PPM data in combination with other parameters to predict quality problems. Machine learning algorithms recognize patterns and trends that human analysts would miss.
- Early warning systems for quality deterioration
- Automated anomaly detection in PPM processes
- Predictive supplier evaluation
Real-Time Quality Monitoring
IoT sensors and digital quality checks enable the real-time recording of quality data. This leads to a significantly faster response to quality problems and more precise PPM calculations.
Industry-specific PPM standards
Different industries develop specific PPM benchmarks and standards. The automotive industry, for example, demands PPM values below 25, while other industries have less stringent requirements. This development is leading to more differentiated quality expectations.
Conclusion
Quality (PPM) is an indispensable key figure for modern quality management in procurement. It enables objective supplier evaluations and supports data-based decisions for quality improvement. The combination with other performance indicators and the use of digital technologies significantly increase the informative value of this metric. Successful companies use PPM values as a basis for strategic supplier partnerships and continuous quality improvement.
FAQ
What is the difference between PPM and percent error rate?
PPM offers a finer resolution with low error values. While 0.01% is difficult to interpret, this corresponds to an understandable 100 PPM. PPM enables more precise comparisons between suppliers with different quality levels and is particularly meaningful for high quality requirements.
How often should PPM values be calculated?
PPM values should be calculated at least monthly in order to recognize timely quality trends. Rolling 6- or 12-month averages are suitable for strategic supplier evaluations, as they are statistically more stable. For critical suppliers, a weekly calculation can be useful.
What minimum quantity is required for meaningful PPM values?
For statistically relevant PPM values, at least 10,000 delivered parts should serve as the basis for calculation. In the case of smaller quantities, individual quality problems can have a disproportionately high impact on the key figure. In such cases, longer observation periods or alternative quality indicators should be used.
How can PPM values be used for supplier development?
PPM values serve as an objective basis for supplier discussions and improvement measures. Regular monitoring allows quality trends to be identified and joint improvement projects to be initiated. Target agreements based on PPM values create clear performance expectations and promote continuous quality improvements.
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