Most organizations make cost savings a primary goal for procurement, but once a procurement team has matured to a certain level , it is important to also incorporate key performance metrics for tracking non-financial goals. Procurement strategy needs to align to the company strategy and there are most likely strategic goals that procurement can directly impact.
At that point, procurement teams need to begin making optimizations that go beyond savings, measuring contributions that are not based on financial measurements. Most modern teams have pivoted to include measuring non-financial procurement performance as part of their strategic goals and procurement strategy.
What are non-financial performance metrics for Procurement?
Organizations that want to show value beyond cost savings need to look to non-financial sustainability metrics — or procurement KPIs — that capture broader business impact. These metrics are most often focused on forward-looking aspects of the business, such as innovation, diversity, and social responsibility . These sustainability KPIs are most often focused on forward-looking aspects of the business, such as innovation, diversity, and sustainable development. Sustainable procurement is positioned to significantly impact these areas of the business, but the difficult part is showing how you are contributing to these sustainable goals.
The most impactful sustainable procurement KPIs go beyond the balance sheet to measure environmental impact, supplier engagement, and long-term procurement efficiency—giving procurement leaders a fuller picture of the value their procurement process delivers.
Why are non-financial performance metrics important for businesses to measure?
Young or tactical procurement teams may wonder why there is value in measuring non-financial procurement metrics. After all, finance is always asking how procurement activity impact the P&L sheet. Actually, non-financial sustainability metrics are extremely valuable. This is why:
- Adding non-financial procurement KPIS helps give context to financial KPIs. For example, finance may see that extra money was spent on a fleet for last year. This may raise red flags, but when compared to a company’s net zero sustainability goals, it may be revealed that those additional costs were incurred to purchase electric vehicles reducing energy consumption, lowering carbon footprint, and cutting long-term greenhouse gas emissions while also contributing to a lower maintenance cost over time.
- Non-financial metrics can be linked to other aspects of your company’s procurement strategy. For example, if a company goal is to improve customer service, you will likely see increases in investment in that area, but you will also see jumps in revenue due to the improvements. These are difficult to link on a P & L sheet without a way to associate them together using non-financial metrics.
- Tracking non-financial metrics also enables companies to capture the strengths of your core competencies and highlights areas of weakness. Identifying these gaps is crucial for continual optimizations and improvement for mature procurement teams.
Why should you do with non-financial metrics?
As with most KPIs, non-financial metrics are valuable for a multitude of reasons. This data can help inform your overall company strategy , drive your forecasting, help you evaluate successes and failures, and implement employee feedback and growth plans.
For procurement teams, non-financial sustainable procurement KPIs really help to drive strategic planning. Procurement leaders can more easily set daily goals and drive timelines around procurement activity. Most importantly, procurement is better able to align with larger sustainability goals and accurately show procurement ROI towards those initiatives — including progress on cost avoidance, emissions reduction, and supply chain management improvements.
12 examples of non-financial performance metrics
Non-financial metrics are specific to your organization and should be developed around your unique industry and business goals. Here are some categories and examples to get you started:
Non-financial strategy management
There are hundreds of ways to measure non-financial performance. To determine which metrics your organization will use, you’ll need to align internally and identify your primary business goals. Here are a few common examples of non-financial performance categories for procurement teams:
- Corporate/Social Responsibility (CSR)
- Environmental/Social governance (ESG)
- Sustainable practices and sustainable sourcing
- Optimized processes and cycle time reduction
- Reduced supplier risk and improved supplier performance management
- Improved carbon footprint and energy consumption reduction
- Greenhouse gas emissions targets
- Cost avoidance
- Better customer service
- Greater efficiencies
- Diversity and inclusion
- Engaging employees in charity work
- Ethical sourcing and supply chain management
- Purchasing from fair trade
- Supplier lead time optimization
- Supplier defect rate reduction
Key Supplier Performance Metrics to Track
Best practice for mature procurement teams includes monitoring both financial and non-financial supplier performance data. Here are the most important supplier performance management metrics to incorporate into your sustainable procurement KPIs framework:
Supplier Defect Rate
Supplier defect rate measures the percentage of goods or services delivered by a supplier that fail to meet quality standards. Tracking this procurement metric is essential for maintaining procurement efficiency and reducing waste across your supply chain.
Supplier Lead Time
Supplier lead time tracks how long it takes a supplier to fulfill a purchase order from confirmation to delivery. Reducing supplier lead time is a best practice for improving purchase order cycle time and overall procurement process efficiency.
Purchase Order Cycle Time
Purchase order cycle time measures the total time from purchase order creation to fulfillment. This procurement KPI is a strong indicator of procurement efficiency and procurement orchestration maturity — and directly impacts cost savings and supplier relationship health.
Cycle Time
Beyond the purchase order, cycle time across the full procurement activity spectrum — from sourcing to contract to delivery — is a critical procurement metric for procurement leaders benchmarking procurement performance against industry standards.
How to start your non-financial measurement strategy
Measuring your non-financial performance is key for modern buyers. Solely tracking your financial gains is not sustainable and doesn’t tell a comprehensive story of the value procurement teams are bringing to an organization.
Here is a plan for implementing your non-financial strategy.
- Identify your business’s key strategic goals.
- Develop which goals you want to track and which KPIs will measure the success of those objectives.
- Gather benchmark data to measure your success.
- Pinpoint key projects to help meet your strategic goals.
- Track project progress.
Your non-financial plan may look vastly different compared to others. Although you find 20 options above, there are hundreds of KPIs that your organization can use to measure your progress. Make sure your plan is driven by your organization’s goals and you will see success. Many organizations find success using a digital tool that enables easy collection of non-financial data and seamless collaboration tools for reporting success to stakeholders.