Most organizations make savings a primary goal for procurement, but once a team has matured to a certain level, it is important to also incorporate key metrics for tracking non-financial goals. Procurement 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 performance as part of their strategic goals.
What Are Non-Financial Performance Metrics for Procurement?
Organizations that want to show value beyond cost savings need to look to non-financial metrics. These metrics are most often focused on forward-looking aspects of the business, such as innovation, diversity, and social responsibility. Procurement is positioned to significantly impact these areas of the business, but the difficult part is showing how you are contributing to these goals.
Why Are Non-Financial Metrics Important for Businesses to Measure?
Young or tactical procurement teams may wonder why there is value in measuring non-financial metrics. After all, finance is always asking how procurement contributions impact the P & L sheet. Actually, non-financial metrics are extremely valuable. This is why:
- Adding non-financial metrics 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 goals, it may be revealed that those additional costs were incurred to purchase electric vehicles which also will have a lower maintenance cost over time and which helps contribute toward stated goals of a reduced carbon footprint.
- Non-financial metrics can be linked to other aspects of your company’s 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.
What 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 metrics really help to drive strategic planning. Procurement teams can more easily set daily goals and drive timelines. Most importantly, procurement is better able to align with the larger business goals and accurately show progress towards those initiatives.
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)
- Optimized processes
- Reduced supplier risk
- Improved carbon footprint
- 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
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.
- Report to stakeholders.
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.