Traditionally, a procurement function’s KPIs began and ended with cost. Spend less money to acquire the necessary materials and the department is doing its job. The result, pre-pandemic, was in many cases hyper-globalised, fragile, distributed purchasing ecosystems with a more transactional approach to supplier relations.
Today, although cost is still a huge part of procurement, and supplier relations are in many cases more transactional and less strategic than we would like, things are nevertheless changing. Procurement is more and more being looked to not only as a driver of new strategic innovation, but as an ESG and risk management champion.
As the nature or procurement and the demands placed on procurement teams changes, so too should the ways in which procurement performance is measured. Data collected as part of Amazon Business’ 2024 State of Procurement Report pointed to the fact that, although procurement departments are among the leading drivers of emissions reduction within their organisations, many departments are doing so unprompted (and unrewarded) by business leadership.
Around 40% of procurement leaders that don’t have required responsible purchasing goals still take supplier ESG factors into consideration when purchasing, the report notes. If procurement is to embrace and direct the necessary funds and attention to things like improving ESG performance, then there needs to be pull from the top as much as there is push from below. The practice of procurement is evolving, and therefore so too must the key performance indicators (KPIs) that help measure successes.
Procurement KPIs that aren’t just cost
While cost remains an important benchmark against which to measure the success of procurement functions, procurement teams should be evaluated (and be evaluating their suppliers) using more strategic metrics as well.
Some examples include:
- Scope 3 Emissions
- Supplier Reliability and Compliance
- Supplier Availability
- Supplier Defect Rate
- S2P Cycle Time
- Lead Times
- Emergy Purchase Ratio
- Dark Purchasing Ratio to Overall Spend
- Circular Economy Contributions
- Contract Compliance
- Compliance with Global Emissions Guidelines
- Audits
- Communication Lead Time
- Waste reduction
- Plastic reduction
- Distance travelled
- Minority and women-owned enterprises
- Small and Medium Enterprises
Procurement and the metrics used to gauge success are in a continuous state of evolution. The ability to assess KPIs and procurement teams’ ability to meet them is also improving by means of e-procurement platforms, analytics, and big data. These tools are are enabling the rapid accumulation of a more detailed picture of the procurement process in many organisations.
Fundamentally, the ability to measure performance is essential for improvement. Although relying solely on KPIs to gauge success is not a flawless approach, it does undeniably contribute to a more comprehensive understanding of the value provided by the procurement function.
- People & Culture
- Procurement Strategy
