In an era where precision in spending is critical and global uncertainties are ever-present, the strategic role of procurement within organisations has escalated. Businesses, amidst these economic shifts, are increasingly reliant on their procurement teams to guide financial efficiency and promote sustainable growth. This blog post unpacks key procurement performance metrics highlighted by a recent LinkedIn poll conducted by Future Purchasing. With a pronounced preference for cost savings, the poll also brings to light the growing importance of risk management, sustainability, and customer satisfaction within the procurement strategy mix for 2023/2024.
The poll, probing the primary measures of procurement effectiveness, revealed a significant lean toward savings and cost reduction, capturing 78% of votes. Risk mitigation and control followed at 12%, with sustainability initiatives and customer satisfaction each garnering 5%.
These figures open the floor to a nuanced discussion on the current and future state of procurement performance metrics:
- Savings Versus Value: In the procurement domain, there’s a historical bias towards savings and cost reduction as the primary metrics of success. This focus is deeply rooted in the tangible benefits these figures represent on financial statements. However, this narrow focus can sometimes overshadow the pursuit of broader, value-driven procurement goals such as quality improvement, supplier innovation, and long-term partnerships. Bridging the gap between this traditional view and the evolving industry rhetoric that champions non-financial benefits necessitates a shift in mindset. It requires procurement teams to balance short-term financial gains with long-term strategic advantages, which can lead to sustained organisational growth.
- Risk Management as a Strategic Pillar: The role of risk management in procurement has risen from a secondary consideration to a strategic pillar, particularly in sectors like finance, pharmaceuticals, and government, where compliance and regulations are stringent. As global supply chains face increasing threats from market volatility, geopolitical tensions, and environmental concerns, procurement teams are tasked with developing robust risk assessment frameworks. This means not just identifying potential disruptions but also implementing proactive measures to mitigate these risks, thereby protecting the organisation from unforeseen impacts.
- The Importance of Procurement Foundations: Before procurement teams can harness the potential of advanced metrics and analytics, they must have a solid foundation in cost savings and reduction strategies. These basics act as the bedrock upon which more sophisticated methods are built. This foundation is crucial for establishing credibility and ensuring that the procurement function is seen as a reliable value-adding centre within the organisation. Only then can teams confidently expand their metrics to include considerations like sustainability, innovation, and supplier diversity, which are increasingly important in a socially conscious business environment.
- Comprehensive Scorecards: Balanced scorecards have been instrumental in moving procurement performance measurement beyond mere cost savings. They incorporate a variety of dimensions, including operational efficiency, supplier performance, and internal stakeholder satisfaction. However, there is often a gap between what these scorecards promise and their implementation. To be effective, they must be well-integrated into the procurement process, reflecting a comprehensive view of procurement’s strategic contribution, including how it fosters innovation, drives sustainability, and supports overall business objectives.
- Innovation in Metrics: The emergence of new metrics in procurement reflects a broader understanding of the function’s impact. Sustainability measures, supplier diversity, and the facilitation of innovation and integration with risk are increasingly relevant. These metrics represent a shift towards a more holistic approach, one that captures the nuanced ways procurement can drive organisational success. For instance, supplier diversity not only supports social responsibility initiatives but also introduces a variety of ideas and approaches that can lead to innovation.
- Community Engagement: Engaging the procurement community in a conversation about essential measures is invaluable. By inviting readers to share their experiences and insights, the discussion around procurement success becomes richer and more diverse. This interactive element not only fosters a sense of community but also surfaces fresh perspectives on how procurement can drive value in different organisational contexts.
- Insights from Thought Leaders: Integrating expert opinions and interviews with thought leaders brings an authoritative voice to the conversation on procurement metrics. These insights can provide depth to the discussion, highlight best practices, and showcase how theory translates into action. They serve as a bridge between the poll results and practical, on-the-ground strategies that leading organisations employ.
- Real-World Case Studies: Case studies illustrate the practical application of balanced procurement metrics. They offer concrete examples of how companies navigate the complexity of procurement challenges, successfully integrating cost savings with risk management, sustainability, and customer satisfaction. These narratives not only validate the discussed concepts but also provide a relatable and instructive look at how different organisations prioritise and measure their procurement success.
- Emphasise holistic value, not just cost savings, by evaluating supplier relationships for quality and innovation contributions.
- Integrate risk management into procurement by establishing regular audits and promoting supplier compliance with industry standards.
- Elevate sustainability within procurement by prioritising suppliers with strong ESG credentials and build this into strategic and risk dimensions.
- Link procurement efforts directly to customer satisfaction metrics to align with end-user experiences.
- Implement a comprehensive measurement framework that tracks both financial and non-financial performance indicators.
Procurement in 2023/2024 demands a delicate balance between financial diligence and strategic value creation. While the poll underscores cost reduction as a primary focus, it also signposts the need to not lose sight of broader measures which may include risk management, social responsibility, and customer alignment. The future of procurement requires but extends beyond mere cost efficiency—it’s about enriching the procurement landscape with multifaceted value propositions that resonate across the supply chain. Embracing this comprehensive suite of metrics is not just forward-thinking; it’s critical for driving success and resilience in the evolving business ecosystem.
Blog post: What gets measured gets done
About Paras Sood
Paras looks after FP’s overall strategy and our private sector clients. Paras joined us from Deutsche Bank, where he led strategic procurement transformation globally after a career spanning Life Sciences, FMCG, Manufacturing, Raw Materials and the Public Sector in both industry and consulting roles.