Procurement ROI and KPIs
Procurement is a must for high-growth organizations and global enterprises looking to compete, grow and profit. But how do you measure impact and value? Enter: ROI.
In procurement, ROI has a different definition than the common formula. It’s not just based on monetary returns, but rather overall improvements, financially and operationally. Here are 4 key questions to ask when evaluating your procurement ROI:
- Spend cost reduction: has our cost of goods and services been reduced?
- Budget control through workflow: is our team spending within budget resulting in increased savings?
- People cost savings: are we saving time and resources by decreasing manual purchase processes and eliminating paper-based invoices and management systems?
- Spend visibility: have we gained more insight and control resulting in better analysis and identification of after-the-fact savings?
If the answer to those questions is a resounding yes, then your procurement function is delivering. If not, don’t panic. There are many procurement-specific KPIs that can be calculated and analyzed to improve your procurement ROI. We recommended using the following to measure effectiveness:
- PO Spend Percentage. This shows you how much of spend is PO-based and your pre-approved vs. total spend. Insight into the PO process improves spend controls and increases visibility into where money is being spent, by who and with what suppliers.
- Purchase Adoption Percentage. To calculate this, divide the spend on your procurement platform by your total spend on goods and services. Looking at this gives you your total spend under management and tells you if a boost in user adoption is needed.
- Percentage of eInvoices. This is the number of invoices received digitally divided by the total number of all invoices (including paper). By identifying this number, you can determine your ability to eliminate the work associated with manual methods, like typing invoices, which leads to a reduction in AP staff cost by better re-allocating their time.
- Straight Thru Processing Percentage. This is the number of invoices that go from receipt to ok2pay without AP needing to get involved. Calculating this number tells you where efficiencies can be created by further automating core processes.
- Percentage Spend from Approved Vendors. This drives savings and reduces risk by telling you the amount your organization spends under contract. When employees are buying from pre-approved suppliers, they are taking advantage of pre-negotiated discounts and reducing the overall price of purchased goods and services by reducing maverick buying.
Consistently measuring these points throughout your project journey will help you track improvement and growth areas along the way. Modern procurement takes traditional complex, multi-step functions and simplifies them by digitizing critical processes including purchase, invoice and pay, resulting in numerous benefits such as suppliers offering special discounts. Don’t miss out on providing your organization with a clear pathway to cost savings, increased efficiency, greater control and the true value of procurement.
For a jump start on unlocking your procurement ROI check out our other post: Four Steps to Elevate Spend Management and Automate Purchasing.