When used correctly, procurement key performance indicators (KPIs) can be the fuel that lights your spend strategy and ignites company-wide growth. The more you focus on improving essential KPIs, the faster you can lower costs, identify supplier opportunities, strengthen supply chains, and free up cash for the organization.
However, tracking a handful of procurement KPIs and calling it a day isn’t enough to propel high-performance companies. To drive ROI, procurement needs to ask critical questions and monitor the right set of metrics. These are the four questions to ask about your procurement KPIs to fire up growth, along with proven ways to use KPIs to launch ROI higher.
4 Questions Your Procurement Team Should Ask
The first step towards powering your strategy is digging into procurement ROI. After all, proving ROI is the most effective way to secure buy-in from stakeholders, understand if your decisions are paying off, and identify room for improvement.
Here are four key questions to ask when evaluating your procurement ROI:
- Spend cost reduction: Are we reducing the costs of our goods and services?
- Spend under management: Are we capturing a higher percentage of the controllable spend through approved channels and with approved vendors?
- People cost savings: Are we saving time and resources by decreasing manual purchase processes and eliminating paper-based documents and management systems?
- Spend visibility: Are we gaining spend control, gathering more insights, analyzing spend on a deeper level, and seeing the spend data we need to drive smarter strategic decisions?
The answer to each question will reveal how much your procurement solutions and actions are paying off. But even if you answered “no” to each question, you don’t need to panic. There are ways to boost your ROI through procurement KPIs.
How to Lift Procurement KPIs and Surge Your ROI
Here’s a short list of important procurement KPIs, along with quick ways to improve each:
Savings Totals
These figures demonstrate how much money your company is saving due to procurement efforts. That can include total savings, cost reduction, cost avoidance, and other cost-saving procurement KPIs. They’re critical because they describe how your decisions widen your organization’s bottom line and propel growth.
How to improve it: The first step in improving savings totals is increasing spend visibility. The clearer your spend visibility is, the easier it is to identify new opportunities for supplier discounts, build supply chain resilience, and improve spend management.
Spend Under Management
This is the percentage of spending that your procurement team is measuring and managing. The higher this percentage is, the more spend data you’ll have at your fingertips, and the stronger your strategic decisions will sway the company’s total costs.
How to improve it: Give your teams a user-friendly purchasing platform. The easier it is for employees to shop suppliers and purchase goods or services, the higher user adoption will leap. In turn, you can eliminate rogue spend, increase purchases through approved suppliers, and gather valuable spend data that you can use to make smarter decisions.
Contract-Compliant Spend
This is the percentage of spend that’s flowing through pre-negotiated contracts. It’s important because it reveals how often those contracts you spent valuable time negotiating with suppliers are being used. It also shines a light on the amount of value your supplier relationships are delivering to the company.
How to improve it: Provide a digital marketplace for purchasing that’s easy to use. That way, employers can choose from a list of approved suppliers, select products or services, buy from approved suppliers, and take advantage of supplier discounts, feeding you clearer spend data.
Percentage of Electronically Enabled Suppliers
This is the number of invoices suppliers send digitally divided by the total number of all invoices. The higher your electronically enabled suppliers figure is, the less time your teams spend manually inputting details and the fewer errors your organization will need to fix.
How to improve it: Digitize your procure-to-pay (P2P) system. By adopting a fully digital, automated P2P system, you eliminate the manual work that cuts into your workforce’s day. Digital P2P systems free your team for more strategic tasks and capture real-time budgeting and spend information to support your strategy.
Average Cost and Time to Process a Purchase Order (PO)
This is the amount of time and money your team puts into the purchase order (PO) process. By tracking these numbers, you can see where there’s room to increase efficiency and enhance PO processing.
How to improve it: Adopt an automated P2P solution. Advanced digital procurement platforms automate three-way matching, approval submissions, purchasing, PO requests, and other PO-related tasks. That can speed up the whole process and carve out more time for you to improve spend management.
Start Driving Procurement ROI Higher
You can amplify your team’s impact and catapult growth by asking critical questions about your procurement ROI and tapping into procurement KPIs.
Still, the first step in increasing ROI is boosting user adoption and spend visibility. Download Vroozi’s Procurement Checklist: How to Boost Employee Adoption of Technology and Maximize Value to get more employees to use your digital purchasing system and empower your procurement team.
