Procurement leaders know one unshakable truth: numbers are powerful. If you want to inform your decisions, identify opportunities for improvement, and secure buy-in from fellow leaders, you need solid metrics and ROI at your fingertips. That’s where procurement automation can help.
Before mapping out your procurement automation plans, be sure you have the right figures in your hands. In this article, we examine the benefits of measuring ROI and dig into ways to track procurement automation ROI for your company.
Why Measuring Procurement Automation ROI is Important
According to the World Economic Forum, more than 80 percent of company leaders are increasing the speed of their work process automation. But automating isn’t enough for procurement leaders.
To drive procurement forward, you need to prove your digital transformation efforts give you the insights needed to plan the best moves for your company. Here are a few of the biggest reasons you need to measure your team’s procurement automation ROI:
- Stakeholder buy-in: ROI provides tangible results and can help you secure more buy-in from leaders.
- Clearer spend visibility: Metrics and ROI make it easier to identify new opportunities for cost savings, supply chain improvements, and supplier discounts.
- Process improvements: When you track metrics and ROI, it reveals any weak spots in your procure-to-pay processes that you can repair.
How to Measure Procurement Automation ROI
When measuring procurement automation ROI, not every metric will provide the same value to you and your company. Here are some of the golden metrics to track and improve:
Spend Under Management
This is the spend that your procurement and AP teams can control. “Spend under management” is important because the higher it is, the more spend visibility procurement professionals have. And this visibility makes it easier to build supply chain resilience, identify new supplier discounts, spot negotiation openings, and discover other strategic opportunities to help the company.
Savings Totals
“Savings totals” describes the amount your procurement decisions save the company annually. This is an important figure for procurement automation because it shows how much your efforts pay off for the company and secures buy-in from stakeholders.
Competitively Sourced Addressable Spend
This is a subcategory that falls within “spend under management.” It reveals how sourcing initiatives impact spend. When it’s high, there’s a strong chance you’re securing substantial deals and taking advantage of discounts. It’s also an important metric to focus on if you want to use competition to drive down prices.
Contract-Compliant Spend
You work hard to negotiate contracts, and the more your organization taps into those deals, the more you save. That’s why it’s critical to track your company’s contract-compliant spend and work to lift that number.
Average Cost to Process a PO
By lowering your average cost to process a purchase order (PO), you free up cash for other company projects. This metric also allows you to measure your process efficiency. That makes it a valuable ROI metric when you’re showing off your procurement automation improvements to C-suites.
Average Time to Process a PO
You can use this metric to measure your process efficiency. It also reveals how fast your approval processes are running, how quickly your team is able to get an order in your supplier’s hands, and how agile your operation is.
By focusing on improving Average Time to Process a PO, you can also reduce inventories. After all, the faster you can process an order and deliver it to a supplier, the less inventory you’ll need to leave stocked on your shelves or in warehouses.
Average Cycle Time
Cycle times reveal how fast your team moves through the procure-to-pay process. It can uncover the weak spots within your workflows so you can make moves that will increase efficiency.
User Adoption Rate
“User adoption rate” describes the total number of employees using your ERP or digital system to make purchases. The higher adoption rates are, the clearer your spend visibility will be—and the easier it is to identify new strategic opportunities to save money.
How to Use Advanced SpendTechTM to Track ROI
If you’re trying to track ROI manually or piecing together data from multiple systems, tracking ROI will be difficult—if not impossible. However, there is advanced SpendTechTM, or spend management technology, that makes it easy to measure ROI. Here are a few ways advanced SpendTechTM, such as Vroozi, simplifies ROI tracking:
Higher User Adoption
Best-in-class P2P solutions will be intuitive and easy to use. User-friendly platforms make it easy for employees to complete purchases with approved suppliers through a digital marketplace in your system. In turn, user adoption rates naturally rise, spend under management grows, and your spend visibility becomes crystal clear.
Less Manual Input
Advanced P2P solutions can increase your electronically enabled suppliers and reduce the time and money it takes to process and manage POs. That means fewer fingers are hitting the keys, fewer mistakes occur, and you have more accurate spend information to inform your procurement strategy.
More Strategic Firepower
Advanced platforms empower your procurement team in two important ways:
- They cut down task-based work, so procurement leaders have more time to focus on strategy.
- They improve spend data quality and quantity. That means procurement leaders have sound spend data and reports to inform—and evaluate—their strategies.
Calculate and Improve Your Procurement ROI
By measuring ROI, procurement leaders can earn more support, identify growth opportunities, and push their strategies forward. And you can start measuring your company’s potential ROI in a matter of clicks! Use our ROI Calculator now to see how much ROI your organization could realize by adopting a Vroozi solution.
