15 Procurement Metrics that Save Money
October 22, 2015
Do you know these metrics off the top of your head? Or how to pull them from your system into a regular report? If not, this is your first step on the path to smarter spend management. Far too often we see projects start without a way to baseline and measure success and/or we see projects chosen without the metrics to support the business case. Don’t let yourself fall into this trap.
The metrics below are not specific to only one type of company or line of business. These are metrics that will give you a solid baseline to measure success for almost any procurement project.
A. CYCLE TIMES
Why? You need to know cycle times because this tells you how long your teams are spending to move the process along. The less time spent on a process, the more that can be done other places, especially more strategic places.
Goal: Identify flaws in the process (unnecessary steps, bottlenecks, logic flaws) and eliminate them to get you to your goal faster.
1. Requisition Approval Time (how long to go from a Req to PO?)
2. Invoice Approval Time (how long to get an Invoice ready to pay?)
3. Sourcing Event to Contract Time (how long to start using negotiated prices?)
B. ELECTRONIC VS. PAPER
Why? Electronic processes are designed to automate your rules. Using paper takes more time to process because it increases the manual steps needed.
Goal: Automate as much as you can by moving to electronic processes.
4. Electronic Invoices vs Paper Invoices
5. Electronic POs vs Paper POs
6. Electronic Approvals vs Paper Approvals
7. Electronic Forms vs Paper Forms
C. SUPPLIERS WITH TOP SPEND
Why? Consolidating spend to fewer suppliers saves money. It also helps you strategically target suppliers for your initiatives, like supplier enablement and moving to electronic processes.
Goal: Consolidate your spend and target your top suppliers for new initiatives.
8. How many suppliers account for 80% of your spend?
9. How much spend do your top 10 suppliers account for?
D. MANAGED SPEND AND NEGOTIATED SAVINGS
Why? There are lots of different definitions of “Managed Spend”, but what’s important to know is how much of your spend touches different parts of your procurement process. This is one way to measure the influence you have over your spend to know where you can lower costs.
Goal: Increase the control you have over spend to maximize use of negotiated prices and minimize costs.
10. How much spend is tracked in a Procurement System?
11. How much spend is backed by an approved requisition/PO?
12. How much spend is under preferred / contracted suppliers?
13. How many requisitions are based on negotiated catalog items versus free form requests?
E. PAYMENT TERMS: DISCOUNTS AND LATE FEES
Why? Payment Terms are a point of negotiation with suppliers, so it’s important to make sure you take advantage of these terms to claim your discounts and avoid late fees.
Goal: Increase your discounts and decrease late payment fees
14. How many discounts are captured?
15. How many late fees are paid?
In order to get to where you want to go (and save money), you have to know where you are. Without these metrics, you cannot benchmark where you are today to measure improvement and the effectiveness of your projects and initiatives. You may have seen these metrics before, but now is the time to put them together in regular reports to keep a pulse on them at all times.
The Shelby Group works with many companies on collecting these metrics and creating roadmaps for improvement. Please reach out to email@example.com for more information on how we can help your organization collect these metrics and do something powerful with them right now.
The Shelby Group