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PairSoft • April 7, 2022
Table of Contents
We define the procurement cycle time as the time elapsed from placing creating a requisition to receiving the goods. Decreasing the cycle times associated with procuring materials and services is an effective way to cut procurement costs. Research from the American Productivity & Quality Center’s (APQC) found that top performers in procurement take fewer hours to place a purchase order and wait fewer days to receive materials from suppliers.
Automating the procurement process with suppliers can significantly reduce the time it takes to receive the ordered product. According to APQC’s research, e-commerce/e-procurement software can cut an organization’s cycle time from seven days to two. Not only does this mean you receive products needed for key projects sooner, but it can also help increase procure-to-pay efficiency.
Some ways to reduce procurement cycle time include:
Vendor performance management refers to the monitoring and analyzing of the reliability, quality, and performance of your company’s vendors. Monitoring vendors can help your company boost efficiency and profits, reduce stock levels and inventory costs, and improve (both internal and external) customer satisfaction.
Some vendor performance metrics to monitor are:
Spend under management refers to the percentage of your organization’s total spend that the procurement department manages. It is a common metric of performance and can easily and uniformly be applied to organizations across all industries and sizes. For every dollar that placed under management, the average enterprise sees a benefit of between 6% and 12%.
Targeting areas of unmanaged spending is a key way procurement professionals can deliver value and maximize savings for their organizations. We highlighted five ways to reduce unmanaged spend here.
Cost savings remains a fundamental, pivotal metric to measure the success of the procurement function. In a recent analysis, The Hackett Group found that world-class procurement organizations spend 21% less (up to $6 million in cost savings for the typical large company) and have 29% fewer full-time-equivalents while generating more than double the purchased cost savings of typical procurement organizations.
Cost savings sounds simple enough, but how are companies successfully reducing costs? One direct way is to reduce the cost per purchase order, using techniques including:
This metric doesn’t make everyone’s list, but when used as a proxy to measure compliance with negotiated contracts and pricing it provides valuable insight. When a majority of routine purchases are made through approved vendors through which you have pricing agreements, prices are typically lower, service is generally higher, and errors are less frequent. In addition, by using guided buying catalogs or PunchOut catalogs, organizations decentralize the requisition process, empowering individual users to initiate the process, freeing the procurement department to negotiate even better deals.
It’s only when you begin to measure the performance of your procurement activities that you can begin demonstrating the value the procurement department and its personnel bring to an organization. An easy way to start is by using our Procure-To-Pay Calculator, that will help you determine what procurement is costing you currently, and how you begin to save.