We’ve all had unique challenges over the last 16 months, procurement professionals included. Supply chains across the world broke down as businesses sent employees home. Traditional in-person B2B sales were no longer possible, and the rapid transition to remote work made paper and email-based workflows unreliable.
But procurement departments around the U.S. stepped up to meet the challenge, as did the digital procurement platforms that became indispensable during the pandemic. B2B buyers who had invested in eProcurement integration and automation were better able to adapt to a changing sales landscape; one of the reasons eProcurement-based buying increased by over 15% last year, making eProcurement the fastest-growing digital sales channel.
During transitional periods, it’s more important than ever to monitor and respond to procurement metrics. When everything around you is changing, data is an anchor and a guide. Are your new systems working? Are costs under control? Are data entry and communication errors disrupting supplier relationships? Procurement metrics can help you to answer these questions and more.
What Are Procurement Metrics and Procurement KPIs?
Metrics are measurements. They aggregate data to help us understand what’s going on. Data is messy and confusing, and metrics cut through the noise to highlight meaningful information. A table of everything your company purchased and what it paid over the last year is procurement data. When you take that data and chop it up into monthly average spend or average order values, you’re turning it into helpful procurement metrics.
You can aggregate and summarize data in a thousand ways. But not all are equally useful. It might be interesting to know the average number of paper towels your company ordered on Tuesdays, but it won’t help it achieve its procurement goals. Some metrics are more important than others, and the most important are procurement KPIs—key performance indicators.
Procurement KPIs are the numbers you must pay attention to. When there’s a problem, KPIs are the canary in the coal mine. Procurement KPIs track the health of your procurement strategy and the effectiveness of your systems.
5 Procurement Metrics You Can’t Afford to Ignore
The metrics that matter to your business depend on what it’s trying to achieve. Each company is unique, and KPIs change over time. But there are KPIs every procurement professional should monitor, particularly as procurement strategies evolve and novel systems are adopted.
Contract Compliance Rates
Compliance rates cover a variety of more specific metrics, but they answer the question: are suppliers complying with your business’s procurement policies and agreements?
- Are they delivering products within the contractually specified period?
- What proportion of invoices match agreed-on prices and discounts?
- How many invoices are disputed, and what’s the difference between quoted prices and the price your business pays?
- What proportion of delivered goods are defective or substandard?
Poor contract compliance rates indicate issues with supplier relationships. They may reveal opportunities to reduce costs by renegotiating, improving processes, or moving to a supplier better aligned with your company’s goals.
Cost Per Invoice
Cost per invoice focuses on how much procurement costs the business for each finalized invoice. It includes the cost associated with ordering, processing, and paying, such as labor, overhead, and software systems. Procurement operating expenses should be less than 1% of total spend, and CPI is a helpful way to track whether cost-saving initiatives bear fruit.
For example, a business transitions from manual order processing to integrated eProcurement with PunchOut catalogs, purchase order automation, and electronic invoicing. Automation eliminates expensive manual processing, so CPI should be lower. The cost reduction should continue as more supplier relationships are brought under the management of automated systems.
Spend Under Management
Spend under management is the proportion of spending managed by procurement. In organizations that use eProcurement software, it can be more narrowly defined as spending conducted via the eProcurement system in line with procurement policies. It excludes rogue spending and other unmanaged spending. Unmanaged spending rarely takes advantage of negotiated discounts and other favorable contractual agreements. As such, it inflates procurement costs.
Inaccurate procurement documents—including purchase orders and invoices—inflate operating costs and damage supplier relationships. At best, they cause delays and increase processing costs. At worst, they damage relationships to the point of legal action.
Human error causes most inaccuracy, particularly manual processing and data entry. Organizations that adopt automated PO delivery and eInvoicing experience substantially improved accuracy and reduced costs.
Procurement Cycle Time
Procurement cycle time measures how long the procurement process takes, from ordering to delivery and payment. It’s a helpful indicator of process efficiency, and it has consequences for the health of the business. Shorter cycle times result in greater agility, lower stock levels, and early payment discounts. Procurement cycle time is another example of a procurement KPI that can be beneficially affected by automation—manual processes often introduce unnecessary delays.
We’ve looked at five of the many procurement KPIs businesses should keep a close eye on, but they are among the most consequential. However, gathering the data for metrics and KPIs can be challenging and costly when procurement data and documents are hidden in fragmented systems.
Data transparency is one of the most significant benefits of eProcurement systems that integrate with supplier eCommerce stores. Integration enables features such as PunchOut catalogs, purchase order automation, and eInvoicing, which automatically communicate procurement data and make it available for analysis.
To learn how eProcurement integration and automation can help your business streamline procurement processes and gain insight into the metrics you care about most, complete the form below and an integration specialist will contact you soon.