Every member of an organization’s C-suite wants to know: How does procurement contribute to overall goals and strategy? To provide the answer, procurement teams must rely on metrics.
The responsibility of proving the results and value procurement brings to leadership falls on the shoulders of Chief Procurement Officers (CPOs). And to demonstrate it, there are four key performance indicators (KPIs) every CPO should track.
Related read >> The Top 5 Benefits of Next-Generation Procure-to-Pay
1. Realized Savings
How much is the procurement team saving on a quarterly, semi-annual, and annual basis? Every CPO should know the answer to this question. Cost savings is a number one priority for procurement departments across all industries.
Today, procurement teams must work to operationalize the contracts they’ve spent months negotiating to avoid savings leakages. According to Gartner, numerous studies suggest that savings leakage for indirect goods and services contracts averages between 40% and 50%.
Next-generation Procure-to-Pay (P2P) solutions streamline the buying process for indirect goods and services to optimize savings and improve contract compliance. With powerful and intelligent Procure-to-Pay (P2P) technology, CPOs have the data to prove the source of savings and ensure requisitioners are buying within procurement-negotiated contracts and terms.
2. User Adoption Rates
User adoption is critical to the success of any procurement department. Today’s buyer wants a P2P user interface that resembles popular eCommerce sites. Next-generation solutions like BuyerQuest offer eCommerce usability wrapped around powerful eProcurement functionality.
Key P2P features that drive user adoption include:
- A single, intelligent storefront
- Flexible workflow designs
- Easy to configure business rules
- Advanced search capabilities
To drill down the success of user adoption rates CPOs can measure KPIs specific to user adoption, including:
- Increase or decrease of active approvers, suppliers, and watchers
- How many locations and departments use the P2P solution
- The number of requisitions placed
3. Procurement Return-on-Investment (ROI)
Proving Procurement ROI on the cost and savings of a P2P solution takes more than quantitative data. CPOs must share data that demonstrates procurement’s alignment and contribution to the organization’s overall strategy.
KPIs directly tied to proving Procurement ROI include improved spend under management, contract compliance, realized savings, and Accounts Payable (AP) efficiency. To track Procurement ROI, the Hackett Group shared a formula in the 2013 Benchmark for World-Class Procurement ROI:
Total Spend Savings / Cost of Procurement = Procurement ROI
Saving money isn’t the only element of procurement ROI. Next-generation solutions also improve efficiencies to better allocate employee talent and time. Tracking the Procurement ROI helps create a compelling argument for investing in the right people, process, and technology.
4. Spend Under Management (SUM)
CPOs must share procurement’s impact on the organization’s bottom line. The most telling success metric to illustrate procurement’s influence on company spending is Spend Under Management (SUM). According to Aberdeen Group studies, SUM breakdowns include:
- 80% or higher SUM for best-in-class companies
- 62% SUM for average performers
- 22% SUM for laggard organizations
Analytics powered by next-generation P2P solutions expose spending inefficiencies and how users could better use the P2P solution to boost the bottom line. With that knowledge, procurement teams can proactively refine the buying experience in real time to drive more savings.
With detailed insights into buying behavior and activity, CPOs can discover:
- The amount of savings realized by contract compliance
- Ways to earn discounts through faster ordering, invoice, and approval processing times
- Spend consolidation opportunities to reduce costs
Why CPOs need the right P2P technology
Every organization has its own KPIs, goals, and strategy. There is no universal checklist. CPOs can use P2P technology to prove and measure the value that procurement brings to the organization.
It takes the right procurement technology to influence overall goals and strategy. Download BuyerQuest’s user adoption playbook for a play-by-play guide to identify a winning solution.