Analyze and track these 8 procurement KPIs to reduce costs and have visibility of the efficacy of your procurement process.
What is the maturity level of your procurement process?
To remain competitive and achieve growth objectives, you need to proactively manage and maximize the value of every dollar your business spends.
While operational costs are routine and essential to running a business effectively, each company’s procurement process for managing these indirect costs will differ, subject to unique business requirements.
Whether you’re carrying out manual or paper-based processes or relying on an automated procurement system, there is potential to further enhance your process to reduce waste, capture more savings, and reach new efficiency heights.
To do that, you first need to gauge where things currently stand in your business.
What’s the maturity level of your procurement process? If you’re unsure how to determine the stage, continue reading for a breakdown of the processes typically carried out at each level.
Level 0: Non-existent
In smaller companies, with relaxed or undefined procedures, the procurement process is essentially “non-existent.” Expenditure occurs as and when items are needed, and all purchasing decisions are made by the CEO or another executive.
There’s no clear visibility of what’s being spent, and with no budgets in place, expenditure can quickly surge, especially as the organization grows.
Level 1: Emerging
Organizations that have moved to Level 1 have a preliminary procurement system in place. In some cases, these systems are paper-based. In other instances, they are manual or email-based and supported by patchwork systems that usually exist in Excel or SharePoint. As a result of this, companies here can gain some oversight of expenditure, albeit cumbersome to extrapolate. In environments like these, human error and inaccuracies are inevitable. With multiple emails and spreadsheets in play and no live data to base decisions on, financial prudence, although intended, is not always achieved.
Spend requests are typically emailed and dealt with retroactively if no authorization takes place. While some team members comply, others circumvent the process when, for example, managers are out of office, or the email chain is blocked or stalled by non-response. With no means of enforcing procurement policies, it’s easy for users to side-step protocols.
At this procurement maturity level, delays and bottlenecks tend to occur, and wasteful or unauthorized spending can become problematic. With no automated procurement system in place, there is little control or visibility into spend and, as a result, tracking spend against budgets is onerous and ineffective. The realization that unmanaged spending is impacting bottom line growth is usually a catalyst for considering an automated procurement system.
Level 2: Evolving
At this level, organizations have moved past inefficient paper and spreadsheet-based systems and have deployed automated procurement systems. Very often these companies have no procurement department, and purchasing is overseen by finance leaders who rely on simplicity in solutions that provide an effective spend management framework for procurement processes and reporting.
With the advent of remote work, for companies in this phase there’s a growing demand to empower teams with accessible cloud-based and mobile-app enabled solutions. Thanks to this technology, many of the purchase requisitioning and expense management processes are digitized, with centralized access to documentation, and multi-level approval workflows that solve complex approval structures with automated routing.
Companies here are focused on further reducing maverick or unauthorized spend—if not eliminating it altogether. They have a keen interest in accelerating the entire requisition-to-purchase order process to become more efficient. At this maturity level, the visibility benefits enabled by an automated procurement system become apparent and business leaders are much more in control of how and why money is leaving the organization, and who is spending it. At this point, however, they haven’t yet focused on spend optimization and getting the best deals.
Level 3: Maturing
Companies at this procurement maturity level are making positive strides towards spend optimization. With visibility across their procurement process, they can easily manage and automate high purchase order volumes, consolidate POs, and qualify for early settlement discounts. They’re saving time by streamlining accounts payable processes and reducing the all too familiar risk of duplicate invoices and overpayment. They’ve integrated ERP or accounting solutions to push and pull relevant information and avoid duplication of efforts.
Priorities such as supplier management, tracking spend against budgets, and policy compliance are managed by the automated procurement system. PunchOut or internal catalogs are set up and utilized to ensure contract compliance and access to business-only pricing.
At this level, organizations are able to optimize their processes and resource outputs, reducing cycle times and the need to increase headcount in procurement or finance departments. This efficiency lowers their processing costs, they become more agile, and their workflows are scalable.
Level 4: Optimizing
High-performing organizations that have optimized their procurement process actively collaborate via procurement tools and leverage spend analytics to inform their procurement strategies.
Even at this level of performance, opportunities to improve and reduce costs exist, and procurement teams are constantly optimizing the way they operate and maximizing every dollar spent.
With automated procurement systems in place to rein in maverick spending, eliminate fraud, and digitize invoicing processing, these organizations can focus their attention on monitoring supplier performance and negotiating better prices with their vendors. Using spend analytics, companies at this level can rationalize their supplier bases and leverage their data to negotiate more favorable terms and pricing. With this newfound purchasing power, they’re able to secure the best pricing and reduce their operating expenses. With deep data insights and spend analytics, these companies can truly implement strategic procurement.
Assess your procurement process
Now that you have an overview of the various procurement maturity levels, can you identify where your business stands? Using this guide, you can start mapping out the next step in leveling up your procurement process to meet the unique requirements of your business. Whether you’re in need of an automated procurement system to simply manage your requisition and approval process, or if you’re at the level that requires ERP or catalog integrations, or perhaps your legacy solution has run its course and no longer adequately supports a team that now operates remotely or on a hybrid model, understanding what you need to solve will assist in guiding you to the right tools or solution for your business requirements.
Consider an automated procurement system like Fraxion. We’re helping small to mid-sized companies worldwide reach their procurement objectives - from Level 1 to Level 4, simple requisitioning and expense reporting requirements to complex cost allocations and budgets, multi-level approval workflows, reporting, analytics, and ERP integrations. Fraxion scales as your business grows and our commitment to innovation ensures that new features and functionality support evolving needs while always staying true to our core purchase requisitioning functionality.
Get in touch with one of our product specialists to assess your current procurement process and discuss your business needs, we’d like to help you reach the next level of procurement efficiency.