Guiding Metrics for Procurement Compliance – Part 2
In Part 1 of this blog, I had covered the key metrics that need to be on Procurement’s watch list for better procurement compliance. Access Part 1 here. In Part 2 of this blog, we look at how organizations are faring on these metrics and how they can move the metrics for an improved compliance.
Metric 1: Spend Under Management
According to an Ardent Partners report titled ‘The ROI of a Best-in-Class Procurement Department’, best-in-class organizations have 91% spend under management (SUM) compared to 57% for peers. Having more SUM holds the key to unlocking savings opportunities. For a $100mn of spend, a best-in-class organization will gain a larger spend portfolio ($91mn Vs. $57mn) and with better savings rate achieve higher savings amount.
How to move the metrics on SUM?
- Focus on improving spend visibility, organization agility & collaboration with other functions to engage & drive continued innovation.
Metric 2: Contract Compliance
Contracts are pivotal to the procurement cause: they provide legal security, help establish rules for transactions and most importantly capture the very essence of detailed sourcing and negotiation activities. According to the Ardent Partners, best-in-class organizations have 67% spend on contract compared to 47% for peer groups.
How to move the metric on Contract Compliance?
- Procurement team should look at getting a holistic view of the terms and conditions of the contracts to make sure there is complete transparency while ordering the products or the services.
- It should start by aggregating agreements in a central, searchable repository.
- Flipping contracts into catalogs would enable the requisitioners to find & order the products / services from contracted suppliers.
- Enormous improvement in contract compliance can be achieved by making it easy for the requisitioners to do the right thing and hard for suppliers to do the wrong things.
Download this White Paper, ContractLock – Making every contract count to know more.
Metric 3: Transactional Compliance
In Part 1 of the blog, we discussed the following key areas to track under transactional compliance – PO creation compliance rate, Invoice acceptance rate, First-Pass match rate & On-Time payment rate. Let us consider the benchmarks for each of these.
According to the latest benchmark from The Hackett Group, Best-in-Class organizations have a PO compliance rate of 98%, Invoice acceptance rate of 94%, First-Pass Match rate of 83% & On-time payment rate of 85%. If one were to check for the perfect order rate for best-in-class organizations it stands at 80%. A perfect order is defined as no transaction processing errors across the P2P process cycle (requisition to payment)
To know more access our on-demand webinar – Decoding the Latest Procure to Pay Benchmarks – Know the Secret behind the Leading Procurement Teams.
How to move metrics on transactional compliance?
- Guided buying tools can help end users to identify the source and appropriate buying method for particular products/service
- Incorporate approval workflow allowing the organization to systematically enforce review and oversight in an impersonal but effective way.
- Implement a No PO – No Payment policy organization wide
- Automating matching of requisitions, POs and invoices to enable greater promptness in supplier payments, allowing for more consistent realization of early payment and similar types of discounts.
To know more on how you can improve your metrics on procurement compliance schedule a 1-1 meeting with our subject matter expert by emailing us on firstname.lastname@example.org