The ability to swiftly and accurately obtain necessary materials for any given business, product, or service is essential. This assists in establishing effective and efficient operations within an organization. This ability comes with the implementation of a purchase to pay process allowing businesses to compete at the highest level.
That efficiency should be mirrored throughout the entire entity. This can be achieved through an integrated procurement software that streamlines procedures like paying and accounting for inventory, payroll, and other processes. These processes have largely become automated in regards to best practices and industry standards.
Making the most of procurement software comes with understanding the flow, incorporating systems and procedures, and employing an educated staff. The staff should be empowered to utilize the software, rather than stumble through it.
Beyond merely implementing a procure-to-pay process, companies need to be enabled to track the performance of their P2P process. Tracking will allow the identification of strengths as well as areas to improve upon.
Improving The Purchase to Pay Process with KPIs
KPI stands for Key Performance Indicator – which is essentially a metric used to assign value to elements of a process. This enables the quantification of otherwise undefinable variables. In a purchase to pay system, incorporating KPI’s is integral to understanding, and optimizing the P2P process.
KPI 1: Quality
When it comes to quality there’s really no benefit to lowering standards. A purchase to pay process that improves efficiency but results in low-quality product sourcing adds no real value. In fact, time is wasted and unnecessary spending can increase.
The supplier defect rate is a KPI linked to the quality of products supplied by a vendor. Normally it’s measured in defects per million, and allows companies to be more selective in their partnerships. This is achieved by setting a max-defect-rate that’s acceptable. (The lower the defect rate the more trustworthy a supplier.)
KPI 2: Delivery
There are two important KPI’s related to product delivery. Supplier lead time and purchase order cycle time.
Supplier lead time is a measurement of the average time any given supplier needs to successfully fulfill an order. This is important because the shorter the lead time, the quicker turnaround a company can expect on purchase orders and inventory deliveries. Suppliers with a short lead time make for a more reliable and trustworthy supply chain.
Purchase order cycle time is an internal measurement of the time between requisitions submitted and PO’s placed. Shortening this cycle can allow for streamlined departmental communication and greater internal efficiency.
KPI 3: Savings
Cost of purchase order and cost of invoice are great KPI’s for businesses to target. However, these KPI’s are often dependent on a wide myriad of variables hard to predict between companies.
A much easier and higher-level savings KPI related to P2P software and P2P departments is the procurement ROI. This is a calculation that examines how cost effective a procurement department is in any given year. It’s generally an internal examination, and is calculated by dividing the annual savings by the annual cost of procurement. This metric provides excellent insight into the overall value. Helping businesses further identify strengths and points that need improvement.
Implementing procurement software is a hefty, but worthwhile endeavor. Yet, in order to compete in today’s market, procurement software is essential. As such, understanding how to leverage a P2P process to a company’s benefit is vital to building a competitive edge. Using KPI’s to track and measure a purchase to pay process elevates this competitive edge allowing for continual improvement within a company.
Procurement software and KPI’s by themselves won’t suffice though. Having a trained and enabled staff is a big part of the equation to maximizing the potential offered from procurement software. ProcurePort is here to help; offering comprehensive information across everything procurement.
For more questions regarding procurement software, the flow of the purchase to pay process, contact us and let us know how we can help. Or take a tour of ProcurePort’s unique and powerful procurement software to find out more information.