Efficiency and effectiveness generate procurement ROI
How automated procurement lowers labor costs and drives operational efficiency
by Salim Khalife – Founder, President and CEO
Procurement has always been a vital (if not always overtly recognized) enterprise function—yet in the current urgent climate, an organization’s procurement teams may be finding themselves on the front line. Procurement teams are responsible for keeping their organizations’ operating as smoothly as possible—which may require extra efforts and increased remote access capabilities during this unprecedented time. One proven tool to help finance teams optimize their operations is an automated procurement solution. Automating procurement lowers labor costs and drives operational efficiency, resulting in a generous return on investment (ROI).
A 10-fold payback
2018 analysis by The Hackett Group quantified the performance advantage automated procurement can deliver, including 21% lower labor costs and 29% fewer full-time equivalent staff than other organizations. Overall, these “world-class” procurement groups have a significantly higher ROI—a 10.7 times payback on investment in procurement, compared to a 4.7 time for their peer-group companies.
Procurement teams are achieving this level of ROI both by efficiently standardizing and automating routine tasks which lowers the costs of many activities, and by effectively boosting productivity levels allowing staff to focus on more strategic initiatives.
Reducing requisition costs
Automating the requisition process, from creation through approvals and purchase order creation greatly reduces the manual touchpoints, speeding the cycle and fueling efficiencies and cost savings. In fact, it’s estimated that using a procurement solution to automate requisitions can save 40 to 70% over the costs associated with a manual system.
A client in the hotel and gaming industry, running WorkPlace automated procurement software, has multiple locations, hundreds of requesters, dozens of approvers, multi-level approval processes, and initiates more than 100 requisitions a day. By automating their procurement-related processes with Paramount WorkPlace, the organization is now realizing a savings of more than 40%. The time and cost savings come through automating routine processes, speeding the entry and approval of requisitions, eliminating manual processing errors, and optimizing their inventory holdings through increased visibility and control.
Lowering purchase order processing costs
Organizations with a cloud-based procurement management solution are able to process more than twice as many POs per month across a higher number of suppliers than companies with manual procurement processes and fewer suppliers. In addition, eProcurement solutions significantly decrease the average cost of processing a PO—from $107 for organizations without automation to $32 for those leveraging automation.
One Workplace client, a professional sports franchise, reduced their costs to process a PO by 39%, from $121 to $74. Another WorkPlace user, Urban Land Institute, reduced its own procure-to-pay cycle from a goal of 10 days down to just four days, and reduced its payables staff by one FTE.
Minimizing accounts payable invoice processing costs.
Automating procurement processes extends to automating the tasks associated with creating, approving and paying accounts payable invoices. The potential for savings here is real as well.
Using technologies like OCR and machine learning organizations can eliminate manual touchpoints and improve overall accuracy—both contributors to ROI.
Our professional sports team client, mentioned above, has successfully reduced its own invoice processing costs by more than $100,000 annually. Another client, Peak Resorts, a ski resort owner/operator, is leveraging WorkPlace’s capabilities including three-way invoice matching, mobile approvals, and dynamic approval routing to maximize its own efficiency and effectiveness.
Reducing transactional errors
The Hackett Group report found that organizations applying technology to their procurement processes had two to three times fewer transactional errors—for example, discrepancies in areas like order quantity, quality and pricing.
Fewer errors has real bottom line impact. When multiplied by hundreds, thousands (or hundreds of thousands) of transactions, the cost to correct errors can reach into the millions of dollars.
Stemming unmanaged spend
Estimates of how much business spend is unmanaged vary from just a few percent to as high as 50 percent. Data compiled by The Hackett Group, revealed that managing tail spend can lead to 7.1% savings on average. A 2019 report from Levvel Research found that control over unmanaged spend increased by 39% for midmarket companies who implemented a procurement automation solution.
Procurement automation solutions can help stem unmanaged spending by attacking the problem from multiple angles: making it easier for employees to buy from preferred vendors, uncomplicating the requisition process, provide remote access capabilities and centralizing the purchasing function for increased visibility. In addition, by providing controls and enforcing policies surrounding budgets, procurement automation solutions can further maximize an organization’s control over its spend.
Curious about your own ROI?
If you’re curious about the ROI potential of automating your procurement processes, try our Procure-to-Pay Calculator. It’s a simple, yet powerful tool that instantly analyzes what your current procurement processes cost your organization, and provides a detailed picture of where and how much you can save by implementing a procure-to-pay solution.
Automated procurement solutions are vital tools for organizations in the best of times, but in the new normal of a global virus outbreak, it’s vital for organizations of all sizes and in all industries to embrace the efficiencies and remote access capabilities they provide.
About the author:
Salim Khalife is the founder, president and CEO of Paramount WorkPlace, a technology company that develops, sells, and supports advanced web-based and mobile requisition, procurement, and expense software solutions for mid-market organizations. The company introduced its first cloud-based SaaS requisition application in 1997 and continues to innovate and expand its partnerships and integrations ever since. Learn more at www.paramountworkplace.com.